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AA warning over non-insured warranty risk

The growing trend for dealers to adopt their own non-insured warranty schemes could prove disastrous if a group collapses without making sufficient provisions to honour the warranty.

The AA warns that, while the growth in non-insured warranties is a logical progression for larger dealer groups, it is filtering down to smaller businesses that may not adequately assess product liability. Phil Lobley, of AA Business Services, believes it is “a matter of time” before a dealer fails to honour the warranty. “Such a scenario can happen if a dealer without an insured product goes into receivership, leaving customers with little more than worthless pieces of paper,” he said. Dealers are attracted by the profit potential from selling their own warranty schemes – they do not have to pay insurance premium tax, only the 17.5% VAT – and they can remove the middleman. Mr Lobley said: “Establishing separate bank accounts for warranties and conservative liability projections are two simple steps that dealers should take if they are introducing non-insured schemes.”

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