On-demand insurance is replacing the extended warranty

The jig is up.

The word is getting out that there might be something earnestly wrong with the extended warranty.

The extended warranty has been troubling consumers and tricking buyers at retail checkout for long enough.

It’s time to bring it into the light.

The good news is the extended warranty has finally been replaced by something much more flexible, transparent and manageable: on-demand insurance.

On-demand insurance fixes seven significant problems with the extended warranty, which are also known as service or protection contracts, and in its stead present a smarter, more efficient option for consumers.

Extended warranty problems

No. 1: The extended warranty is sold at or near the time of sale, which pressures consumers to make an all-or-nothing decision quickly.

The extended warranty is generally only offered at the time you purchase an item or within a few days, at most 90 days. This “buy now or never” as a scare tactic causes undue stress. The only party enforcing this false time window is the seller of the extended warranty.

With on-demand insurance, there’s no pressure at the time of purchase. You can turn on coverage well after your purchase. Turn on protection right away or turn it on far after your purchase. It’s flexible and removes the false pressure put on the modern consumer to “buy now.”

No. 2: The extended warranty is expensive, and consumers pay well in advance (even when the product is already protected).

Consumers don’t experience the benefit of the extended warranty until after the manufacturer’s deadline expires, usually one year after they buy the extended warranty. Something is not right when people are forced to part with their cash a year before the benefit of the service starts to apply.

With on-demand insurance, consumers don’t have to pay one hefty price years in advance. Instead, they pay monthly as they go, like Hulu or Spotify, and only for the protection they use.

No. 3: The extended warranty requires less regulatory compliance (depending on the state) making it easier for anyone to sell it.

The extended warranty is not as stringently regulated by state government entities as insurance. (Some states don’t regulate service contracts at all.) With less government supervision, third-party affiliates and retailers can sell an extended warranty and charge whatever they want to make a profit.

Whereas: On-demand insurance is regulated and must be approved in all 50 states. Unlike extended warranty sellers, on-demand insurance is compliant, transparent, and cedes unprecedented control the intelligent, connected consumer.

No. 4: The extended warranty makes consumers pay for a contract that lasts 2-5 years.

Once people pay for an extended warranty, it becomes onerous to cancel it and get a full refund. It’s often a manual, time-consuming process through snail mail, and is meant to be as arduous as possible so you are less inclined to do it and the warranty provider doesn’t have to refund your money. Woodenly, extended warranties are often not transferable.

On-demand insurance doesn’t lock consumers into a contract for 2-5 years. They can turn it off with a simple swipe on your phone. No calls. No emails. No hoops or red tape to start or end a contract. Instead, a swipe on their phone (like Tinder) turns insurance off instantly. So if an individual gets a twinge of “buyer’s remorse,” don’t worry: Simply turn off coverage, stop paying, and feel better.

No. 5: The extended warranty offers premiums that don’t adjust.

Imagine buying a Nikon DSLR camera for $2,000-$2,999 and wanting to buy a third-party extended service contract for three years to protect it. Plug in the numbers at SquareTrade, an extended warranty company owned by Allstate, and you’ll receive a contract priced at $499.99, paid up front. However, at the end of the three-year term, that camera isn’t worth $2,000-$2,999, and yet the owner paid for coverage during that period for a $2,000-$2,999 device. The premium didn’t match the value of the item protected over time. As the value of the device changed, the premium stayed the same. Meaning, the consumer overpaid.

On-demand insurance automatically adjusts to match the market value of the item. This has never existed before. The monthly premium is calculated based on the current retail replacement value of the item. When that value goes down, say from new products introduced in the market, upgrades to the item, or simple depreciation, the quote adjusts accordingly.

No. 6: The extended warranty is almost never managed electronically. It’s “out of sight, out of mind,” by design.

Most warranties are not managed in the way that modern consumers expect: electronically, online, accessible by any connected device. Few of us keep the extended warranty information around since it was purchased long before the time it might actually be needed. It seems the extended warranty peddlers are hoping we will pay for it and forget.

On-demand insurance lets consumers manage all of their coverages from any device. If consumers insure a number of things from different brands (e.g., Apple iPhone, Taylor guitar, Ray-Ban sunglasses), they no longer need different retail and manufacturer accounts to keep track. It’s kept in a single digital, updated, and accessible account provided by the on-demand insurer.

No. 7. The extended warranty offers limited coverage with lots of conditions and loopholes.

Extended warranty/service contracts are limited to protecting an item in the event of an out-of-warranty mechanical breakdown, such as dust, internal overheating, internal humidity/condensation, and defects in materials or workmanship. Examine the fine print, however, and you’ll find the list of what is not covered will often be 3-5 times the length of what is covered. And almost every time, at the top of the not-covered list, it will say something along the lines of, “no lost, stolen, or irretrievable items.” These are the very risks most people are hoping their warranty will protect against.

On-demand insurance coverage is broader as it includes lost, stolen, and damaged items, and it’s global. It not only covers the same mechanical defects and promises to fix or replace items as an extended warranty, but also adds more types of events to its coverage, including accidental damage, lost, and stolen items. And it’s not limited to a geographic area. It works everywhere.

Yesteryear product

These seven problems with the economics and experience of the bygone extended warranty obviate its deceptiveness. The extended warranty has been exposed as an antiquated scheme that today’s consumers have learned to disregard as merely a last-minute sales ploy.

In its place arrives an InsurTech solution that delivers real value to people, offering full control over when to activate protection, fuller insurance coverages, and modern digital management.

So the jig is up: The extended warranty is on its way out. On-demand insurance is here.

Scott Walchek is founder and CEO of Trov. He can be reached by sending email to hello@trov.com.

These opinions are the author’s own.