Until recently, warranty insurance has been the sole preserve of manufacturers and retailers. Buy a car, washing machine, television or PC and, thanks to the manufacturer's warranty, you won't have to worry about having to pay for repairs if it breaks down in the first year or so.

The store or dealer will often encourage you to extend this hassle-free period by a further two to four years. The cost of this extension in cover can then be added to the price of your purchase, so that you can pay it off on easy terms. But these extended warranties are often sold at inflated prices that have little real relationship with the likely failure-rate of the product bought.

Opening up the field

However, the emergence of new products and distribution channels means that all this is about to change. It may appear that the major motor and electrical manufacturers and retailers have so much muscle that they have the warranty field to themselves, but the reality is very different. There are plenty of opportunities for brokers that look for them.

These openings for extended-warranty business are to be found alongside other products, some insurance-based and others not, often in situations where one wouldn't normally expect to find them. They include credit cards, store cards, mortgages and household insurance.

On the surface there may appear to be no obvious opportunity to promote warranty. But delve a little deeper and it is there just waiting to be found.

Take the example of a credit card used to buy an electrical appliance. The card can offer the facility to extend the manufacturer's warranty by the period originally given, or, to put it another way, to “double” the length of the warranty. There are also opportunities to sell to the cardholder annual extensions to this warranty, and even to protect previously bought items where warranties have already expired. Some of the major card providers are offering this form of “product enhancement”, but there are plenty of others that have yet to get the message.

Mortgage and household insurance clients offer another important potential source of warranty business for brokers. The cover can easily be included as part of the package.

Whenever a client buys, say, a new television or washing machine, all it takes is a simple telephone call to register the item with the insurer. The manufacturer's warranty will then be extended in the same way as in the credit card example.

Flexible approach

The cover available isn't just available for extending warranties on new purchases. There are now “multi-appliance” warranties that typically include any brown and white goods specified by the client. This cover can be incorporated, for example, as one of the components of a household insurance policy. The appliances covered can be anything up to five years old, and there is no need for their purchase to have been based on any particular credit or store card.

This development means that warranty is no longer restricted to any single product. Broker and client are able to bypass the established distribution channels of manufacturer and retailer. It is because of this that there is so much potential in this type of scheme.

Other warranty sales opportunities are to be found among those commercial clients that use modern technology-based methods – telesales and the internet – to distribute their products, instead of selling in a shop or store face-to-face. Companies that provide credit and similar ancillary services to facilitate the sale offer brokers yet another avenue for potential warranty business.

Playing the advantage

But what are the advantages for commercial clients and their customers in distributing and buying warranty cover in these innovative ways? The first benefit for the commercial client lies in the ability to add value to almost any good or service it wishes to sell. In the cut-throat marketplace of today, these “product enhancements” can help make all the difference and make the product stand out from the competition. By combining warranty with other forms of insurance cover – payment protection (creditor) or all risks, for instance – brokers can put together a very attractive package.

The second benefit is that the premium pricing can contain a margin for the commercial client as well as for the servicing broker. Each item sold with the warranty attached will generate a contribution towards a business's turnover and bottom-line profit. The greater the volume sold, the greater will be the total contribution.

And the advantages for the end-buyer? There are two of them: price and convenience. Price because the sales process under this new form of distribution is much more efficient than the conventional shop-sold warranty. Convenience because consumers can choose the product on merit and in the comfort of their own home, rather than have to contend with the high-pressure hard sell from a sales assistance in a shop.

Added value

Affinity groups offer brokers another potential market. These include members of trade unions, professions, trade and sporting associations. The main condition is that the numbers have to be large. Again it is about adding value – warranty can be promoted as an important membership perk.

With commercial clients, perhaps the best time to raise the warranty topic is when existing accounts come up for renewal.

The key message is that, by adding real value to the product or service on offer, a business can use a package of cover to increase sales volumes. And a percentage share of the warranty premiums will increase turnover and profitability still further. Such an enticing theme could even help a broker win an existing account from a competitor.

  • Martyn Headdey is warranty underwriter at syndicate 582, Cassidy Davis Insurance Group