The extended warranty market in the UK is expected to grow on the back of positive trends in the consumer electronics and car markets; however, UK insurers risk standing on the sidelines, a new report by Timetric finds.
According to the report, increasing sales of durable goods helped the extended warranty insurance industry to stop a negative trend in 2013 and is likely to bolster growth in the next five years. Timetric expects this insurance market segment to exceed £400m gross written premiums in 2018, growing from £350m in 2013. This forecast, however, stays behind the general UK economy estimates as it is questionable whether the insurance industry can fully profit from the economic upward trend in the country.
This is partly because extended warranty insurers have to compete with a large group of retailers offering non-insured service-backed extended warranties to their clients, according to Steffen Mueller, financial services analyst at Timetric.
“Retailers are already in contact with potential extended warranty customers as they sell the base items in their stores. Therefore, they do not always see the need to collaborate with an insurance company to provide service plans, instead they opt to finance them in-house,” Mueller says.
“In order to profit from the expected rise of consumer spending on durables, insurers should aim to increase direct sales through websites and phones as third-party providers and separately from the point of sale of base items,” he adds.
Besides the strong competition in non-insurance, there is yet another obstacle in the way of growth in this insurance sector as negative public perception of extended warranty products strains the outlook. Consumer surveys show strong concerns about fair value for money for peace-of-mind products like extended warranties; moreover, consumer-focused websites advise to compare those products carefully and warn against possible scams.
“The easiest way to boost growth in the sector seems to rise the percentage of customers opting to add peace of mind to a bought item,” Mueller says. “To achieve this, insurers must overcome the fairly bad reputation of extended warranties and they could start by providing more transparency concerning the underwriting and the price calculation of extended warranty policies.”
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