Extended Warranty Insurance

Abstract

Extended warranty insurance for consumer durables was introduced into the United Kingdom as recently as 1981. Since then there has been a major expansion of this class of business, much of which has still to reach the later periods of exposure with, as yet, unknown levels of claims experience. Considerable future liabilities could therefore be involved, with implications both for reserving and rate-setting. The business has already caused problems for certain insurers and agencies, and has attracted an amount of adverse publicity amongst the public. Many people would argue that this should be relatively simple business; in point of fact it is surprisingly complex and poses a number of problems of particular interest to actuaries and statisticians. This paper therefore aims to describe the basic features of this type of business, which will probably be unfamiliar to the majority of readers, and to highlight the principal problems and dangers involved for the insurers. It does not set out to solve all these problems. At this stage, as a learned judge has recently suggested, this may be better left to the astrologers!