Warranty, service contract or insurance? Navigating the regulatory landscape for product protection arrangements
Manufacturers and retailers have long used warranties to stand behind their products, build consumer trust and support sales. The product protection market has evolved considerably beyond the traditional manufacturer warranty. Consumers may now be offered a range of protection arrangements, from extended warranties and repair plans to service contracts and insurance-backed products. These arrangements are commonly offered in relation to motor vehicles, household appliances, electronic devices and other consumer goods. Determining their legal and regulatory treatment is not always straightforward. It depends not simply on the label applied, but on the substance of the obligations undertaken, the risks covered and the parties involved.
Questions over the regulated status of product warranties often arise when a new product is being developed, when an existing arrangement is reviewed, or as part of due diligence on a corporate transaction involving a warranty business or product portfolio, including where a warranty product has been marketed for many years without its regulatory status having been considered in detail.
This issue has been on the Financial Conduct Authority’s (FCA) radar going as far back as June 2019[1], when the FCA identified instances where firms were describing warranty products as repair or service contracts when, in its view, they may in substance have constituted regulated contracts of insurance. The FCA’s March 2026 Perimeter Report[2] indicates that the issue remains on its radar. Although the FCA does not regard the issue as a regulatory priority for the current year, it is keeping the risks under review, including whether further guidance is needed in its Perimeter Guidance Manual (PERG).
In this article, we consider the principal regulatory questions that businesses should ask when designing, distributing, and reviewing warranty products, or when acquiring a business which sells them.
The warranty spectrum
The term “warranty” can describe a range of different arrangements.
At one end of the spectrum are manufacturer warranties covering defects in materials or workmanship, often included at no extra charge at the point of sale of the product. These warranties commonly promise to repair or replace a product if it does not meet the manufacturer’s stated standards during a specified period.
Other arrangements extend the duration or scope of the protection beyond standard market practice. They may cover breakdowns after the original manufacturer warranty has expired or events such as accidental damage, loss or theft. The provider may be the product manufacturer or retailer, or a specialist third-party warranty business with no role in manufacturing or supplying the underlying product.
Some protection products are expressly underwritten or backed by an authorised insurer. These may involve an individual insurance contract entered into with each customer, or a group or master-policy structure, under which the warranty provider is the policyholder and customers are intended to receive some form of benefit under the policy.
There are also service, maintenance and repair plans. These may include routine servicing, preventative maintenance, inspections or access to repair services, rather than the assumption of a contingent financial risk.
The regulatory position will depend on the particular arrangement. The FCA will always consider the substance of an arrangement; a product described as a “warranty”, “guarantee”, “protection plan” or “service contract” will not necessarily fall outside financial services regulation simply because of its name.
When does a warranty become insurance?
UK legislation does not set out an exhaustive definition of a contract of insurance. The courts have therefore played an important role in identifying the relevant characteristics, while the FCA’s guidance in PERG explains the factors that the FCA regards as relevant when deciding whether an arrangement constitutes insurance.
The frequently cited starting point is Prudential v IRC[3], which identified certain characteristics commonly associated with insurance. At a high level, these include:
an obligation undertaken in return for consideration
the occurrence of an uncertain event
an event that is adverse to the interests of the person receiving the benefit
an obligation to pay money or provide a corresponding benefit, such as repair or replacement, if that event occurs
PERG uses the established court authority as its starting point and then sets out general principles, specific factors and examples intended to assist businesses in assessing whether arrangements fall within the insurance perimeter.
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A manufacturer or retailer warranty that does no more than promise to address defects in the product sold may, depending on its terms, be characterised as reflecting express or implied contractual obligations as to the quality of that product, rather than the assumption of a separate risk by the manufacturer or retailer. Such arrangements will often fall outside the regulatory perimeter. The analysis may be different where the warranty:
extends materially beyond defects in quality or workmanship, or beyond customers’ contractual or statutory rights
provides cover for events such as accidental damage, theft or loss
extends significantly beyond the type of warranty obligations ordinarily assumed by manufacturers or retailers in relation to product quality
is supplied under a separate paid-for contract
is provided by an independent third party that did not manufacture or supply the product
A genuine pre-paid service agreement may sit outside the insurance perimeter where it is principally concerned with providing routine servicing, inspections, preventative maintenance or other services that are not dependent on the occurrence of an uncertain, adverse event. The distinction can become more difficult where the plan promises repair or replacement when a product malfunctions or breaks. A business cannot determine the regulatory character of the arrangement merely by describing an indemnity obligation as a repair service. The substance of the provider’s undertaking remains central.
Arrangements under which a provider has genuine and unfettered discretion whether to provide any benefit may not create the enforceable obligation normally associated with insurance[4].
Businesses should, however, approach this issue carefully. The FCA has previously raised concerns about contracts in which a provider purports to have absolute discretion not to meet a claim, but where the FCA considers that the purported discretion lacks genuine substance in practice or may be an unfair term. In those circumstances, the FCA’s stated view has been that the contract may properly be categorised as insurance.
Discretion should not therefore be treated as a drafting shortcut. Its legal effect will depend on the terms, associated communications and operation of the product. Consumer law considerations may also arise where a customer pays for protection that the provider remains free to withhold.
An alternative structure is for an FCA and PRA authorised insurer to assume the relevant risk. Insurance-backed products can be structured in different ways. The insurer may enter into a separate contract of insurance with each customer. Alternatively, there may be a group or master policy under which the manufacturer or retailer is the policyholder, while customers receive benefits under the policy. Such arrangements are distinguished by the FCA from arrangements where manufacturers or retailers agree to indemnify customers for loss or damage if a product fails, and secure insurance to cover the cost of having to provide such indemnities.
If structured correctly, the involvement of an authorised insurer can address the question of who is effecting and carrying out the underlying insurance contract. It does not, however, necessarily determine the regulatory status of every other party involved. By selling warranty products supported by insurance arrangements, manufacturers and retailers may fall within the insurance distribution regime, depending on the nature of their activities and whether any exemption or exclusion is available.
Obtaining perimeter guidance advice, properly structuring the arrangements and drafting appropriate agreements are key to mitigating risks arising from insurance-supported warranty arrangements. Businesses should not assume that no insurance permissions are required simply because the risk ultimately sits with an authorised insurer.
The consumer-law overlay
Insurance-perimeter analysis is not the end of the enquiry. For consumer warranty products, the terms and customer journey must also be considered in the context of consumer legislation. For example, the Consumer Rights Act 2015 (CRA) requires consumer contract terms and notices to be fair and transparent. Schedule 2 to the CRA contains an indicative and non-exhaustive list of terms that may be regarded as unfair[5].
This is particularly relevant to discretionary warranty arrangements. A business may seek to demonstrate that its arrangement does not constitute insurance because there is no enforceable obligation to provide a benefit. However, where a consumer pays for protection while the provider reserves an absolute discretion whether to provide anything, questions may arise about the fairness of the term. If a term is deemed to be unfair, it is not binding on the consumer, is unenforceable, and may give rise to regulatory consequences, as identified above.
This does not mean that a term that is potentially unfair will automatically cause the arrangement to be insurance, or that every discretionary arrangement will be unfair. These remain separate legal questions. However, the same product feature may be relevant to both analyses.
Businesses should also ensure that the contractual documentation, marketing, sales journey and claims practices present a consistent picture. A term expressed in clear legal language may still cause difficulties if it creates an imbalance in the parties’ rights and obligations to the detriment of the consumer.
Key practical takeaways
Warranty products should be assessed by reference to their substance, not their label. Businesses designing, distributing or reviewing warranties, or acquiring businesses offering warranty products should consider:
What is the scope and nature of the benefit being provided?
Who is assuming the risk and what is the nature of that risk?
Does the warranty materially extend beyond defects, workmanship issues and other matters typically addressed by a manufacturer or retailer warranty?
Does the warranty materially extend in duration compared to market standard warranties?
Do contractual terms, marketing materials and claims practices support the intended regulatory characterisation?
Are manufacturers, dealers, retailers, administrators or other parties distributing regulated insurance-backed warranties, and if so, do they have an appropriate regulatory status?
Are discretionary provisions, claims criteria and decision-making mechanisms clearly explained, appropriately balanced, and capable of being applied in a meaningful way?
Would the arrangement withstand due diligence or regulatory scrutiny?
The FCA may not currently regard warranty and service-contract issues as a supervisory priority, but it continues to identify the area as presenting perimeter risk and has left open the possibility of consulting on further guidance. Businesses should not interpret the absence of immediate regulatory focus as removing the need to assess their arrangements carefully.
How we can help
Our Financial Services Regulatory team works with manufacturers, retailers, motor-sector businesses, warranty providers, insurers, insurance intermediaries, and investors on regulatory issues connected with warranty and product-protection arrangements.
We can help with:
assessing whether warranties, service plans and product-protection arrangements fall within the insurance perimeter
advising on insurance-backed products and the regulatory position of participants in the distribution chain
assessing insurance-distribution activities, regulatory permissions and potentially available exclusions
advising on connected contracts of insurance and appointed representative arrangements
reviewing customer-facing terms, sales journeys, marketing materials and claims processes
working with our consumer-law specialists on fairness, transparency and enforceability
supporting businesses with new product development and regulatory reviews
conducting regulatory due diligence on warranty businesses and product portfolios in connection with acquisitions, investments and corporate reorganisations
If you would like to discuss how these issues may affect your business, please contact Sushil Kuner, Partner and Head of Financial Services Regulation, or Josh Bates, Managing Associate.
Footnotes
[1] FCA Perimeter Report 2018/19.
[2] FCA Perimeter Report 2026.
[3] Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658.
[4] Medical Defence Union Ltd v Department of Trade [1980] Ch 82.
[5] For further information and guidance, see Guidance on the unfair contract terms provisions in the Consumer Rights Act 2015, released by the Competition & Markets Authority on 22 July 2026.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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