The warranty role as a business strategy

Record date: 02/06/24
Air date: 02/28/24

Offering consumer warranties to protect products consumers use every day — like homes, appliances and electronic devices — can build customers’ confidence in both the product and the company. Warranties can also help drive customer loyalty and business profits. Patrick Heese, Vice President, Business Development Relationship Leader for Zurich North America’s Direct Markets team, discusses how providing warranties can help meet customers’ needs while also providing financial benefits to businesses.

Guest:

David is Editorial Content Manager for Zurich North America, working primarily with the company’s brand journalism site, Future of Risk. In addition to co-hosting the Future of Risk podcast, he works on external communications in support of Zurich’s sustainability efforts, manages media interactions with Zurich spokespeople, and writes articles and thought leadership pieces.

Episode transcript:

DAVID HILGEN: Consumers have a lot of options when it comes to protecting things they purchase. Auto insurance and property insurance can offer a level of protection from a named peril [such as] a fire, a weather event, or a collision to name a few. Warranties can add another layer of security for autos, homes and products within the home, such as appliances or electronics. Zurich North America has been in the warranty business for decades, primarily offering vehicle protection products through dealerships. The insurer recently branched out to offer product protection for items that consumers rely on every day, including homes, appliances and electronic devices.

Welcome to Future of Risk presented by Zurich North America. We explore the changing risk and resilience landscape and share insights on the challenges facing businesses to help you meet tomorrow prepared. I'm David Hilgen and today we're speaking with Patrick Heese, Vice President, Business Development Relationship Leader for Direct Markers at Zurich North America. Patrick, welcome to the podcast.

PATRICK HEESE: Thanks, David.

HILGEN: Patrick, I gave a brief overview of warranties. Can you go a bit deeper then and explain how they work, what they cover and why consumers may need them?

HEESE: Absolutely, thank you for the opportunity. We, as consumers, tend to use the word “warranty” as a blanket term to refer to the promise of protection that a company has made to us on a product. There could be a few different mechanisms for that, such as limited warranties like what you get when you purchase an appliance — it comes with a 12-month limited warranty, free of charge; a service contract, [which is] something that you may purchase to extend or increase the protection that you get with the products — such as cellular phone protection that protects against a cracked screen; contractual liability or personal electronics insurance — those are also different types in this blanket term, “warranty.” Depending on that mechanism, the protection may be included free of charge, or it might be something that you pay for.

Consumers do appreciate these protection products for a variety of reasons, including the reassurance of a product's long-term performance, limiting unknown future expenses, or perhaps even viewing it as a concierge service where you just have one phone number to call and someone finds that qualified professional to come out to your home and fix that refrigerator. Both of those things, limiting of unknown future expenses and finding qualified professionals, those apply to home warranties as well as other products.

HILGEN: Interesting. So, I know I have some warranties on products out at our home. I don't know what they are — that's my wife's job — but I certainly know my cellphone has [a] warranty because I have kids who break their screens all the time. How long has Zurich been offering vehicle protection products through dealerships?

HEESE: [A] long time here in the United States … 42 years. We first started offering them through car dealerships in 1982.

HILGEN: That is a long time. Can you explain how it works? Is Zurich selling directly to the car buyer or are individuals even aware that Zurich is backing the warranty protection?

HEESE: Actually, in the auto dealer space, in the vehicle service contract space, we're one of the largest protection companies in the United States for the auto dealer. We provide everything from the Property and Casualty Insurance for the dealership itself, as well as the service contracts that are sold to the end consumer that's buying a vehicle.

Zurich's vehicle service contracts are predominantly sold by our auto dealership customers when a consumer purchases the vehicle. We provide extensive training to the auto dealer employees on both the processes, as well as what the protection is, so that they can share that with the consumer when they're buying the vehicle as well as the service contract. These actual service contracts, they are on Zurich's paper and they have our logo on the top. I can't really speak to whether the consumer realizes it's the dealership that's selling these and somebody else is providing the protection or if they just all think about it as something the dealership has for them.

HILGEN: Well, I pay attention now. It's been a few years since I bought a new car, but when we're signing all the paperwork after [a purchase], these things can take a while [and] I'm always looking at the fine print, and I've seen the Zurich name the last time we bought a new car. It was reassuring because I work at Zurich.

HEESE: Glad to hear that. That's excellent.

HILGEN: So, it sounds like Zurich is very familiar with the warranty business, but in the past couple of years you have diversified into new markets with new warranty and protection solutions. Can you tell me about this move?

HEESE: Zurich, in both the U.S. and worldwide, has been in the product protection space for quite some time. In 2021, we did formalize a strategy to expand our service contract offerings beyond vehicles. We call this new business unit “Warranty and Protection Solutions” and we provide protection products for items such as cellphones, furniture, your home via home warranty, solar panels, appliances … really just about anything else you can think of. It's a very exciting time.

HILGEN: When you think about home warranties and consumer electronics, you often think about individual consumers, like auto warranties. Zurich isn't really working directly with the consumer in this process, is that correct?

HEESE: That is correct. In this space, our strategy is business to business to consumer. We work with top-tier warranty administrators to ensure a positive customer experience that fits with the Zurich brand.

HILGEN: That makes sense. Tell us about the new warranty product. I understand it is unique in its flexibility. Why is it attractive to your target customer?

HEESE: We developed this product with the end consumer in mind. Really, it's a suite of several new products that are available nationwide. The goal specifically with these home warranties and service contracts was to modernize products that could enable quick speed to market and have a high level of configurability to ensure that the distributors or retailers have a fit-for-purpose product everywhere. That's something that we really haven't seen and we thought the market would respond well to that.

HILGEN: Excellent. So, what are some of the untapped, or rather under-tapped, markets for Zurich's warranty products?

HEESE: We're really looking for businesses that want a true relationship with a warranty provider and those that seek to provide superior products and customer service to consumers. Some of the examples might include a home warranty that we built from the ground up that's built to be customer-centric, as well as designing protection products for affinity and benefits programs.

HILGEN: Would they be available then through your employer then?

HEESE: They could, absolutely. They might be available through your employer or through a credit card [company] or through your bank or lender.

HILGEN: Interesting. A home warranty sounds pretty broad. Are there items within the home that need extra protection that a traditional homeowner's policy won't cover but a warranty would?

HEESE: That's a great question. Typically, that homeowner's policy is going to respond to damage caused by peril, such as wind or fire or a water leak. But where it stops short is it's not actually repairing that leaking faucet, your broken microwave or your furnace that won't provide heat. The home warranty protection is really for all of the appliances in your home: your heating and air conditioning, plumbing and electrical. And we can even go further out and we can provide coverage for all of the electronics in your home: your TVs, your smart devices, your laptop. If any one of those things isn't working as designed, the home warranty will get the consumer back and running again.

HILGEN: Excellent. Why would I need a warranty protection for my home computer or my video game system? Now, I'm asking personally because everyone in my house has a laptop and my daughter has an amazing video game system.

HEESE: Well, there are a few good reasons. Number one: the complexity of these items. They don't really lend themselves to do-it-yourself repairs. Nor are most consumers nowadays [going to do it themselves]; they just don't have the time to perform a repair. Also, having that product protection, it's going to save the consumer the time as well as [in] finding a qualified repair professional and the surprise of a large repair bill.

HILGEN: Patrick, we now understand why consumers may benefit from warranties, but what's the benefit to the businesses who are providing these warranties?

HEESE: David, there are quite a few reasons a business may want to offer warranties. Number one is really keeping your customers happy. If they have an issue with a product that they purchase from you, it's best to take care of that to keep them in your product and brand-loyal, and have a happy customer. Additionally, there are a lot of financial benefits and that financial benefit may present itself in several different ways. One example might be the sale of the service contract itself. They're generally quite lucrative for a retailer or a distributor.

Additionally, just actually giving away free coverage can be beneficial. We've had retailers that will give away an additional piece of limited warranty — say another year of coverage on top of the coverage they received free of charge when they purchase something. The goal of that is, one, to keep the customer happy, but also to keep the customer in that brand and gather their information when they register for that warranty. They give that free when they register their product and then they're [the retailer] able to market to that customer for other purposes.

HILGEN: Well, that makes sense.

HEESE: It's all about smiles and money.

HILGEN: That's good and now that I think about the warranties people are always offering — the extra year of coverage or something like that — it's probably minimal cost to the business that's giving that to the consumer, but it's worth it.

HEESE: Absolutely, and we even have home warranties that, say an appliance manufacturer may sell, which is a little unusual. The appliance manufacturer may sell these home warranties to a consumer that has not only their brand, but multiple other brands in their home. When those other brands fail, they're able to replace them with their brand or market to the consumer and say, “Hey, would you like to upgrade to a more modern one of my appliances? And here's a 20% off code to buy that appliance.” So, people really appreciate it.

HILGEN: Interesting. Where can businesses go to learn more about Zurich's warranty offerings?

HEESE: The best place to go is out to our website. You can learn more about our offerings and contact us at zurichna.com/wps for warranty and protection solutions.

HILGEN: Excellent. Well, Patrick, I want to thank you for joining us today on Future of Risk.

HEESE: My pleasure, David.

HILGEN: Thank also to our listeners. This has been Future of Risk presented by Zurich North America. If you like the show, leave a comment or review wherever you get your favorite podcasts, or drop us a note at media@zurichna.com. We hope you join us for future episodes.