(Long post - looking for feedback and details where you think my facts may be off...hope info is of help to others going through same process...tx)
I want to share my experiences in buying an extended auto warranty for my 2002 Boxster. It was an interesting but confusing process that I think stands to be explained a bit for others who want to go down the same road.
Without trying to re-create all the great content on the web about extended warranties, I'll share a few key concepts:
An extended warranty is a service contract, not a warranty
The
broker sells a warranty product to the consumer
The product is a service contract that is administered by a
service provider.
The service provider aka
Administrator is the company you're who handles claims you make when your car breaks, pays the repair shop, etc.
Service providers often retain one or more
insurance providers to guarantee the service provider can continue to pay valid claims made by consumers.
Think of it as an upside down pyramid...
At the top of the pyramid there's many brokers who want to sell consumers a service contract - charchex, warranty direct, AAA auto club, etc. These are the websites, ads etc, you see on the Internet and TV.
The brokers are able to sell the consumer service contracts that come from a smaller pool of service providers - Interstate, Fidelity, EasyCare, etc.
The service providers in turn pay an even smaller pool of insurance providers to insure the service contracts - Lyndon's, Direct Assurance Group, etc.
My experience in buying a warranty:
I had framed my criteria for what I needed in a warranty. It had to include "wear & tear" which means the part doesn't need to fail, just be outside of manufacturer's spec. Also it needed to include a few key components that are known problem areas for my particular car.
After reaching out to 6 or so brokers I had shortlisted three had narrowed down my search to 3 brokers: AA Auto Protection, AAA, and Warranty Direct.
AAA had an excellent exclusionary contract from Western General that was insured by Lyndon. It was damn expensive - over $5,000, or 33% of what I paid for my car. Didn't make sense to me.
AA Auto Protection steered me towards a contract from National Administrative that was insured by Gener al Fidelity. The price was good at $2,600, but my due diligence via BBB and AM Best raised concerns. National Administrative is woven into a family of warranty companies, one of which that went into the ditch, taking with it many unhappy clients. General Fidelity is now owned by Bank of America which sounds good, but AM Best (an analyst of insurance providers) gave them a Negative outlook. So, AA Auto Protection's proposal was well priced, yet risky.
Warranty Direct offered a good inclusionary contract from Interstate that was insured by Dealers Assurance Company. The due diligence I ran on the service provider and insurer was favorable. The problem again was cost - just $400 less than what AAA was trying to sell me. Warranty Direct, is in reality Interstate's consumer sales channel, their whole value proposition being "Buy Direct and Save". Sounds good right?
Faced with the choice to over spend on a warranty or assume the risks I uncovered with National Administrative and General Fidelity, I had to make a choice and not getting a warranty was an option for me.
Asking Questions Pays around $1,600 per hour
AA Auto Protection website had a list of products from multiple service providers including Interstate. I called back the sales guy at AA Auto Protection and asked for quotes on other products. He gave me a few other quotes. When pressed on why he suggested the National Administrative product vs. Interstate, I didn't feel he provided a compelling reason as to why one was better than the other for me as the consumer. My guess is he made better margins on the one he offered me initially. I told him I'd review the Interstate contact he provided, and I'd be back in touch.
At first glance the two Interstate contracts from Warranty Direct Contract and AA Auto Protection looked nearly identical. I didn't want to miss an important detail so I copied & pasted each contract into a website that highlights differences between two blocks of text.
It became apparent that the AA Auto Protection version was basically a modernized version of what Warranty Direct provided, right down to the "rev 12/2009" vs "rev 03/2009" in the document footer . For example, the newer version spoke to "Internet Systems", and some ambiguous terms were revised. In a few cases it offered better terms for the consumer, and in others it left a few gray areas.
So an hour of cut & paste confirmed that I could save $1,600 by going through AA Auto Protection. Why Interstate doesn't sell their own service contracts cheaper via its direct sales channel (Warranty Direct) is unclear. They probably want to avoid upsetting their brokers which would hurt their sales volume. However being $1,600 overpriced was not even remotely competitive.
Outcome
I bought the Interstate contract via AA Auto Protection. At $3,100, this contract was still not cheap, but at around $1K a year for peace of mind on a 9 year-old Porsche, it seemed like a fair deal.
There are a few ambiguous areas that I need to close the loop on before the contract takes effect (you need to drive the car for 1 month/1,000 miles before you can make a claim)
1. Payment method. The older contract said that Interstate pays the repair facility with a credit card. The new contract does not. The broker confirmed they do still use a credit card. Intestate's website says they may pay via check in 3-5 business days or they may use a credit card. I'd like to get this in the contract if possible.
2. Rate & labor hours per repair. Neither contract says what hourly rate Interstate will pay the repair facility. Porsche charges $125 per hour. Neither contract specifies how many hours are deemed appropriate for a repair - is it the Porsche "book rate" that the manufacturer of the car specifies, or is it something else?
3. Authorized repair facilities. The contract states that I must use an "approved repair facility" but there is no list of approved facilities is included in the contract or as an exhibit. Interstate's website says that I can go to the dealer, a preferred repair shop e.g. Pep Boys (I don't think so!) or any licensed repair facility.
Closing Suggestions
1. Use a "junk" email address. I found the brokers to be very aggressive in calling and emailing, literally daily by some brokers for over a month.
2. Educate yourself on the auto warranty process. Go to google and do a search.
3. Get familiar with using the BBB and AM Best websites. Again look them up via Google.
4. Don't be afraid to ask questions and do not let the sales person push you around.
5. Be respectful of the sales people and explain to them what you're trying to do and your timing.
6. Read everything at least twice, three times would be better.
Extended Auto Warranty Experience (Long Post)
Linear Mode
