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Looking past the horrors of Sept. 11, which brushed the industry in a personal way, extended service plan executives say they will be able to survive, if not thrive, amid the fallout from the terrorist attacks.
Indeed, while expressing concern for companies touched by the events, including Aon Warranty Group and American International Group (AIG), industry players say the catastrophes and their aftermath could actually boost demand for extended service contracts.
The tragedy was personal for Chicago-based Aon, whose parent company lost some 200 employees in Two World Trade Center. Calls to Aon were not returned.
And while AIG's lower-Manhattan headquarters was spared any structural damage, the firm will likely take the biggest financial hit of all insurers by shouldering as much as 4 percent of all resulting life and property claims.
Nonetheless, AIG Warranty VP Matt Frankel said both his company and his division remain sound. "There's no issue whatsoever with AIG's ability to pay claims," he said, citing chairman M. R. Greenberg's recent statement that the Sept. 11 losses "will not impact the solid financial condition of AIG, the strongest insurance and financial services company in world."
At the same time, and despite the disaster, "We are still doing a good amount of business in extended service contracts," Frankel noted, which he attributed to a number of factors, not the least of which is the return of retail traffic.
"Retailers, particularly discounters, are holding their own," he observed. "There was a dip [after September 11th], but it's coming back." And consumers' inclination, he believes, is to buy products "that would keep them at home where they're safe, like big-screen TVs and high-end sound systems."
What's more, thinner in-store crowds may actually be a plus for extended warranty sales, Frankel added, in that they allow sales associates to spend more time with shoppers — and ostensibly attach service plans to CE purchases.
Ron Glime, president of Warrentech Corp., concurred. "Business took an immediate downturn after Sept. 11, but foot traffic has returned to stores and I expect that we'll see the CE business return to normal in the next few weeks," he said. In the meantime, retail accounts including Florida's BrandsMart USA are placing heavier emphasis on sales of extended warranties to help see them through the rough patches. And continued demand for service contracts led to last month's signing of DBL Distributing, which sells CE and accessories to independent dealers in the U.S. and Canada.
Glime added that Warrentech is well poised to weather any economic hurdles given its diversification within the CE, automotive and home industries, a point that was brought home during its Sept. 25 annual meeting in New York. Moreover, its insurer, the $7 billion Great American Insurance Co., was exposed to less than $20 million in claims stemming from the Sept. 11 attacks, Glime said.
Similarly, Assurant Group Consumer Services (formerly Federal Warranty Service) feels insulated from any downtrend in consumer electronics sales "because we have been building market share this year, adding new clients and accounts," a spokesman said. He added, "Any direct losses from the terrorist attack will have negligible impact on the company, " as the hit to its European-based parent Fortis will be less than $22 million.
The extended service plan industry also has history on its side. As Fred Schaufeld, CEO of NEW Customer Service Companies noted, "Consumer durables have already been impacted; historically, this has resulted in increased service plan attachment rates."
Even last month's 16-point drop in the Conference Board's Consumer Confidence Index — representing the biggest one-month decline since October 1990 — bodes well for the warranty business. "Consumers are cautious right now, and it has affected every major trade industry, from travel to retail to financial services," he acknowledged. "But these higher levels of caution lead consumers who do purchase durable products to plan on keeping them for longer periods, resulting in increased extended warranty attachment rates."
Schaufeld added: "While the ESP (extended service plan) industry can't put initial foot traffic in stores, we can extend the value of each transaction while assuring that consumers will receive the highest levels of service on and satisfaction from the products they do purchase."
Nevertheless, not all plan providers will weather the storm, he warned. "Some of the nation's insurance organizations have suffered deep personal losses in addition to the financial casualties. And our hearts go out to them.
"From NEW's perspective," Schaufeld continued, "the top-rated mega insurers who we've chosen to associate with over the years are fine. We believe, however, that some of the players who were marginal before this crisis — both in the U.S. and overseas — will face serious difficulty."
Not so for VAC Service Corp. While president Jim Tucker declined to speak about the tragedy, having lost friends in the disaster, a company spokesman noted that "VAC has always striven to ensure that insurance policies are iron clad. Anyone who purchases a VAC plan is fully protected from default — of either VAC or the insurance company — because monies are set aside in reserve."
Meanwhile, although the country's economic outlook remains clouded, that very uncertainty will tend to buoy the warranty business, the spokesman said. "Everyone is trying to determine the ramifications for business across the board. This is an unprecedented situation, and we have to see how it plays out. But in terms of the extended service business, the events of Sept. 11 have raised consumer awareness about insurance — the need for it, the need to protect themselves and to protect property."
Perhaps the most bullish sentiment was voiced by GE Warranty Management president Chris Smith, who reported business as usual on the retail and warranty fronts. "If anything, based on past experience, people become more risk averse during recessions, and we've seen strength during tough economic times.
"But we haven't seen any change in business one way or the other," he concluded. "Retail sales seem to be trending to where they were at this time last year, and if trends stay where they are, there won't be any impact on the fourth quarter."
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.