Extended Service Agreements Q&A with Protective’s Bill Koster

In recent months, RVDA has received complaints from several dealers and consumers about payment policies from certain service agreement companies. One service agreement company, Heritage Administrative Services, has had many complaints filed against it with consumer protection agencies in Ohio, as well as in other states.

To get a perspective on what is happening in the service agreement industry, RVDA Vice President for Communications Phil Ingrassia talked to Bill Koster VP RV & Specialty Products, Protective Asset Protection Division in St. Louis. RVDA has exclusively endorsed Protective’s XtraRide program since 1992. Koster currently serves on the RVDA Education Foundation Board of Directors as secretary/treasurer and received RVDA’s Chairman Service award in 2008.

RV Executive Today: One of the reasons that RVDA endorsed Protective in 1992 was that there was some upheaval in the service agreement industry in the late 1980s and early 90s, and the Board of Directors was looking for a stable company that dealers and their customers could depend upon for service agreement protection. Are we seeing a similar period of instability today?

Koster: I believe we are in a similar period. Service agreement companies must defer their administration fees for up to seven years. Those who do not adequately defer must rely on increases in business to offset the deficiency.

When production declines, weaker companies are exposed and are immediately forced to “tighten the screws,” breaking protocol, which often negatively impacts customer service.

RV Executive Today: Do some of the companies that we are hearing complaints about have anything in common?

Koster: It may be unmerited to paint every company with the same brush, but two things appear to be common: (a) net dealer cost rates that are abnormally low relative to the competition and (b) the utilization of risk retention groups (RRGs) opposed to insurance companies.

I am astounded at the number of new companies that endeavor to “buy their way into the market” in an effort to establish market share. It takes at least seven years for a firm to ascertain the knowledge to price a seven year service agreement, yet companies continue to be aggressive by under-pricing their product. The shortfall will ultimately be exposed.

I’ve never been a fan of RRGs in the service agreement industry. RRGs were initially created for product liability insurance and have somehow evolved to address all forms of casualty exposures. RRGs do not have to play by the same filing rules as insurance companies and are exposed to less state regulation. I believe we will start to see some states adopt greater financial responsibility regulations thereby making it virtually impossible for an RRG to operate in those states.

RV Executive Today: Some of the situations RVDA hears about are very emotional for the customer and then the dealer gets dragged into a very unpleasant situation. A customer pays hundreds of dollars for an agreement, has a problem, and either never gets paid… or the claim is rejected. Can you explain how Protective’s XtraRide program can give dealers and customers peace of mind?

Koster: All our service agreements (with the exception of two states) are administrator obligor. The XtraRide service agreement is actually a contract between the retail customer and Protective. Customers are assured, in writing; Protective will stand behind the service agreement regardless of the disposition of the dealer. Owning our administrator is a benefit as well. We don’t have to worry about how a third party administrator (TPA) may handle the claim.

Secondly, we have always taken the position that the customer may have been a victim of some extraordinary circumstances that may have adversely impacted the situation.While our claim adjusters are seasoned professionals and are paid to pay (or deny) the claim according to the service contract, we have paid goodwill claims due to the unusual claim conditions.

RV Executive Today: If a dealer feels that a company is changing their coverage or payment policies without notice, what can, or should, they do about it?

Koster: The first line of defense is the dealer agreement. If the agreement expressly states an obligation, the service agreement company should be held responsible under the agreement’s terms and conditions.

Many dealer agreements now provide for arbitration, a relatively quick and inexpensive way to resolve disputes. Additionally, if the service agreement company has established a precedent in the way claims have been adjudicated, dealers may have a cause of action.

I would urge dealers who believe they have been wronged to act promptly, formally file a complaint, and then immediately locate another service agreement provider. An abrupt adjustment in the claims handling process by the service agreement company is usually a symptom of a larger problem and the service agreement company may not be around long enough, or be financially able, to rectify the situation.