The Anxiety Premium and the US Device Insurance Market

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and seventy seventh episode of the week with Roger, a conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me, as always, is Roger Entner.

Roger Entner 0m22s

How are doing, Roger? Hey. Happy New Year.

Don Kellogg 0m24s

Happy New Year. Yeah. So, Roger, this week, we have our friend and colleague XJ Wang on to talk with us about a device insurance report that you guys both wrote together. To start off, why don't you tell us a little bit about the device insurance market?

Roger Entner 0m37s

Sure. It's been a delight to write this report together with XJ. I think, you know, last time I wrote a report together with XJ was like twenty five years ago, literally. And so this was really, really fun. And we looked at the device insurance market.

Roger Entner 0m53s

This is like, really like an iceberg. A lot of people don't realize how much money that's going on here is happening and how profitable it is for everybody involved. So a lot of the device insurance offers are somewhere between like $12.15 dollars $18 a month with deductible when something breaks, and you name it. The carriers are not doing the device insurance themselves, but they partner with a series of companies, and they do a fiftyfifty revenue split. So say you're paying $18 for your device insurance, dollars 9 falls right down to the bottom line of the carrier.

Roger Entner 1m41s

That is a lot of money, especially when you consider that the percentage of people who take this, and it's like, you know, the takes rates are in the 40s, somewhere in that neighborhood. And so then the device insurance companies, and there again, it's a whole stack, in the end, they end up with about 25% gross profit margin. So even after all of that, it is still quite profitable for the device insurance companies to do this. There's an important tie in with device trade in, because that is becoming the number one source through which you can repair or replace such a device. But XJ, why don't you go and tell us a little bit more in detail of what this is about and what we found?

Guest Speaker 2m32s

Sure. Thank you, Roger, for the intro. And Don, happy new year, by the way. I think for the past couple of months, since I joined the recon analytics, I have been looking into the device research and a lot of other things from our data point of view. I want to take one step back about this particular device insurance report.

Guest Speaker 2m53s

We have actually conducted six wave of surveys, including close to about 40,000 respondents, with a very simple insurance purchase intent question. Do you plan to buy device protection insurance when you buy your next smartphone? A yes or no question. We also positively collect respondents' device brands and models so that we have insight, not just from the traditional demographics of the respondents, but also from the device perspective. This ability to give us the device's installed base, switching patterns, and other insights like device NPS, the component NPS for more than seven fifty device models with close to 800,000 samples from budget device to flagship device.

Guest Speaker 3m41s

So moving back to the device insurance, this is about purchase intent. After we're looking at the data, it's quite interesting, we find a lot of unexpected data points. For example, the income paradox. Traditionally, we all know carriers are targeting at the premium customers with higher income, 100,000 plus income groups. But our data, the survey shows actually quite different.

Guest Speaker 4m10s

The other two things I think we find out, which Roger, you can probably talk more, is about the disruptors in the market space. As Roger mentioned, a lot of carriers still charging about $17 to $19 per month for a device. There are newcomers like Spectrum Mobile, they charge a flat fee of $5 per month. The other big thing is about the enrolled windows. Typically thirty days for carriers, I think sixty days for AppleCare plus services.

Guest Speaker 4m41s

What we found out, there are other providers like Aiko, AKKO, they can enroll at any time using modern technologies plus some manual review process. Are able to provide this. If you think about it, device insurance is really like other insurance. It should allow customers to be able to enroll anytime they want. But there's a lot of issues for the carriers not doing this.

Guest Speaker 5m10s

There is what I call the classic innovator's dilemma. You know, you are making a lot of money by maintaining the status quo. However, if you don't do it, somebody else will step up to do it. So anyway, by transforming themselves to even open up the enrollment window, carriers not only going to have more customers, they actually have a new revenue opportunities over a billion dollar. We calculated for over a billion dollar for just for the big three, T Mobile, AT&T, and Verizon, just by opening up the enrollment windows.

Guest Speaker 5m46s

Of course, they have to fight potential fraud. But overall, the report we wrote together with Roger, we're not just looking at our datas, we're also looking at what is the market disruptors in the market space. It's quite interesting. It's a great exercise for me.

Roger Entner 6m4s

It's quite disruptive. What, for example, Spectrum Mobile is doing by just charging $5 which is basically what it costs, or even at slightly lower margin for the device insurance company, providing its customers with a lot of peace of mind. The take rate becomes quite high, and the device insurance becomes a retention tool. Because what you see in a lot of cases, that when the device breaks, customers are going to use this as a way to go to a different carrier to get a new device. And so this is really taking that off the case.

Roger Entner 6m45s

And then you have companies like Akko that provide the always on, always available device insurance, it's a little bit difficult because you don't know if somebody wants to insure an already broken phone, and that's not how it's supposed to work. So that's the necessary safeguards in place. But it's a really, really interesting report where we talk about new things added. Yeah.

Guest Speaker 7m13s

Yeah, the thing is, Roger, like you mentioned, I think the ACO anytime enrollment is really, really disruptive because currently either the carrier or the OEMs, they are basically setting the fear at the point of sale, right? If you don't buy it, dollars 1,000, you're gonna break it, that kind of thing. What our data find out is a lot of low income. When I say low income, I really mean $50,000 or less income group in this report has the highest purchase intent at 56%. That's higher than 200,000 plus income group with only 44% of purchase intent.

Guest Speaker 7m57s

The other things we find out also interesting, when we brainstorming, what are the challenges and opportunities? We realize the carriers, they're certainly facing the disruptions, but they also have more opportunities if they start to evolve, adopt anytime enrollment, and targeting out the anxiety segments, which is really the $50,000 income group or less. Because for that particular income group, if their iPhone 16 Pro Max is broken, it's very, very hard to have a disposable income like $500 $600 to fix it. So the monthly premium $10 to $15 can really save them because for them, that device is essential for their daily life. A lot of people relying on those devices, not just for leisure, but also for day to day communication, for their business, a lot of other things.

Guest Speaker 9m2s

And you mentioned the interesting thing about the retention part of it. I do think the carrier needs to involve this because if you're solely relying on a device, like 17 add on costs to the monthly fee, imagine for a three year device, I still pay in the same amount of money. It just doesn't make any sense because that's a higher cost. I think there's no reason the carriers and their underwriter partners don't look into this. Because in the reports, we actually provide some suggestions.

Guest Speaker 9m39s

One of them is personalize the protection plan, what we called claim based pricing. If your customer did not have any claim in twelve to twenty four months, you should automatically adjust the premium for them.

Don Kellogg 9m55s

So like a good driver discount, right, for your phone?

Guest Speaker 9m58s

Exactly. If you think about the insurance company, that's their business model, right?

Roger Entner 10m3s

Well, for the carrier, it's the business model too. Yeah. On a blended basis, you have like three, four of ARPU. And so as an established operator, it's really, really hard to get out of that. Only when you start from fresh, Charter, and with Spectrum Mobile, you have that ability to disrupt the market.

Roger Entner 10m26s

For an established carrier like Verizon, AT&T, T Mobile, that's several billion dollars of profit, right? You painted yourself into a corner, a very, very profitable corner, and it's really hard to get out of that and competitively respond to it. So it's an opportunity for an MVNO, for an upstart to really disrupt that.

Don Kellogg 10m52s

Well, not only that, but if you look at the demographics of the types of folks that switch, it's the exact same demographics as the folks that are getting insurance. There you're more likely to be in that less than 50 range. Right? So I think there's a lot of potential angles to capture more of the switching pool and and prevent those folks from switching out again if you give them a good reason to stay with insurance coverage.

Guest Speaker 11m15s

Yeah. The bottom line, like Roger said, I think this is a classic innovator's dilemma. Right? They're making a lot of money. They know they need to change, but when to change, how to change, it takes courage and take the strategy to do it.

Guest Speaker 11m29s

But in the report, we called it out. I don't think the big three have any choice but to adapt. We see the change of the insurance industry. For example, you go rent a car. A lot of people right now, if you book on Expedia and others, you can do it online, the insurance.

Guest Speaker 11m47s

You don't have to buy $20 you can pay $10 when you book that online. But anyway, from my point of view, I think in 2026 and beyond, a protected phone is a retained customer. And uninsured phone is a churn statistic waiting to happen. That's just how I see it.

Roger Entner 12m7s

No, no, it's money left on the table if a customer is not getting device insurance. It's critical.

Don Kellogg 12m15s

It's one of the largest upsell opportunities that the carrier has beyond, you know, other things you would attach at the store, like cases and accessories and things like that.

Roger Entner 12m23s

Yeah. With the whole move towards online and everything, it will be very interesting to see how they are going to get attach rates that are similar to that.

Don Kellogg 12m34s

Well, folks can find the report on our website if they're interested in learning more. It's available for purchase, believe right now, right? Right, Roger?

Roger Entner 12m42s

Yes, it's available. And there should be a free research note coming up on light reading and on our website as well. It gives you the skinny on what's in the report, but simply worthwhile. And as you see, we're segmenting the market and writing more of these reports, but we've been quite heavy with this over the last couple of weeks because we just started. In the coming year, we will not use our podcast as an advertising vehicle, but it was the quiet period over the holidays, so we had to fill some content, and so we filled it with content.

Roger Entner 13m21s

I hope people find it interesting. If you don't, let me know. If you find it interesting, we can do a lot more. We will have a very, very robust offer of reports on our website. That's for people who wanna have access to our data, but it doesn't fall into our flagship offer, which is a lot more comprehensive and a lot more expensive than 3,000 to $5,000 that we charge for our report.

Roger Entner 13m48s

But yeah. Alright. Thanks, gentlemen. Thank you.

Don Kellogg 13m51s

Happy New Year.

Guest Speaker 13m52s

Happy New

Roger Entner 13m52s

Year. Happy New Year.