RAP Blog

Did you know?

When selling an aftermarket warranty plan, reciting every line of coverage offered by your program with customers tends to decrease attachment rates*.   It is much more effective to communicate only coverage that is relevant to a consumer's needs.

For example, offering stain protection to a customer purchasing a fabric sofa is valuable because that coverage helps your customer enjoy her sofa without covering it in plastic.  But, discussing protection dilutes the message.  The best practice is to discuss only those coverages relevant to each customer's needs and stress the benefits offered by those coverages. 

*Attachment rate, sometimes confused with sales contribution rate, is calculated by dividing the number of sales orders including a warranty plan by the total number of sales orders eligible for a plan.  Measuring attachment rates clarifies your opportunity conversion rate.


Why Protection Plan costs vary.

Aftermarket warranty program (a/k/a protection plans) costs vary widely from vendor to vendor, even when the coverage offered are similar.  Reasons are many, but some of the more significant ones include differences in 4-wall expense, systems,  efficiencies, profit objectives, and underwriting cost.

Underwriting cost alone are substantial and can account for 50% or more of program cost differences.  Underwriting costs include such items as loss reserves that are paid upfront into a reserve to cover claim losses, risk premiums charged by underwriters as compensation for insuring risk, excess loss reserves retained by underwriters (a/k/a underwriting profits) and reinsurance related costs.

Certain practices tend to dramatically increase TPA underwriting costs, some of which once in play are difficult to correct.  For example, risk pooling programs sold to dealers producing high claim losses with those generating low claim losses increases total pool losses and accompanying underwriting costs.  

There are certain steps retail dealers can take to avoid paying a premium in the form of higher program costs to TPA, which we will cover in subsequent series.  If you have a question about this blog or any issue you need help with, contact us at [email protected] Call us at 561-45-7200 for more information.