VEHICLE SERVICE AGREEMENT LIABILITY

Vehicle service agreement fees include the fees collected to cover the costs of future automobile mechanical breakdown claims and the associated administration of those claims. Vehicle service agreement fees are initially recorded as deferred service fees. On a quarterly basis, the Company compares the remaining deferred service fees balance to the estimated amount of expected future claims under the vehicle service agreement contracts and records an additional accrual when the deferred service fees balance is less than expected future claims costs.

In certain jurisdictions the Company is required to refund to a customer a pro-rata share of the vehicle service agreement fees if a customer cancels the agreement prior to the end of the term. Depending on the jurisdiction, the Company may be entitled to deduct from the refund a cancellation fee and/or amounts for claims incurred prior to cancellation. While refunds vary depending on the term and type of product offered, historically refunds have averaged 9% to 13% of the original amount of the vehicle service agreement fee. Revenues recorded by the Company are net of refunds and the associated refund liability is included in deferred service fees.

A reconciliation of the changes in the vehicle service agreement liability, including deferred service fees related to vehicle service agreements, as of June 30, 2019 and June 30, 2018 were as follows:



(in thousands)	June 30, 2019			June 30, 2018
Balance at January 1, net	$	43,734		$	40,794
Vehicle service agreement liability acquired during the year related to the purchase of Geminus	10,792			—
Gross service fees for vehicle service agreements sold	14,549			11,166
Recognition of service fees on vehicle service agreements	(12,703		)	(9,588		)
Liability for claims authorized on vehicle service agreements	4,393			2,764
Payments of claims authorized on vehicle service agreements	(2,678		)	(2,950		)
Re-estimation of deferred service fees	(321		)	(165		)
Balance at June 30, net	$	57,766		$	42,021

The vehicle service agreement liability is presented as components of deferred services fees and accrued expenses and other liabilities in the consolidated balance sheets as follows:



(in thousands)	June 30,		December 31,
	2019		2018
Deferred service fees	$	57,182	$	43,495
Accrued expenses and other liabilities	584		239
Balance at end of period, net	$	57,766	$	43,734