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EXCLUSIVE: AppleCare+: Billion-Dollar Protection

EXCLUSIVE: AppleCare+: Billion-Dollar Protection | Fintech Finance

Apple are arguably the 21st century’s greatest tech innovators. From taking high-resolution images from metres away, to holding half a terabyte worth of storage, it’s no wonder why the iPhone tops the charts for most popular handheld. Yet, Apple does not make a profit from its products alone, as any semi-curious consumer (like me) would expect.

In 2011, Apple launched AppleCare+, an improved version of its now-discontinued AppleCare.

It, along with AppleCare+ with Theft and Loss, act as a type of unilateral service stop for the Apple User, an extension of their standard 90-day hardware warranty. When it comes to accidental damage, users can count on their AppleCare+ to kick in and repair or replace their hardware. It sounds trivial, a manufacturer offering additional services to its customers, but Apple has a unique approach to insurance, where they always come up on top.

In their breakdown of Apple’s Services Revenue, Trefis found that as of 2020, AppleCare – along with Apple Pay and Other Services, generated $8.8 billion in its total $54 billion earnings. This tops both their Apple Music and iCloud services.

How Apple accumulates so much wealth through these services is – as you would have guessed – through its high fees and complicated onboarding process.

First off, AppleCare+ is only available to people who bought their hardware directly from the company, so if customers have purchased their handset from third parties like O2 or Carphone Warehouse, this product excludes them. Upon buying the product there is a time limit, users must buy AppleCare+ within the initial 60 days – this is extended to over a year in the US and Canada – or risk paying standard fees out of pocket.

AppleCare+ comes with its respective perks. The complimentary 90-warranty upon buying the hardware is extended to 3 years, 2 accidental damage incidents per 12 months, and a myriad of mail-in and at-home repair options. For Theft and Loss specifically, customers have access to cover for two thefts or loss incidents per 12 months.

Claim payouts are how insurance companies lose money. Apple makes up for this through charging fees, which customers pay on top of their AppleCare+.

With accidental damage comes incident fees and deductibles. AppleCare+ customers can expect to pay a hefty sum for their cracked screen or damaged iPad, as the alternative of no insurance is extortionate.

Crunching the numbers, a screen repair for an iPhone 12 Pro Max without insurance is $329/£263, damage to any other part of the phone will be $599/£480. With AppleCare+ these costs are significantly reduced to $29/£23 for a screen repair and $99/£79 for other handset damage. Coupled with the $9.99/month insurance – the price fluctuates between apple products – this plan provides a drastically cheaper solution for customers. So the safety net provided by the insurance is almost too good to miss out on.

The fees cover what Apple stands to lose from the claim. Even with this ‘payout’, Apple benefits from a margin of returns.

It is a winning business model, both in terms of duration and pricing. Apple prices its standard repair services so high, that the reduction afforded by insurance makes the discrepancy look like it’s worth it. The 90-day/1-year initial warranty gives customers a taste of this protection that to all of a sudden not have, the customer would lose out tremendously, with no skin off Apple’s back.

Such an approach to insurance is not unique to Apple. Other mobile electronic companies, from Samsung to Google and their Pixel range, have followed suit and provided similar insurance products. Samsung Care+ is virtually identical to AppleCare+ in terms of the range of handsets it covers and the charging of incident fees on top of insurance. The only minor difference between the two is the pricing of said fees. The standard Samsung Care+ costs £3.99-£12.99 monthly, with added screen repair fees averaging out at £29-£249, depending on the plan you purchase. To repair the inside screen of the Samsung Z Fold 3 – Samsung’s most expensive phone – would cost £409 without insurance.

Outside of the mobile world, Product manufacturers as a whole are leaping into insurance and offering exclusive cover, mostly in the car insurance division. A popular example is Tesla and its insurance services. Regular insurers would sell cover for Tesla cars high, so the company launched its insurance, embedded into the buying process of one of their cars. At a lower asking price than general insurers, Tesla rakes in profit from both its car sales and insurance sales.

Thus emerges a trend in insurance where products will become more product-specific. More companies are beginning to offer embedded insurance options with their material goods to create another profitable avenue for gross. If they mirror the success of Apple, the fundamentals of personal possessions cover will shift to a more granular and independent product.

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