Meramec Secure^®

For a new service contract program, there are three basic structural options: Build, Buy, and Partner (Hybrid). Each path involves different levels of control, risk, capital requirements, and speed to market. This overview provides a high-level framework to evaluate which model best aligns with your strategy, balance sheet, and customer experience objectives.


Building your own in-house program means establishing your own licensed obligor (where required) and taking on both the regulatory and financial responsibilities for issuing service contracts. In this model, you own the program, bear the risk, and retain all economics.

• Filing for a service contract provider/obligor license in states that require one.
• Demonstrating how you will financially back the obligations (insurance policy reserves, or qualifying net worth), where required.
• Drafting, filing, and maintaining terms and conditions in all applicable states.
• Managing ongoing state filings, examinations, and periodic audits in certain jurisdictions.
• Completing ongoing actuarial and financial reviews required by some states.

• For a 50‑state solution, initial licensing and legal costs are typically well into six figures, varying by product type and the number of states requiring a license.
  
• Approximately 30+ states require either:
  • An insurance policy backing the service contracts, or
  • Bonds and cash reserves (commonly 40% of the contract’s retail selling price plus an additional 5% held by the state), or
  • A financial guarantee exemption if the company meets a net worth threshold (often in excess of 100 million dollars), depending on the state.
• Licensing and filings typically take 3–6 months in most states, with some requiring an additional 6–18 months.
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• You bear all underwriting and regulatory risk, but also retain all program profit and control all functions.
• Certain states may provide exemptions or modified requirements, but these vary by jurisdiction and product, so a 50‑state legal review is recommended to identify applicable exemptions.

In a “Buy” arrangement, you purchase a turnkey program at a wholesale cost from a third‑party obligor that assumes claim risk and generally keeps all underwriting profit. You effectively act as a distributor of the product rather than the risk‑bearing program sponsor.

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• The obligor provides pricing (wholesale rate), assumes all claims risk, and typically retains the underwriting margin.
• The OEM/Retailer marks up and resells the service contract to consumers, with relatively simple implementation.
• Because the obligor bears true underwriting risk, pricing is often more conservative, which can translate into higher costs and lower margin to the OEM/Retailer.

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• You may need an administrator license in certain states, depending on who administers claims and how administration is structured.
• The OEM/Retailer and obligor typically collaborate on custom terms and conditions for the specific product set; off‑the‑shelf forms rarely fit perfectly.
• Parties must determine who pays for drafting and filing program terms and conditions in relevant states.
• Obligor partners often require a minimum production term and/or minimum revenue threshold to justify program setup and support.

The Partner (Hybrid) model combines the compliance and infrastructure of a third‑party obligor with your desire to control the product design, consumer journey, and program economics. This structure is very common among well‑known OEMs and national retailers and often represents the best balance of control, risk, and profitability for a program of sufficient scale.

• The OEM/Retailer partners with a third‑party obligor that already holds required licenses, has compliant forms, and maintains the necessary insurance coverage.
• The up‑front cost is generally modest and scales with program size, scope, and state footprint.
• You may pay a one‑time fee to develop and file customized terms and conditions for the obligor, with cost driven by product complexity and the number of states requiring filings.
• In some states, the OEM/Retailer may need an administrator license; a third‑party can usually support this process efficiently.
• The OEM/Retailer provides (or receives support to develop) underwriting and actuarial data to validate rates and required reserves.

• The obligor may require a written term (duration commitment) and a minimum premium or fee level for the program.
• The premium or fee is usually calculated as a percentage of the claims reserve, which itself is determined via a ground‑up build of projected losses and expenses.
• The term “premium” may refer to the claim reserve, the insurance policy fee, or both, depending on the program design.
• A properly structured hybrid program targets low net cost to the OEM/Retailer while enabling the OEM/Retailer to realize underwriting profit as contracts earn out over time. ​

• Strong control over the offer, pricing strategy, and customer experience.
• Retention of a significant share of underwriting profit, with the obligor compensated via transparent fees rather than traditional risk margins.
• Faster, more compliant market entry than a full build, without surrendering all economics as in a pure buy arrangement.

Meramec Secure® supports OEMs and Retailers who want a compliant, capital‑efficient structure that delivers: ​

• A high‑quality, easy‑to‑understand protection program for end consumers.
• Optimized underwriting and fee economics to maximize sustainable profitability.
• A differentiated, brand‑enhancing customer experience across channels and products.

Meramec Secure® helps you clarify objectives, evaluate Build/Buy/Partner trade‑offs, and navigate licensing, filings, actuarial requirements, and insurance structures so you can implement the right program for your business.

​ Contact Meramec Secure® to discuss which model best fits your products, distribution, and financial goals—we have the answers.

Contact Meramec Secure^®, we have the answers.

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