US Fidelis, one of the biggest players in the extended warranty industry, says sales of auto service contracts are down and cancellations are way up, reported the St. Louis Post-Dispatch.
US Fidelis has tried to reassure its customers that its financial woes won't affect the coverage provided to its 300,000 customers. Some consumers, however, might be skeptical. And they might be wondering what happens if the company's problems worsen.
If a contract marketer goes south, coverage should be unaffected. The contract administrator is a separate company, and it's supposed to be stable, secure and built to last. Administrators still fail from time to time, but it's rare. And even then, there's usually a safeguard.
That's because most states require administrators to prove that they can pay out claims. One form of proof is insurance, and most administrators carry a lot of it.
Sometimes, however, administrators and their insurance underwriter both fail — as about 140,000 consumers learned the hard way in 2007, when Ohio administrator Ultimate Warranty went under.
Sometimes, a failing administrator can bring down the marketers that sell their products. That happened in 2003 to Consumer Automotive Consultants — a St. Louis marketer, and a pioneer in the big business of selling of service contracts — after one of its administrators and the administrator's insurer folded.
In a statement released this week, US Fidelis said customers' "vehicle service contracts are not affected by US Fidelis' staffing adjustments."
Those contracts, the company statement said, are underwritten by "high-quality administration companies and top-rated insurance companies we represent."
And, the statement continued, US Fidelis customers "still have the same coverage and the same rights to have vehicle service claims paid."
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