Mobile Phone Insurance Reimagined
Insurance is an endlessly fascinating industry (really, I promise) that has finally started to get some much needed competition from startups. Last year, my kids had lots of questions about insurance in general so I wrote a simple overview for them on Medium to explain the basics and I’ve been thinking a lot about the industry since then. This May I read Chris McCann’s (@mccannatron) very nice industry map of insurance start-ups which fueled my interest.
One thing stood out for me. There is only one competitor in the market for mobile phone insurance. Lack of competition is usually an indicator of some some market inefficiency so this raised a few questions:
a) Why, as phones become more important (I would argue essential) in our lives, aren’t there better insurance options?
b) Why are there no other entrants to the market?
c) What’s the competitive advantage of Asurion that affords them monopoly status?
d) Why is the policy only available at point of sale and what about the second hand phone market?
I mailed Chris these questions and he was kind enough to reply with the following:
“Don’t have any answers to these, just opinions.
a) One of the questions is — is cell phone insurance even worth it? At a sub $1,000 purchase, is it even worth insurance against? Hard to argue no since so many people buy it but if you offered it to people outside the point of sale, would people even care?
b/c) have the cell carriers offer the insurance directly — i am assuming an exclusive relationship.
d) that’s the sales channel where people actually think about the insurance. hard to get people to care otherwise (could be wrong on this)
One of the interesting dynamics of the insurance world is the two biggest markets of insurance — auto and health — US consumers are both forced to buy those. Outside of these two it’s hard to get consumers to care about insurance — hence why the lead gen sites are so valuable.
“
With all due respect to Chris I believe that if the insurance offering was more compelling the answer to a) and d) would be a resounding yes. This is especially true in the rapidly growing second hand phone market (see here and here) estimated to be over 120MM phones in 2017. I know this drives VC types crazy but let’s assume some fraction of that as the TAM and it’s a compelling market to address. Furthermore, many of these phones are sold on eBay. What if we could make a deal with eBay to provide a “buy insurance” option on checkout after a phone purchase. This would go a long way to reducing CAC.
Asurion is the market leader in this space so let’s consider their service the best in class and model our service on theirs except for customer service.
Asurion, as far as I can tell from reading various carrier literature:
- offers coverage at point of sale or very recently after sale
- does not cover loss or theft
- does not cover second hand phones
Reading reviews of phone insurance providers is an exercise in depression. Asurion generally gets terrible reviews (see here and here) and receives 1.2 stars (out of 5) on the consumer affairs website. What if we could change that?
Let’s try to answer a few questions:
- What would a competitor to Asurion would look like?
- How can the insurance experience could be improved?
- What if we could insure second hand phones?
- How can we provide insanely brilliant customer service?
Let’s call our insurance company MoPho.
DIFFERENTIATION
MoPho will be available anytime you want it and you should be able to pay for the insurance only when you want to be using it. Unlike Asurion it’ts not automatically always on. You’re only insured when you feel you need it and that’s all you’ll pay for.
CLARITY
MoPho must be absolutely 100% clear and up front about exactly what is covered and when it is covered. And let’s offer a menu of options. Need water damage coverage? Want to extend the manufacturers warranty? All available and clearly stated up front on pricing.
DYNAMIC PRICING
PREMIUM
Make the premium variable. Download the MoPho app. MoPho immediately looks at data on your phone to determine the premium to charge you. Insurance coverage begins within 7 days of downloading the app and continues as long as you have the app installed and running in the background. Stop the app; stop your coverage.
For the first week your daily habits are understood. Do you run with your phone in the morning? Do you back up your phone? Do you have only first names in your address book? Do you walk, drive or bike to work? What other apps do you have installed? (For ML people this is an interesting feature selection problem. One social credit scoring app found people to be better credit risks when their contacts contained both first and last names) Your maximum premium is then determined and can only go lower the better you treat your phone.
MoPho watches behavior and adjusts premiums as a function of user behavior and time.Does the phone get moved around a lot? Dropped frequently? Your premium goes up. Treat your phone well? Watch the premium go down. All in real-time. Kind of fun too. Something to check on every day and see where you are — a fitness app for insurance.
DEDUCTIBLE
iPhone and Android users have different income profiles so let’s limit MoPho to insuring iPhones as a start. Let’s say the deductible is USD350 for an iPhone 6. The longer you hold your insurance without a claim the lower the deductible goes. Again, in real-time and according to your usage patterns and behavior.
REPLACEMENT
Typical turnaround for an insurance claim is measured in days. What if you filed a claim and had the old phone (if available) picked up by Uber and a new one given to you on the spot? Yes, there are other warehousing and distribution issues to contend with here but let’s start with a better experience for customers and a logistics model that works the way Uber wants to go.
INCENTIVES
The Economist rightly points out “insurers had long recognised that their customers might be the best judges of what risks they faced, and that those keenest to buy insurance were probably the riskiest bets.” Great for us. We know that when you activate MoPho that you’re doing something risky. MoPho gets paid for it and you get covered.
Let’s design virality intentionally and implement using incentives. How?
MoPho should offer users a discount on their premium for every user they get to sign up and user who signs up enough friends will get a free upgrade of phone.
This one will be controversial but I’ll try it out anyway. Let’s allow two claims per 12 month period and let’s make the claim data available to other insurance firms. Why? Arguably, this diminishes the desire to defraud and then switch providers since all providers have access to the claim data.
THE BIG QUESTION
All good to design a better approach to mobile phone insurance but does anyone really care? Do you insure your mobile phone? Would you insure an aftermarket purchase for under $1000?