If you’ve ever bought an Apple product, chances are you were asked if you’d like to purchase AppleCare to protect your new gadget. AppleCare is Apple’s own branded product protection plan that covers against damage incurred by causes not covered by the terms of the manufacturer’s warranty or after it expires. Big insurance companies have been writing service contracts and protecting consumers’ purchases for decades. In the past several years, however, technology has begun to disrupt the way the industry operates.
The market for extended warranties is closing in on $50 billion annually. That’s huge, but it didn’t get that big overnight. Here’s a snapshot of how the product protection industry has taken shape over the years and where it’s headed.
AIG cements product protection as an industry
In 1919, CV Starr founded American Asiatic Underwriters in Shanghai, China. The firm began offering coverage for a number of different categories including property, cementing product protection as an industry. In 1967, the firm was renamed the “American International Group” (AIG). In the last thirty years, AIG has gobbled up over 20% of the service contract market. They currently underwrite protection plans for AppleCare as well as Best Buy.
Major brands begin offering extended warranties
Walmart and Apple are founded in 1962 and 1976, respectively, and begin offering their customers protection plans that offer coverage beyond the scope of what the manufacturer’s warranty covers. Today, Apple’s branded protection plan, AppleCare, is the largest protection program in the world thanks to the proliferation of the iPhone. In 2015, Apple sold $7.25 billion worth of AppleCare contracts.
Congress implements regulations on warranties
In 1975, Congress passed the Magnuson-Moss Act. The law does not require all products sold to come with a warranty, however those that do must have clear, fair, and enforceable ones. It also grants the FTC with increased power to protect consumers. Extended warranties are treated differently by each State and as a result are regulated in a variety of ways. In New York, for example, a service contract is not regulated as a warranty or as an insurance product, however anyone who wants to sell as service contract must be registered to do so.
Enterprise insurers begin specializing in product protection
Asurion and Amtrust are founded in 1995 and 1998, respectively. The emergence of large firms that specialize in product protection signals that this segment of the insurance industry has entered the mainstream. This push into the mainstream is fueled by the increasing availability of cellphones and consumer electronics in the 1990s. Today AmTrust and Asurion both own large portions of Amazon’s account.
Tech companies begin disrupting the insurance industry
Justworks is founded in 2012. The startup brings innovation to health insurance by aggregating product pools to decrease the risk taken on by insurers and increasing the size of the insurable market. In 2016, Allstate enters the product protection space by acquiring SquareTrade. This signals enterprise insurers’ acknowledgement of the value technology can add to their industry and encourages further innovation.
Clyde is founded (!!)
Clyde is founded in 2017, marking technology’s entrance into product insurance. Similar to Justworks, Clyde aggregates both insurance products and retailers while prioritizing access, design, and ease of use. Since Clyde’s founding, several other startups have followed suit, highlighting the large potential for technology to improve the product insurance industry.