Insurance Code Provision Creates Revenue Opportunity for Service Businesses

A little known provision in the Ohio insurance code lights a path to an overlooked revenue opportunity for Ohio businesses that provide services to their customers for a fee.

Ohio Revised Code Section 3905.424 (a part of Ohio’s Insurance Producer’s Licensing Act) addresses customer fee waivers that may be sold by service companies.  The statute declares that such waivers are, “not insurance and the laws of this state relating to insurance shall not govern the sale or issuance of such a waiver.”  In other words, a service company may sell a waiver without having to be licensed to sell insurance and without having the waiver, and the fee charged for it, approved by the state.

Under the statute, waivers are defined as agreements, “…between a service provider and the service provider’s customer under which the service provider agrees, in return for a specified charge payable by the customer to the service provider, to waive all or a portion of the customer’s financial obligation to the service provider for charges incurred during a defined period and upon the occurrence of a qualifying event.”  The term “service provider” is defined as, “…any public or private provider of services, including, but not limited to…” utility companies, cable companies, and other communications companies as further defined in the statute.  This broad, non-exclusive definition opens the door to the sale of waivers by a wide variety of companies including:

  • as mentioned in the statute, utility companies (i.e. electricity, gas, water, wastewater, solid waste collection, or similar utilities), cable and other communications companies; and
  • any other business that charges customers for services provided under a long-term or extended term contract, such as services under:
    • computer service or IT agreements;
    • accounting, payroll, or other financial services contracts;
    • other business outsourcing agreements (such as agreements providing for back-office services, call center services, or other administrative services);
    • extended service maintenance agreements;
    • heating and cooling system maintenance agreements;
    • cleaning, landscaping, and other building maintenance agreements; or
    • yard service or other extended home service agreements.

The statute goes on to state that waivers may be sold as separate contracts or as part of a “larger agreement“, such as the main service contract between the service provider and the customer.

While technically not insurance, waivers act as insurance in the sense that they are triggered by certain losses or occurrences, described under the statute as “qualifying events”.  Under the statute, “a ‘qualifying event’ may include the customer’s call to active military service, involuntary
unemployment, death, disability, hospitalization, marriage, divorce, evacuation, displacement due to a natural disaster or other cause, qualification for family leave, or similar occurrence
“.  In order to avoid triggering an unintentionally large volume of waiver claims, service companies offering waivers should be particularly careful and specific when defining “qualifying events”.  For example, with respect to hospitalization, how long must the customer be hospitalized before a waiver will be provided? 24 hours? 48 hours? Similarly, for waivers triggered by disability, is there a waiting period (such as under disability insurance) before a waiver is provided? If so, how long is the waiting period? 15 days? 30 days? What about injuries incurred intentionally or while committing a crime?  Are those covered by the waiver?  Companies selling, or planning to sell, customer fee waivers would be wise to have them drafted by an attorney experienced with creating insurance and warranty products.

In sum, services companies in Ohio have the opportunity to earn additional revenue through the sale of customer fee waivers.  Utilities, communications companies, and other companies providing services to their customers for a charge can benefit through the sale of waivers without subjecting themselves to laws and rules applicable to insurance companies or producers.  A thorough and professionally drafted waiver contract is necessary, however, to help ensure the profitability of such products.

The Lawson Firm, LLC has decades of experience drafting insurance and related products, such as service contract guarantees, contract waivers, warranties, and similar products.  We work with clients to help them create and implement products that minimize exposure to unintended claims consequences and help ensure profitability. If you would like to speak with an attorney about your company’s service contract guarantee or customer fee waiver program, please feel free to contact us.♦  

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