Monthly Archives: October 2014

Mid-Year Service Contract Report:

Consumers will pay nearly $40 billion this year for product protection plans, despite the best efforts of the watchdogs who tell them not to. It’s mostly for smartphones and passenger cars, though, because everything else is perceived to be disposable and not worth fixing.

The service contract industry is huge and growing in the U.S., despite the best efforts of critics who, right around this time of year, repeat their outdated “don’t buy extended warranties” message to consumers.

Even our incomplete accounting of the various consumer-facing segments of the service contract industry suggests a market worth almost $40 billion this year, assuming that no polar vortex arrives before Santa. We’ve counted up the total premiums paid by consumers in the vehicle service contract segment, the home warranty segment, the retail brown and white goods segments, and the mobile phone insurance segment, and the total market estimate we come up with for this year is $39.5 billion to be paid by U.S. consumers for what we’ll call product protection plans.

And that’s not counting the jewelry, furniture, and sports equipment sectors, which we’ll get around to sizing in 2015, we hope. And that’s also not counting the purely business-to-business service contract sector, which covers everything from truck fleets to jet engines, not to mention printers, copiers and coffee machines. And that’s only the U.S. Then there’s the European market, and some Asian, African and South American markets that are just getting it together. They need to be counted too.

Bad Marks on Report Card?

Despite the best efforts of Consumer Reports and its allies, more protection plans are being sold now than ever before. If we were to give out ratings like they do, we’d have to give them a little black circle on their report card. For while they might take credit for some of the extended warranty industry downturn from 2006 to 2009, it just as easily could have been caused by the then-brewing recession, the commoditization of major home electronics and home computer product lines, or the shift to online shopping, where it’s quite easy to say no to a click box offering you a protection plan.

Since 2009, we don’t think there’s been a down year for the market. Then again, unlike with our product warranty expense data, with service contracts we’re making estimates based on confidential assistance from industry experts and occasional confirmations from the financial statements of some of the publicly-held players.

Readers are urged to take a look at the data in Figure 1 and compare it to your own internal estimates. Behind this data stands an array of charts and tables dissecting these various markets by underwriter, administrator, and seller. We won’t include all that information here, but rest assured that the $39.5 billion total is built from the bottom up.

 

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