Sep 4, 2025

Thinking About Building Your Own Refund or Guarantee Program? Read This First.

Many platforms and marketplaces eventually ask the same question: should we build our own “guarantee” or refund program in-house? On the surface, it seems simple: offer customers peace of mind with a promise to refund their money or cover damages.

But here’s the reality – building your own protection program is costly, risky, and ultimately bad for your users. In fact, regulators are making it harder for platforms to self-insure, and recent enforcement actions show the risks are real.

The smarter path is to partner with an insurer who can provide protection that scales, builds trust, and keeps you out of regulatory trouble.

Why DIY Refund Programs Are Risky

Many platforms think they can handle refunds or guarantees themselves. The problem? These programs often look and act like insurance, and regulators often treat them that way.

    • Compliance Risk: If your program indemnifies users for losses, you may be deemed an unauthorized insurer.
    • Financial Burden: Every claim comes out of your balance sheet. Costs are unpredictable and can quickly add up.
    • Operational Distraction: Running claims, handling fraud, and underwriting risk requires specialized expertise. Most platforms aren’t built to act like insurance companies.
    • Weaker Trust: If you self-fund, you’re required to disclose that your program is “not an insurance contract.” (NCOIL Draft Model Act, 2024) That doesn’t inspire confidence.
Q

Building Your Own

R

Partnering With an Insurer

Compliance

Q

Building Your Own

Risk of fines – regulators classify the program as insurance.
R

Partnering With an Insurer

Fully compliant – licensed insurer carries regulatory burden.

Financial Impact

Q

Building Your Own

Every claim hits your P&L – millions tied up in reserves.
R

Partnering With an Insurer

Predictable premiums – free capital for growth.

Operational Burden

Q

Building Your Own

You must run claims, fraud, and underwriting teams.
R

Partnering With an Insurer

Insurer manages claims and risk – you stay focused on your core business.

Customer Confidence

Q

Building Your Own

Users see “this is not an insurance contract” – weak trust.
R

Partnering With an Insurer

Strong signal – insurer guarantees coverage.

Scalability

Q

Building Your Own

Risk exposure balloons as you scale.
R

Partnering With an Insurer

Safe scaling – risk is capped by the insurer.
CASE STUDY

Airbnb’s Costly Lesson

Airbnb’s Host Damage Protection program offers a cautionary tale.

      • Out-of-Pocket Costs: Between 2019-2022, Airbnb hosts in Washington filed nearly 13,000 claims, totaling $2.3M in reimbursements – all paid directly by Airbnb. (Washington State OIC, 2023)
      • Unauthorized Insurance: In 2023, Washington regulators fined Airbnb $20,000 for “acting as an unauthorized insurer.” The company was forced to restructure and secure proper insurance backing. (Washington State OIC, 2023)
      • The Fix: Once Airbnb partnered with insurers and used licensed adjusters, regulators were satisfied and hosts gained stronger confidence in the program.

      Lesson learned: If you act like an insurer, regulators will treat you like one.

Why Partnering Wins

Partnering with a licensed insurer offers clear advantages:

    • Regulatory Compliance: Stay on the right side of the law.
    • Risk Transfer: Insurer balance sheets (not yours) cover claims.
    • Professional Claims Handling: Licensed adjusters ensure fair, fast outcomes.
    • Customer Trust: Users know an insurer stands behind your promise.
    • Capital Efficiency: Keep your funds focused on growth, not tied up in reserves.

The Bottom Line

Building your own “guarantee” or refund program may seem like a shortcut, but it creates hidden liabilities that can hurt your business and your customers. Partnering with an insurer flips the script. Instead of carrying the risk yourself, you turn protection into a trust signal and growth lever for your platform.

Looking to dive deeper into how embedded insurance is shaping the future of marketplaces and vertical SaaS?

Read More

Sources:

  • Washington State Office of the Insurance Commissioner – “Kreidler fines Airbnb $20,000 for acting as an unauthorized insurer” (May 16, 2023)
  • National Council of Insurance Legislators (NCOIL) – Draft Online Marketplace Guarantees Model Act (2024)