The Regulatory Landscape for CLIP Insurance: What Every Credit and SaaS Provider Needs to Know
- Steven Barge-Siever, Esq.
- Sep 6
- 4 min read
Updated: Sep 7
By Steven Barge-Siever, Esq.
Upward Risk Management
Introduction - Why Regulation Matters
A bold promise can win a contract, but it can also create a regulatory liability. When a company says “we’ll forgive your payments if X happens” or “we guarantee this outcome or your money back,” regulators don’t see clever marketing. They see a financial product that must be backed by either:
Insurance (capitalized and regulated), or
Reserves (set aside on the company’s balance sheet).
Most companies can’t or won’t hold those reserves. That’s why Contractual Liability Insurance Policies (CLIPs) exist: they transform unfunded promises into insured, enforceable commitments.
And not every jurisdiction treats those promises the same. A few states matter most, because if you operate there, the rules are stricter and the risks higher.
1. Why Guarantees Require CLIP Insurance or Reserves
Regulators step in when contractual promises look like unfunded financial obligations.
If a vendor promises refunds or waivers but has no capital backing, it’s a consumer-protection issue.
Without reserves, those obligations destabilize financial reporting.
Even in B2B contracts, auditors may force conservative revenue recognition if the promise isn’t backed by insurance.
This is why SaaS and AI companies that offer performance or uptime guarantees need to think like lenders or retailers: regulators care whether your promises are capitalized.
1. CLIPs vs. DCCs and DSAs
Debt Cancellation Contracts (DCCs) and Debt Suspension Agreements (DSAs) are regulated credit products, not always classified as insurance.
CLIPs, by contrast, are insurance policies that backstop those promises.
Regulators scrutinize who offers what:
If the creditor promises cancellation, it may fall under consumer credit rules.
If an insurer backs the promise, it’s subject to insurance regulation.
The key point: whether a product is treated as “insurance” depends on who carries the risk.
2. Why Regulators Care
Regulators step in for three reasons:
Consumer protection – Preventing misleading “guarantees” that aren’t properly capitalized.
Financial stability – Ensuring companies don’t carry unfunded obligations that destabilize balance sheets.
Transparency – Making sure buyers know whether they’re getting a contractual waiver, a financial product, or an insurance-backed obligation.
For SaaS and AI companies, this same logic applies: if you’re making financial promises, regulators want to know how they’re supported.
3. State-by-State Treatment
Unlike many insurance lines, CLIPs and related products don’t have a single national framework. Treatment varies:
California – Strong oversight through the Department of Financial Protection and Innovation (DFPI). Products tied to credit often fall under consumer protection rules.
Arizona & Nevada – More permissive, treating many cancellation products under UCC frameworks.
New York – Insurance-heavy approach; waivers often classified as insurance unless structured narrowly.
Texas & Florida – Allow DCC/DSA products but require clear disclosure and insurer backing.
For SaaS or AI providers, this means jurisdiction matters. A CLIP offered in one state may need different structuring in another.
4. CLIPs and Revenue Contracts
Enterprise SaaS and AI contracts aren’t consumer credit, but regulators still apply similar reasoning.
If a vendor self-insures a performance or usage guarantee, regulators may treat it as an unfunded financial obligation.
If a vendor transfers that obligation into a CLIP, it becomes a regulated, capitalized insurance product.
This distinction not only improves compliance, but also supports auditor approval of revenue recognition.
5. Who Actually Issues a CLIP (and How Risk Is Supported)
A CLIP (Contractual Liability Insurance Policy) is first and foremost a standalone insurance product. A licensed insurance carrier can issue it directly, just like they would Cyber, D&O, or E&O coverage.
But behind the scenes, there are different ways that risk is managed:
Direct underwriting – Many CLIPs are written and held entirely by the issuing carrier. This is the simplest, cleanest structure.
Fronting arrangements – In some cases, a carrier issues the policy but then passes most of the exposure to other insurers or reinsurers. This is called “fronting.” The benefit: the policyholder still gets a legally recognized insurance contract, but the risk is diversified across a broader pool of capital.
Reinsurance support – For very large limits or novel triggers (like AI performance guarantees), carriers may share part of the exposure with reinsurers.
Captive participation – Some companies with captives choose to keep part (or all) of the CLIP risk in-house while transferring the rest to the commercial market. This can be a cost-control strategy or a way to customize coverage.
The key takeaway:
To the buyer, a CLIP looks like any other insurance policy.
Behind the scenes, carriers decide whether to hold the risk themselves, share it with reinsurers, or involve a captive.
6. Common Pitfalls in Structuring CLIPs
Mislabeling – Calling something a “waiver” when it’s functionally insurance.
Unclear triggers – Ambiguity increases regulatory and legal risk.
Direct-to-consumer sales – Without proper licensing, can create compliance headaches.
For modern companies, the biggest pitfall is assuming contractual promises aren’t regulated just because they’re in a B2B context.
7. The Path Forward - A Framework for AI and SaaS
To navigate regulation effectively:
Work with licensed carriers – Ensures compliance across jurisdictions.
Define triggers precisely – Reduce disputes and regulatory risk.
Align legal, accounting, and insurance teams – Avoid conflicts between contract language, financial reporting, and insurance structure.
Conclusion - Regulation as an Enabler
CLIPs exist because regulators demanded that financial promises be capitalized and transparent. That same logic applies today as SaaS and AI vendors create outcome-based contracts.
The companies that get ahead of the regulatory landscape will be able to:
Make bold guarantees without legal risk.
Recognize revenues more confidently.
Earn investor and buyer trust.
Learn more about how CLIPs are structured in our CLIP Insurance Guide.
Far from being a barrier, regulation is what will make CLIPs the trusted backbone of modern contractual guarantees.
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Steven Barge-Siever, Esq.
Upward Risk Management LLC
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