• Equiguard's Edge Extended Service Agreements Build Distributors' Bottom Lines

    Aug. 1, 2006
    Equiguard does not make a single HVACR part, component or piece of equipment, but the company is a valuable business partner for HVACR distributors and

    Equiguard does not make a single HVACR part, component or piece of equipment, but the company is a valuable business partner for HVACR distributors and others throughout the supply chain. It is the largest underwriter of fully insured extended service contracts in the industry. Equiguard's extended warranties for HVACR equipment provide distributors with peace of mind for their customers as well as the additional revenue stream that comes from such agreements.

    Based in the Chicago suburb of Oak Brook, Equiguard started in the service contract business with HVACR distributors in the late eighties. The company is now affiliated with 650 distributors (not including the branches) and more than 25,000 contractors. Buoyed by the success with distributors and their customers, Equiguard soon found niches in other HVACR channels. Today, Equiguard provides the extended warranties for major OEMs as well as refrigeration equipment for national retailers, chain restaurants, and the commercial food service industry.

    Equiguard began its work in the extended warranty business in 1989. “We saw the opportunity to put together a program that really fit the needs in our industry,” says Craig Funke, CEO of Equiguard. “There were some companies trying to get into the business, but they were coming from the consumer and appliance sides. We thought that we could put together a better program that really focused on the HVACR side of the business.” The company has stuck to its roots. “That's our core business. We understand it,” Funke adds. Equiguard clients are pleasantly surprised when they do business with the company and find that Equiguard's people know the ins and outs of the industry.

    Funke says Equiguard has more than one million HVACR units under coverage. And it's not just one-size-fits-all warranties. Equiguard offers more than 30,000 coverage options and custom designs a warranty to fit a client's needs. Because extended warranties are Equiguard's sole business, it has the expertise to create unique coverage options. The company also stresses its ability to back up a warranty. Equiguard utilizes two A.M. Best A-rated insurance companies, AIG and Assurant, to manage the risks.

    The players in each distribution channel find Equiguard so valuable for different reasons. For distributors, extended service warranties help their bottom lines, which manufacturers are squeezing on one end and their customers on the other. “They're a really good financial transaction for the distributor,” Funke says. “He's generating profit margin on equipment sales, he's got additional margin coming his way, and he's helping his contractor customers.” Whether it's at the counter or on the telephone, all a salesperson has to do is ask the customer if he'd like the 5- or 10-year warranty. There's no investment other than the time it takes to present it,” Funke says.

    Funke is proud of Equiguard's record when it comes to paying on a claim. Not only are claims paid within 30 days (historical average 14 days), they're paid at the agreed-upon amount. The customer is happy that there was no hassle, and the distributor is happy that he has satisfied the customer. It's a good investment all around. And the extended warranty helps keep the contractor connected with the customer. “That customer will never call anyone else but him,” Funke says. “Locking in a customer is key.”

    Equiguard recently made “substantial investments” in creating a Web-based portal solution that allows for real-time transactions. That means warranty registration occurs in real time — as soon as a dealer sells one. Distributors and contractors can also utilize Equiguard's portal when they sell extended warranties. While the warranty may appear to be coming from the contractor or the distributor, Equiguard actually generates it. “It's all done behind the scenes,” Funke says. It is a total Web-based operation.

    Overall, HVACR distributors and dealers don't do a good enough job at selling extended warranties to their customers, Funke says. In fact, they are far behind other retailers at offering extended warranty coverage. “The sad thing in our industry is that 50 percent to 60 percent of consumers will buy an extended service contract on a bigger item — whether it's a car or a television,” he says. A Nov. 10, 2005, article in Business Week reported that extended warranties are the “real earning engines” at the electronic retail giants Best Buy and Circuit City. Fiscal analysts quoted in the Business Week article said warranty sales account for more than one-third of Best Buy's operating profit and all of Circuit City's.

    Meanwhile, extended warranties cover only about 12 percent of HVACR parts and equipment. “Our industry is slow, although improving, to get on the consumer bandwagon of peace of mind and fixed-cost solutions,” Funke says.

    Equiguard unveiled their new program in May which they designed to increase that rate of extended service agreements. Called WarrantyEase, they tailored the program to relieve wholesale distributors of the duplicate time, inventory and costs associated with all of the new and varied OEM warranties on HVACR equipment. The idea for WarrantyEase came about with the new 13 SEER regulations, which all but eliminated the concept of selling “good, better and best” options in many markets. But Funke maintains that there is still a place for differentiation by offering “good, better and best” on the same 13 SEER models, but with different warranty options.

    With WarrantyEase, Equiguard upgrades the standard OEM warranty. For example, a five-year OEM parts warranty can be increased to 10 years without additional equipment SKUs or inventory for the distributors to carry. “At the point of sale, you can take that product and upgrade it with a stroke of a key,” Funke says. “The only change is a warranty. It's a very dynamic program, and it's been extremely well-received.” The program is paperless between the distributor and Equiguard, with all of the applications completed via data files. This streamlines the process flow and eliminates time-consuming paper trails. The contractors view the equipment as a seamless 10-year warranty. “It's an exciting program to help wholesalers be more productive and help their contractors be more profitable without having to carry additional boxes and SKUs,” Funke says. “And they're meeting the demand for differentiation.”

    Equiguard recognizes that distributors and dealers may not regard extended service agreements as top of mind when they make a sale. That's why Equiguard's $mart Money program is designed to increase the distributor's record on extended warranties. This program requires little effort on the part of dealers. With dealers supplying the end-user's information, Equiguard will follow up and attempt to sell a labor or parts extended service agreement. Dealers receive a 15 percent commission on the system or unit with the extended warranty, and they continue to be the servicer of record for the length of the agreement. To encourage the dealer, Equiguard also pays a finder's fee for every qualified residential lead faxed to Equiguard by the dealer.

    Equiguard's sales representatives work directly with distributors to build programs that will best meet their needs. Sales representatives hold counter days to explain or review programs, and Equiguard also makes customizable sales literature available to its distributors and dealers. “We have a lot of commitment to distribution,” Funke says. “We've got a dynamic group of sales reps, and they have a whole arsenal of products for the distributor.” There are about 170 sales representatives servicing the various business channels who work with distributors and dealers throughout the United States and Canada, and they continue to build Equiguard's business with distributors.

    For OEMs, the key driver in working with a company like Equiguard is aversion to risk and complying with the federal Sarbanes-Oxley Act of 2002, which created stringent new rules to financial practice and corporate governance regulation. Putting the liabilities of 5- and 10-year warranties on the corporate accounting books often creates too much risk for the companies, especially under the new corporate governance changes. “We deal with a lot of the accounting firms of the major publicly traded corporations, and they would prefer that their clients not take those risks,” Funke said. “The Sarbanes-Oxley Act is a key driver to our business.” Equiguard provides risk and administration products and programs to many of the major OEMs, including Honeywell, Maytag, Armstrong, ICP, Lennox Commercial and Heatcraft Refrigeration Products.

    Did you know that extended warranties are a highly regulated product? Because extended warranty and service agreement products are Equiguard's sole business, making sure they meet the regulation of every state and province in the United States and Canada is important. “We are very diligent about being fully compliant in every market,” Funke said. Each state may have slightly different rules that govern extended warranty agreements, and Equiguard prides itself on knowing them all in order to protect their clients and its own reputation. And some of the regulations are very strict. Nevada, for example, requires that a person holding an extended warranty on an air conditioner be serviced within 24 hours or they must be put up in a hotel at the company's expense.

    One of Equiguard's frustrations is seeing contractors who would rather self-insure their extended warranties. They rarely put away enough money to cover the costs of these warranties, and in the end, it comes back to hurt them. Funke recalls a recent conversation with a major accounting firm that had a client that incurred significant devaluation because it had so many 5- and 10-year warranties on its books. These turned out to be significant liabilities for the company. Funke points out that even the largest retail operations don't self-insure their own warranties because of the risk. As one manufacturer told Funke: “I could put enough resources in to do this, but at the end of the day, you outsource the things that you're not good at.”

    To that end, Equiguard also has a program for ICP contractors called the Homeowner Extended Labor Protection program, or HELP. Funke says contractors may be leery about asking customers about purchasing an extended warranty, so Equiguard will do it for them. Equiguard's marketing and sales team will send a personalized letter to a contractor's customers and follow up with a phone call offering a 5- or 10-year extended warranty. For his efforts, the contractor gets a $2 referral bonus for each completed job he faxes to Equiguard.

    Funke believes that extended service agreements hold even greater rewards for the HVACR industry. He's been in the business for 25 years, and he's still excited about the possibilities that exist for HVACR distributors to sell higher-end equipment and make the most out of extended service warranties. “I love our business and what it can do for our industry,” he says. “But what fuels my fire is the feedback I'm getting from the field on our new products like WarrantyEase,” he says. “It's a new beginning with 13 SEER, and it's fun to be a part of it.”

    Michael Maynard is a business writer in Providence, RI, who writes on issues related to HVAC, construction and architecture. Contact him at [email protected].

    Equiguard Inc. at a GlanceCEO Craig Funke President John Castronovo Vice President Operations Peter Dikeos Vice President Sales Jeff Evans Headquarters 800 Jorie Blvd., Oak Brook, IL 60523 Operations (ESAs) industry Risk management, extended service agreements and warranty administration for the HVACR Employees 75 Breakdown of Sales & Business Extended service agreements to HVACR distributors and contractors — 50 percent. OEM and private label program — 35 percent. Food service and end-user service solutions programs — 15 percent. Major Product Lines N/A Annual Sales N/A Website www.equiguard.com


    Definition: Fixed-cost solutions for end-users of HVACR equipment through partnering with a recognized and proven resource of fully insured extended warranties and service agreements.

    Significance: Consumers and business owners seek solutions for managing the unexpected.

    Benefits: Enables OEMs, distributors and contractors to add value and differentiation to their products and services at the point of purchase. Benefits include greater profitability and higher customer satisfaction.

    Procedure: Equiguard is a true business process outsource. Our technology infrastructure offers efficient data processing and communications through the supply chain. CRM, marketing support and highly trained sales representatives assist clients in achieving superior results.

    People Involved: Business owners, risk managers, specifying engineers, distribution sales and management.

    Contact: Visit www.equiguard.com or call 800/886-9363.