Several Warranty Upstarts Making Industry Inroads

By Alan Wolf On Feb 13 2012 - 6:01am

NEW YORK – A number of recent and not-so-recent entries into the extended warranty arena, including SquareTrade, Worth Ave. Group, Safeware and FreeWarranty.com, are looking to disrupt the industry apple cart through direct sales, more liberal terms and lower prices.

Of the three, SquareTrade has attained the highest profile with its promise of a potentially “much better warranty for much less than what the retailer offers,” with savings of 40 percent to 70 percent below traditional CE protection plans.

Founded in 1999, the award-winning business boasts millions of customers and consistently high end-user ratings, and last month received a $238 million infusion from affiliates of Bain Capital, which took an equity position in the company.

Financial terms of the private transaction were not disclosed, but SquareTrade said the funding “will position the company to drive the next phase of growth in the consumer warranty market.”

“We are very excited to partner with Square- Trade, which is disrupting a $20-plus billion global industry with its innovative approach to warranties,” said Mike Krupka, a managing director of Bain Capital Ventures. “We were attracted by the incredibly high satisfaction levels among consumers and retailers, along with the vision of co-founders Steve Abernethy and Ahmed Khaishgi, and their ability to execute the plan to build the first great brand in the space,” added Phil Loughlin, a managing director of Bain Capital Partners.

SquareTrade, which is underwritten by Warrentech parent AmTrust Financial Services, has moved beyond its initial direct-to-consumer business by partnering with more than 30 retailers and marketplaces, including Abt Electronics, Amazon.com, Buy.com, Costco, eBay, Vann’s, and most recently Sam’s Club, which last month began offering what it described as “extreme value” mobile phone protection plans from the upstart provider.

In a statement released to TWICE, Abernethy, who serves as SquareTrade’s CEO, noted that the company is focused on investing in service and technology to provide lower prices and a better warranty experience for consumers; creating high brand visibility and awareness; and increasing its partnerships with retailers, who can benefit from “happier customers and much higher sales.”

“SquareTrade is demonstrating that consumers demand transparency and value,” he said.

Elsewhere, Stillwater, Okla.- based Worth Ave. Group, a fullservice CE insurance provider, is doing a business in straight replacement cost coverage for the accidental damage or theft of TVs, iPhones, iPads, laptop and desktop computers, digital cameras, PDAs and other CE devices.

Unlike an extended warranty (which typically excludes theft), insurance can be purchased at any time and there is no limit on the number of claims that can be filed in one year. Another key selling point is the affordability of Worth Ave.’s plans. Annual coverage for an iPhone 4S, for example, is $89 with a $50 deductible, which compares favorably to other iPhone warranties that, the company claimed, can leave consumers unprotected and potentially responsible for hundreds of dollars in replacement costs.

“Most iPhone owners are unaware of just how much it will cost them each time they have some sort of accident,” said Aaron Cooper, marketing director of the 41-year-old firm. “Unfortunately, a warranty only protects you the first time. If it happens again, you either purchase a new warranty and pay the deductible or spend the money buying a new phone.”

The company is underwritten by A.M. Best “A”- rated Hanover Insurance and is licensed in all 50 states.

Also vying for the direct-sale market is Columbus, Ohio-based Safeware, a 30-year-old insurance and extended service plan provider. Underwritten by Assurant Solutions and Fortegra Financial Corp., the company sells coverage online and through retailers to insure smartphones, tablets, laptops and desktops against accidental damage, theft, fire, floods, falls, power surges, spills, cracked screens and other mishaps.

A new variation on the theme is Freewarranty.com, a largely CE-focused comparison shopping site that doubles the length of the manufacturer’s warranty at no charge when a product is purchased through the platform from a participating retailer.

For their part, the industry’s leading administrators and underwriters appear undaunted by the disruptive potential of lower-priced protection providers. “Our clients want a warranty provider that’s financially stable, provides great customer service, helps promote their brand and ensures they can stay on the cutting edge of product innovation,” stated James Mostofi, president of Chartis’ U.S. warranty division. “That’s the value proposition that Chartis provides, and we’re confident it will help us continue to be viewed as the industry’s most reputable and customercentric warranty provider.”

Charles Pipia, president of Global Warranty Group, concurred. “While low-priced providers must always be recognized, we believe that there is no substitute for providers who offer quality driven programs, deliver the highest service levels and promote an exceptional customer satisfaction experience. Just as there will always be a market for low priced programs, there exists a large segment of retailers that prefer to offer end-users programs that offer exceptional coverage, benefits and service levels performed by experienced and highly trained professionals.”

Jennifer Monasterio, president of Mack Worldwide Warranty, said the business has succeeded since 1938 “based on the sole principle that our first priority is our clients and customers. We believe that the relationships we have with our clients is what truly drives the sale and success of the product. Without these relationships low prices and marketing schemes don’t hold any true value.”

Mike Frosch, president/COO of The Warranty Group’s North America consumer products unit, lauded SquareTrade’s savvy marketing but questioned its pricing posture. “It cost the same to have a product repaired no matter where you buy the plan from,” he said, and pointed to the price delta between SquareTrade coverage that is purchased directly from the site and through its retail partners. “You can’t be everything to everybody. The vast majority of plans are purchased through retailers and manufacturers, and that’s who we want to bet on.”

Sean Stapleton, CEO of Warrantech, acknowledged that this next-generation of providers “has certainly introduced more competition into the marketplace and provides consumers with more options,” and Warrantech welcomes it. “We believe that competition is a good thing; it forces us to constantly challenge ourselves to achieve greater efficiencies and introduce innovative new solutions, while continuing to provide outstanding customer service.”

Keith Meier, senior VP/general manager for extended service at Assurant Solutions, is similarly “a big believer that competition, whether it’s a product or company, is an overall very good thing.” But he also believes that third-party brands are more interested in introducing and converting customers to their brand. “Smart retailers who value service relationships with customers realize this,” he said. “We are focused on enhancing our clients’ brands, enhancing customer affinity and long- term relationships for them. We have always invested in creating new products and capabilities with the idea of staying a couple steps ahead of what exists in the industry today.”