DOWC vs CFC: Owning the Warranty Company or Reinsuring Offshore

DOWC and CFC compared.

The table summarizes the differences dealers ask about most. It is a general guide drawn from the structure pages on this site. State requirements, program documents, and your own advisors decide the details.

When a CFC fits better.

A CFC is the lower-friction way to own underwriting results. It may be the better fit when:

• Qualifying premium is at or under the 831(b) cap.
• The dealer wants ownership of reserves and investment income without operating a licensed warranty business.
• The dealer is content to sell an administrator’s product rather than its own brand.
• Lower capital, lighter compliance, and a shorter setup matter more than brand control.
• The dealer has never run a captive and wants to learn the economics first.

The CFC guide covers the mechanics and the planning considerations in full.

When a DOWC fits better.

A DOWC asks more of the dealer and gives more control in return. It may be the better fit when:

• The dealership or group has outgrown the 831(b) cap and wants no ceiling on participation.
• The owner wants a branded warranty as a customer retention asset.
• The dealer wants to set product terms, pricing, and claims philosophy directly.
• A domestic structure matters, without offshore administration.
• The owner is prepared for state licensing, surety bonds, statutory reporting, and its own audit.
• The group has already run a CFC or Super CFC and knows what its stores produce.

The DOWC guide explains the products a DOWC can write and why administrator selection matters.

Moving from a CFC to a DOWC.

The structure pages describe a path that often runs from a CFC toward a DOWC as production grows. The step is large because it changes what the company is, from a reinsurer of someone else’s product to the issuer of your own. Plan for:

• The licensing runway. Service contract provider licensing in each state where you sell sets the timeline.
• Capital. State minimum capital plus operating reserves, confirmed against the states where you sell.
• Administration. A stand-alone C-corporation needs its own books, audit, governance, and statutory reporting.
• The existing CFC. Ask for written treatment of its reserves and open claims before changing where new production goes.

If the main reason to leave a CFC is the cap, a Super CFC also removes the annual limit with lower setup friction. The DOWC guide describes the Super CFC as the midpoint between the two; see Super CFC vs DOWC.

Questions to ask before choosing.

Bring these to any provider and to your own advisors, and ask for the answers in writing:

• Is my qualifying premium near or past the 831(b) cap?
• Do I want my own warranty brand, or is reinsuring an administrator’s product enough?
• In which states would a DOWC need to be licensed, and what capital do they require?
• Who would administer claims, and how does that administrator report?
• Who controls the reserves and how they are invested in each option?
• What is the full, itemized fee schedule for each option?
• What ongoing accounting, audit, and filing work would I take on?
• What do my tax advisors conclude about the treatment of each option?

A fuller checklist is on the questions to ask page.

Frequently asked questions.