By Chris Phillips

Industry efforts to improve consumer confidence in aftermarket car warranties, supported by government regulation, seemed to be working after the collapse of Warranty Holdings a decade ago.

But then, in quick succession, came two more failures – Online motor trader Autoquake in 2011, followed a year later by breakdown insurance firm Motorcare Elite. Even cars still under manufacturer warranty were subjected to adverse publicity when Saab went into receivership two years ago.

Autoquake’s collapse after six years of trading was especially damaging because it exposed a hole in funds that were supposed to be ring-fenced. A portion of revenue set aside to cover non-insured warranty claims was seized by administrators, leaving more than 400 claimants potentially out of pocket and generating a stream of grievances on internet motoring forums from other policyholders.

In the event, Car Care Plan (CCP), which managed the claims, agreed to cover the amount in the fund at the time Autoquake went under – about £350,000.

But the episode had another knock-on effect. Autoquake and CCP were subscribers to the Society of Motor Manufacturers and Traders (SMMT) code of practice on warranties and Autoquake’s policy handbook stated that, as part of this code, non-insured claims were protected.

Holly McAllister, head of customer service and quality at Motor Codes

It prompted the society’s Motor Codes subsidiary to withdraw the code and replace it with another, introduced last June. It joins other codes covering new car sales and repair as part of the industry’s initiative for self-regulation and embraces both non-insured products and those subject to Financial Conduct Authority (FCA) regulation.

However, instead of the original assurance of protection for non-insured cover, the revised code states: “Should the retailer of a non-insured product cease to trade, it is possible that the product will no longer be valid.”

But, in an attempt to bolster credibility, it also says subscribers “will take reasonable steps”, supported by a yearly review, to ensure that its retail partners are credit-worthy. These amendments will also be featured in updated policy documents.

Holly McAllister, head of customer service and quality at Motor Codes, said: “A number of avenues were explored, but it was not feasible for a warranty administrator to fund claims indefinitely as Car Care Plan had done in the case of Autoquake.

“It (CCP) would only have received a small fee from the warranty sale to administer it, but the main portion of fees would have been going to Autoquake and as a legal loophole left the ‘protected’ funds in the hands of the administrators, this, too, was clearly no longer a viable option.”