One interesting issue regarding consumer protection in residential construction throughout Canada revolves around insurance and whether or not warranties provided by manufacturers of construction materials and/or the contractors who install those materials are adequate and appropriate.
In an intriguing development, one roofing company last month announced that it had set up its own ‘captive’ insurance company to cover warranties it issues to its customers.
In a statement on July 27, roofing services company Penfolds Roofing announced the creation of PRI Warranty Corporation, a stand-alone captive insurance company to be managed by Aon Insurance Managers and regulated by FICOM, the insurance and financial services regulator in British Columbia.
As a ‘captive’ insurance company, which means its operations will be limited to servicing Penfolds’ customers only, the new corporation will cover all warranties that are issued and run by parent company Penfolds Roofing Inc. for the entire period of the warranty.
Penfolds says it is the only roofing company thus far in Canada to take this step.
The creation of Penfolds’ captive insurance company raises two intriguing questions: is this a good idea and will we see more of this going forward?
With regard to the first question, the move will provide more certainty to Penfolds’ customers – though perhaps not to the extent the company claims – while benefiting the company itself through the effective outsourcing of a non-core administrative function.
Penfolds Roofing president Ken Mayhew makes big claims about the new move. In contrast to the ‘horror stories’ he says he hears about roofing companies which offer ‘some kind of warranty’ on their labour and pass on the manufacturers ‘limited’ warranty to the consumer, Mayhew says Penfolds’ ‘thorough umbrella’ offers ‘absolute piece of mind.’
This is true, to an extent. As a financial services entity, the new company will be managed by an actual insurance firm and will be subject to the supervisory oversight and regulations of an insurance company, meaning it will have to maintain sufficient capital to meet anticipated future levels of customer claims.
From this point of view, the move will provide customers with more certainty than would be the case if Penfolds simply offered a warranty without having a separate insurance arm to back it up.
Furthermore, from the company’s own point of view, the effective outsourcing of claims management to a specialist insurance firm relieves it of what is, frankly, an administrative headache which is neither part of Penfolds’ core business nor an area of its expertise.
So all in all, this latest development would appear to be positive for both the firm and its customers alike.
With that in mind, it seems logical that such a concept would gain traction, but only among larger firms who have the capacity to meet the capital requirements associated with a financial services business.
As for the question of whether a roofing firm should own an insurance company, the answer is that doing so makes sense, but only if it can afford it.