Such extended or paid warranty may under certain conditions qualify as insurance. Companies providing such warranty on a commercial basis must hold authorisation as an insurer from DNB.
What kind of warranty is meant?
The Dutch Civil Code provides for consumers' rights to receive reliable products that under normal use will serve their purpose for a particular period of time. This is known as "statutory warranty" or the "conformity principle" (Section 7:17 of the Dutch Civil Code). Manufacturers may also provide supplementary warranty, which is provided free of charge over and above the statutory warranty.
In some lines of business, manufacturers and retailers offer consumers the opportunity to purchase further warranty over and above the statutory and manufacturer's warranties. This is sometimes referred to as extended warranty or extended manufacturer's warranty, which provides additional paid rights over and above the consumer's statutory rights. Such payments may, however, also be factored into the price of the product or service.
Example - If a computer shop offers the buyer of a laptop computer an additional warranty for the period after the statutory warranty and free manufacturer's warranty have expired, this will usually take the form of an extended or paid warranty. In some cases, such warranty may qualify as insurance.
Whether it does does not depend on the name it is given, as it comes in several types and under a variety of names.
Warranty: insurance or not?
Extended or paid warranty may qualify as insurance under the Dutch Civil Code. This depends on whether the cover of the extended or paid warranty goes beyond that of the statutory warranty and on whether it includes the following four elements of insurance.
- An agreement
- An obligation to pay one or more premium amounts
- A commitment to provide a benefit
- Uncertainty about premium payments or the benefit
If these four criteria apply and the provider of the product or service provides it on a commercial basis and for its own account, the warranty qualifies as insurance and the provider pursues the business of an insurer.
Example - If a bicycle retailer, against one-off or periodic payment, commits to continue repairing defects at no charge or a reduced rate after the manufacturer's five-year warranty expires, and if the retailer is directly liable to keep to its commitment, this constitutes insurance business.
Providing insurance on a commercial basis requires authorisation from DNB, but exemption from the authorisation requirement can be issued subject to specific conditions. DNB's supervision of insurers aims to protect the interests of the insured. If you are unsure whether your warranty qualifies as insurance, please feel free to contact us.
How to prevent extended warranty from qualifying as insurance
In most cases, extended or paid warranty is not offered with the intention to engage in insurance business. Retailers can avoid being designated as insurers by organising their activities such that they do not qualify as insurance, taking care that at least one of the above criteria does not apply. If one of the four criteria does not apply, the warranty does not qualify as insurance under the Dutch Civil Code.
Authorisation requirement under conduct supervision of financial undertakings
Even if you are not required to hold authorisation issued by DNB, you may need authorisation under Part 4 of the Wft on Conduct of Business Supervision. This may be the case, for instance, if you act as an intermediary for insurance services. Please contact the Netherlands Authority for the Financial Markets (AFM) for more information.