Service Contract Provider Bond - Statewide in Arkansas
Table of Contents
Brief Summary
The bond amount is not fixed. Arkansas sets it at 5% of gross consideration received, less claims paid, on all service contracts in force, with a $25,000 floor, so a growing book means a growing bond. A surety bond is one of four ways to meet the Insurance Department's financial requirement and usually the lightest on cash for a provider without a reimbursement insurance policy.
Arkansas service contract providers must register with the Arkansas Insurance Department and meet one of the financial requirements in Ark. Code 4-114-104(d). One option is a surety bond payable to the Commissioner of Insurance of at least 5% of gross consideration received less claims paid on all contracts in force, and never less than $25,000.
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How to Apply for a Service Contract Provider Bond:
- Total the gross consideration received, less claims paid, on all Arkansas service contracts in force.
- Multiply by 5% and use $25,000 if the result is lower.
- Complete the surety application and review the quoted premium.
- Have the surety execute the Arkansas Insurance Department Service Contract Provider Bond Form.
- Send the registration form, compliance form, bond and $200 fee to the Arkansas Insurance Department.
- Renew the registration on or before October 1 each year.
Detailed Information About the Arkansas Service Contract Provider Bond:
How the amount is figured
The bond on the Insurance Department's Service Contract Provider Bond Form must be at least 5% of the gross consideration received, less claims paid, on all service contracts issued and in force, and not less than $25,000. A provider with a small book posts $25,000. A provider with $1,000,000 in net consideration in force would need $50,000. Recheck the figure as sales grow, since the bond has to keep pace.
The bond is one of four options
Under Ark. Code 4-114-104(d) and 23 CAR 36-103, a provider must meet one of these financial requirements:
- Insure all service contracts under a reimbursement insurance policy.
- Keep a funded reserve account that meets 4-114-104(d)(2).
- Post a financial security deposit in the form of a surety bond from an authorized surety, sized as above.
- Maintain a net worth of $100,000,000, which a parent company may meet if it guarantees the provider's contract obligations in writing.
The provider checks its chosen option on the Department's compliance form and attaches proof. For the bond option, that means the completed bond form.
Who must register
The Service Contracts Act applies to service contracts issued on or after October 1, 2007. Unless exempt, every provider of service contracts sold in Arkansas files a registration with the Insurance Commissioner by October 1 each year with a $200 fee, plus a certificate of compliance. Material changes must be reported in writing.
The Department lists several things outside the Act, including manufacturer warranties included in the purchase price, maintenance only agreements, commercial transactions, contracts sold to anyone other than consumers, motor vehicle service contracts under Ark. Code 4-90-501 et seq., and mechanical breakdown insurance. A manufacturer's service contract on its own products does not have to be registered but must still follow certain sections of the law.
What the bond guarantees
The bond protects contract holders who suffer loss from the provider's fraud, dishonesty, insolvency, impairment or unwillingness to perform. It is continuous until the Commissioner terminates it or the surety gives 30 days written notice to the Department.
Eligibility and Requirements for an Arkansas Service Contract Provider Bond:
- Bond of at least 5% of gross consideration less claims paid, minimum $25,000.
- Commissioner of Insurance of the State of Arkansas named as obligee.
- Surety authorized to transact surety business in Arkansas.
- Department's prescribed Service Contract Provider Bond Form.
- Annual registration and $200 fee under 23 CAR 36-103.
- Certificate of compliance showing the financial option chosen.
Arkansas Service Contract Provider Bond FAQs:
No. The bond is one of four ways to meet Ark. Code 4-114-104(d). Providers whose contracts are fully covered by a reimbursement insurance policy, who keep a qualifying funded reserve, or who have $100,000,000 in net worth use those routes instead.
Only for smaller providers. The amount is 5% of gross consideration received less claims paid on contracts in force. $25,000 is the minimum.
No. The Insurance Department lists motor vehicle service contracts under Ark. Code 4-90-501 et seq. as outside this Act.
The surety looks at the bond amount, the provider's financial statements, claims history and owner credit. Because the bond backs contract holder claims, underwriting on larger amounts often goes deeper into financials.
