Research reveals most consumers do not understand what gadget insurance covers

• Most consumers did not plan to buy insurance for gadgets such as smartphones and tablets until it was sold to them as an add-on at the point of sale

• Majority of consumers did not understand what was covered, while some consumers may be paying for cover they do not need

• Findings from the research will complement a Central Bank review of firms

The Central Bank has published the research report Consumer Experience of Purchasing Gadget Insurance, which was undertaken to examine consumers’ attitudes, behaviours and experiences when buying insurance for gadgets such as smartphones and tablets.  The research also sought to understand the impact of any potential behavioural biases and identify potential risks in this area.

The research found that:

• The majority of consumers did not understand their cover and thought it covered more than it did, and some consumers may be paying for cover they do not need.

• Most consumers did not plan to buy gadget insurance until it was sold to them as an add-on at the point of sale.

• A significant majority of participants in the focus groups (who mostly bought in-store) stated that the gadget insurance was sold to them as part of an add-on purchase when buying a gadget, usually a smartphone or a laptop, with most purchases based on verbal explanations of retail staff.
• Focus group participants often justified their decision to purchase gadget insurance assuming it covered the “basics” such as general repair/replacement and screen fixing at no extra cost.

After further questioning, few participants seemed familiar with the details of the exclusions and excess related to the policy. Some deemed certain policy terms to be unfair such as excess costing more than the repairs, application of waiting periods, no cover for under 18s and restrictions on the age of the gadget and the place of purchase. The research also found that participants were unfamiliar with requirements to report incidents to Gardaí, and requirements to report such incidents to Gardaí within specified time limits.

The quantitative survey supported these findings with:

• 29% reporting unawareness of the requirement to report theft/loss to the Gardaí;
• 45% expecting ‘wear and tear’ to be covered; and
• 77% expecting to be offered a new device in the event of a device needing to be replaced.

The report also highlights that:

• 12% of the adult population (440,000 consumers) held gadget insurance (at the time of the research) however, as many as 24% were likely to have held it within the past two years;
• 21% of respondents failed to cancel previous policies after taking out a new policy – in doing so, they were paying for cover they no longer needed.

Findings from the research are being used to complement a thematic inspection of the sale of gadget insurance products in relation to product oversight and governance requirements.  Findings of this thematic inspection will be published in 2018.

Director General Financial Conduct, Derville Rowland, said:

“Having analysed this issue from the consumer perspective, our focus is now on completing our inspection of firms, and ensuring that the best interests of consumers are protected.

Phones, laptops, tablets and other gadgets form part and parcel of our everyday lives, and a significant proportion of the population hold insurance on these devices. The firms who develop and sell these insurance policies have a regulatory responsibility to ensure that the products are properly designed to meet the needs of the consumers they are sold to, and that they are sold in a fair and transparent manner. Firms are reminded of the requirement to have strong product oversight and governance arrangements in place for the manufacture and distribution of these insurance products, in order to ensure that the best interests of consumers are protected.

Given the research also highlighted misunderstanding of policy cover, consumers who may be considering purchasing gadget insurance over the festive period may wish to consider the types of exclusions and excesses highlighted in this research, to see if they are included in their policy, and to determine if the cover they are offered meets their needs”.

ENDS

Notes:

Methodology used

The research comprised of a two-part process incorporating both qualitative and quantitative research methodologies:

·       Qualitative research included eight focus group discussions (with 6-8 participants in each group) among current and past holders of gadget insurance.  All focus group participants had held gadget insurance in the past five years, at least three held gadget insurance at the time of the focus groups and two or more have had claims experience of some sort in relation to gadget insurance.

·       Participants represented a cross-section of age groups, social class backgrounds, regions and phone contract types (i.e. prepay and bill pay). 

Participants in three of the focus groups were set pre-research tasks (review sample real life policy documents) to boost their sensitivity/knowledge of the area.

Behavioural scenarios were used within focus groups (using real life policy samples) to further probe consumer understanding of gadget insurance cover and exclusions, how they responded to a typical sales environment and why they behaved the way they did.

·       Quantitative research included 

o   An online interview of 700 consumers who have purchased gadget insurance, from any source (i.e. insurance firms selling directly to the consumer, retail intermediaries or retailers) in the past 2 years.

o   A face-to-face Barometer survey conducted on a nationally representative sample of adults aged 16 and over to weight results from the online survey.

Behaviours & Attitudes were commissioned to undertake the fieldwork that supports the findings in this research report.

Background to research

Insurance and protection risks were identified as a potential consumer protection risk in the Central Bank’s 2017 Consumer Protection Outlook Report. Firms were reminded of their responsibility to ensure that information provided to consumers (in relation to the level of cover an insurance policy provides) is accurate, clear and easy to understand and that the policy offered is suitable for the consumer. It is within this context that a thematic review of add-on insurance products, specifically of gadget insurance, and an analysis of the market and related key issues, was prioritised by the Central Bank.  This research was undertaken to support this work.

Current product oversight & governance requirements

The European Insurance and Occupational Pensions Authority (EIOPA) have issued preparatory guidelines in advance of the introduction of Product Oversight and Governance (POG) requirements under the Insurance Distribution Directive.