Make do and mend mentality is a boon for insurance sales

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Consumers holding onto expensive devices longer has lit a fire under the insurance industry

The device insurance market is on fire. Ten years ago, only three per cent of customers had an insurance policy covering their devices.

That figure has soared to 28 per cent and mobile insurance is now expected to be worth a staggering £12.95 billion globally by 2019, according to financial analysts Finaccord.

Vital

As smartphones reach up to £1,000 in value, these costs are only likely to continue rising in the future, strengthening consumers decisions to take out insurance plans, according to insurers.

Statistics gathered by GfK shows that 21 per cent of UK mobile phone users have insurance with their phone, and this number rises to 27 per cent when looking at the 16-24-year-old age group. Bastion Insurance director of sales John Fannon thinks that the rising cost of smartphones has made gadget insurance indispensable.

“The cost of devices has risen considerably. People don’t realise that their device can cost as much as a new MacBook,” Fannon explains. Gustav Holst Stuge agrees.

The CEO of gadget insurance provider InMyBag reinforces the fact that the mobile phone is no longer a cheap device for making the occasional telephone call, but instead now runs our lives and, as such, needs to be insured.

Stuge said: “Our phones have gone from being merely a device that we would make calls on occasionally to the most important thing we have in our pockets. You need insurance to protect it.”

Therefore the upside for the mobile channel is that gadget insurance is no longer a casual afterthought, but an essential part of the sale.

IDC senior researcher Francisco Jeronimo explains: “From the retail perspective, there is huge pressure to sell additional services and insurance, along with other products such as accessories bring very high margins.

Additional services can increase the revenue for phone companies and resellers.” Fannon says: “As an example, most partners can earn 30 per cent (of the premium) and the higher-volume partners tend to earn 40 per cent.”

At insurance distributor Coplus, business development manager Bernie Nunn echoes this view and says: “From a customer’s point of view, insurance is extremely important as well as being an additional revenue stream for a mobile reseller.”

Opportunity 

The mobile insurance industry has a lot to thank Apple for. Had the computer giant not launched the iPhone 10 years ago, the insurance landscape would be a lot different said Fannon, acknowledging the power of the Apple brand.

IDC’s first quarter figures revealed that Apple is currently second with 15.6 per cent of the global smartphone market share.

With such a significant chunk of the market, there is ample opportunity for insurance companies to take advantage of this.

Fannon adds: “Apple and Samsung’s high-end devices have woken people up to the importance of mobile insurance.”

Supercover business development director Michael Brigden throws in another reason for the surge in gadget insurance popularity.

Brigden explains that the relatively low cost of a policy, compared with the cost of replacing the equipment, is substantial.

He said: “The small price that insurance costs in the grand scheme of what they’re paying is a worthwhile investment.”

GfK technology director Imran Choudhary believes networks and retailers are increasing their efforts in selling devices and gadgets at the point of sale.

The fact that phones are lasting longer and are higher quality means consumers are happy to keep them longer with more opportunity for them to suffer loss or damage.

A mixture of factors has helped the performance of insurance due to increasing costs and the length of time people are holding onto their phones.

A lack of innovation in recent years is another reason, according to Choudhary, why consumers are keeping handhelds longer.

“Customers are holding onto their phones longer as the hardware of the latest flagships aren’t significantly better,” he says.

Value 

Fannon says people are finally realising the value of the equipment that has helped the market rise exponentially each year for the past five years.

“Since 2013, there has been a steady rise of the gross written premium revenue of mobile insurance. It has risen tens of millions each year as people are realising the significant replacement value of their phones.”

Brigden agrees and says: “Consumers generally aren’t interested in upgrading unless the latest phones are more technologically advanced.

“People are more careful with their phones. Where previously they would run them into the ground, they are now looking to insure them and keep them for longer.”

Jeronimo has the same thoughts and adds: “The life cycle of a smartphone is longer now as people are spending more and want to see a return on their investments.

There hasn’t been a massive disruption in the hardware to justify people going and buying the latest flagship when it comes out.”

Innovation

Over time, the advancement in technology for both the software and hardware of mobiles has driven innovation and, as a result, it has delivered high end devices for the consumer.

The parts used to manufacture smartphones have improved so the cost has increased. The iPhone X, for example, features a front and back glass screen, which makes the phone more expensive and more prone to damage if dropped.

Discussing the durability of iPhones, Stuge said: “I don’t think Apple is exactly in the business of making the world’s most durable phone.

Technology moves faster than durability, and this could be part of the business plan for them wanting people to own newer phones more regularly.

“With screen sizes getting bigger and made from more premium materials such as glass and metal, they can be more prone to cracking when dropped.

“If you’re paying a high amount for a device, it is only natural that you want it to look good and last as long as possible.  This is where insurance is becoming key to consumers”, explains Choudhary.

Brigden said: “The positives are that the glass and water resistance on phones is getting better. We’re seeing a drop in water claims too. However the cost of the technology to replace and repair the
screens is increasing.

“We’re trying to keep our prices as reasonable as we can but obviously material costs are going up too.” Rising repair costs have also affected how consumers perceive insurance.

“The repair price has been affected as a lot of screens now require a lot of disassembly to replace.

“The cost of the screens, particularly on curved edge phones such as Samsung is considerably
higher and so is the cost of repairing them”, says Fannon.

Millennials 

Some may assume that consumers more likely to require mobile insurance are millennials, who are supposedly more active in their day-to-day life.

“The fact that a higher proportion of 16-24 year olds have phone insurance when compared to other age groups comes as no surprise.

Around 47 per cent of this group have a mobile that is damaged in some way.” Brigden believes that there is still work to be done to make the younger generation see the benefits of insurance.

“The younger demographic are still under the opinion that mobiles are easy to replace and don’t worry too much. The next step is to target this sector and persuade younger people to see the value of insurance.”

Finaccord’s mobile metrics survey for gadget insurance in 2016 show that slightly more woman (51 per cent) than men (49 per cent) take out gadget insurance.

Fannon said: “When you look at that data, it’s quite an even spread amongst male and female. This shows that gadget insurance is vital for everyone. There’s not a particular sector that stands out as more important than another”.

There are other ways to protect a device. Just stick it in a good case. IDC’s mobile device survey in February 2017 discovered that 65 per cent of people quizzed had purchased a phone case.

Commenting on the survey’s findings Jeronimo said: “Most consumers protect their phone by buying a phone case to protect against accidents. The main reason is to protect the handset against any shocks from dropping it.”

Consumer Growth 

Insurers are benefiting from the growth in consumers taking out insurance as the quantity of claims has also risen.

Supercover has averaged over 2,000 claims per month, and Brigden acknowledged this trend, saying: “We’ve seen claims rise.

The job for us as insurers is how we deal with this in the right way. “We’ve outsourced our claims to a specialist, which has made a huge difference to what we do.”

Bastion Insurance has seen a significant rise in the number of claims having processed 350,000 claims in 2017 across all devices.

Fannon said: “The number of claims has gone up as insurance is now seen as a valuable commodity that represents good value for money.”

Gadget insurance firm Insurance2go confirms that claims are on the rise. Insurance2go managing director Duncan Spencer said: “The number of customers we’ve sold policies to has increased and therefore the number of claims has also risen.”

Protect Your Bubble director James Brown didn’t reveal the number of claims that the company dealt with, but confirmed that the increasing importance and reliance on phones has again motivated people to buy insurance.

Brown said: “Over the last few years as people use their devices to run their lives, we have seen an increase in line with expectations. The main patterns we notice every year is that mishaps are more likely to occur in summer when people tend to be out and about more.”

Internet of things 

The growth of the Internet of Things (IoT) over 5G is only expected to make mobiles even more phones more essential.

IDC statistics in 2016 forecast that the global IoT market is expected to grow to £1.3 trillion by the end of the decade, from £525 billion in 2015. “From an insurance perspective, it will carry on its current trajectory. As 5G enters the market there will be a need for everyone to purchase a new device.

This will kick-start some growth and is likely to have a positive effect on the insurance market,” says Choudhary. So how will insurers adapt to IoT?

“It’s about adapting to what we do. Consumers are acquiring devices and looking for more connectivity with them. We have to adapt with the technology that is available”, says Bridgen.

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