The range of corporate structures in the warranty industry means that some providers can operate without an Australian financial services licence and some of them are tarnishing the industry, says The Warranty Group MD Scott Grimshaw.

He says The Warranty Group has been lobbying the Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulation Authority (APRA) because some firms “fall between the cracks”.

And he believes more warranty firms could fail.

His warning comes after United Warranties last week appointed liquidators Grant Thornton. The company’s clients included Myer and Big W.

Several major warranty firms and a number of smaller ones operate in Australia. Mr Grimshaw told insuranceNEWS.com.au that companies operating at the fringe of the industry have a “live for today” attitude and do not reserve for future claims.

He says many reputable providers offer consumers further protection via extended warranty plans, and a number of them, such as The Warranty Group, use an “insurance approach”.

“Not only do we set aside reserves for payment of future claims and hold that money in appropriate investments, we also set aside funds for the future administration of claims over the life of the policies,” he said.

“Prudentially regulated entities pride themselves on their strong reserving, claims payment ability and the support this gives to their retail business partners’ warranty programs.”

Mr Grimshaw says retailers and manufacturers using warranty providers need to do due diligence, looking at the firms’ capital and who is backing them.

Warranty plans can cover surge protection, normal wear and tear, “no lemon” guarantees, laundry and food spoilage costs, unlimited claims, repair time guarantees and full product replacement.

They are widely used for whitegoods, browngoods (computers, stereos, televisions) and in the motor industry.