Warranty woes a worry

Warranty woes a worry

What chance do resellers have of judging the reliability of PC suppliers and their equipment when one of the world's largest warranty underwriters can't get it right?

American International Group (AIG) admits its experiences in this arena have been painful.

"Our loss ratio is well over 100 per cent for the three and a half years we've been operating in Australia," says AIG Asia-Pacific vice president Chris Ford.

That is, AIG spent more on claims than it collected in premiums on the Australian warranties it underwrote.

It is a remarkable admission for a company that claims to be the largest underwriter of extended warranties in the world. It is also a sad commentary on the instability of the PC assembly and manufacturing sector.

By underwriting PC warranties, insurers like AIG guarantee an end user's warranty will be honoured even if their PC manufacturer or assembler goes broke.

Every time a supplier like Brashs or Osborne fails without the safety net of underwritten warranties, AIG finds the surviving members of the club more willing to listen to its sales pitch.

However, the failure last year of one national warranty company left many smaller manufacturers convinced they were better off funding their own extended warranty programs through financial vehicles such as trust funds.

"Since Australia Wide Warranty went down, everybody is hesitant," said Corey Tai, managing director of PC distibutor and wholesaler IT'n PC.

He finds insurance-backed warranties "too expensive, with high administrative overheads". He intends to move IT'n PC to the trust fund model next year.

Past failures have shown such options can be open to abuse with customers and resellers likely to be left holding the bag. Trust funds also raise issues concerning tax and contingent liabilities for manufacturers. AIG's Ford believes small assembly or manufacturing operations will eventually come under legislative pressure to insure extended warranty programs.

"In the US, if a small company wants to write an extended warranty, beyond one year, they are required by legislation or otherwise to set up adequacy of capital or insure their program. We believe Australia will follow that path."

The warranty situation is slowly improving, according to Ford. "The fly-by-night companies are flushing themselves out and the survivors are better quality companies."

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