Eric Arnum is the editor of Warranty Week, an online newsletter for warranty management professionals. Since 2003, Eric Arnum has been publishing reports on product warranties, extended warranties, and claims rates in various industries. Warranty Week has gained a broad following among manufacturers, retailers, servicers, and insurance professionals.
Guest author, Eric Arnum examines the market size and sales growth of service contracts and product protection plans
Product protection plan sales to U.S. consumers have been relatively flat for three years now, and that's the good news. The bad news is that everything changed in 2020 as the global pandemic took hold, forcing many retailers and dealerships to close for months. While online sales continue for some products, the successful sale of protection plans relies heavily on the advice of a salesperson. And as the old saying goes, it's easy to say "no" to a click box on a webpage.
Warranty Week estimates that sales of protection plans to U.S. consumers in eight different product categories were down about 0.4% last year, after peaking at $46.96 billion in 2018. Sales were down in four product categories: vehicle service contracts, mobile phone insurance, jewelry service contracts, and retail consumer electronics. But sales were up in four others: home warranties, retail appliance service plans, computer manufacturer extended warranties, and furniture protection plans.
A 7.6% growth rate in-home warranty revenue led the increases, while a 1.5% drop in vehicle service contract revenue led the declines. Retail appliance plan sales rose by 4.6%, but mobile phone insurance dropped by 1.4%. It was a decidedly mixed picture in 2019, but the declines won out in the end, with total revenue for all eight product categories falling by $188 million to $46.77 billion.
The largest category by far continues to be vehicle service contracts, sold primarily by dealerships to the buyers of new and used passenger cars and light trucks. Though sales fell by about $275 million last year, the category continues to account for almost 40% of the entire product protection marketplace. Next is mobile phone insurance, which has an approximately 22% share of the pie. Sales fell by about $150 million but continued to exceed $10 billion for the third year in a row.
Home appliances continue to be a bright spot in an otherwise past-the-peak landscape. Consumers have several options when it comes to protection plans, and both showed growth last year. Some consumers prefer to buy service plans from retailers alongside their new appliance purchases. Others prefer to protect all their appliances through a single home warranty plan. Both categories grew in 2019 – home warranties by $200 million and retail plans by $70 million.
Outside of these consumer segments, the business-to-business sale of protection plans continues to grow. For instance, sales of extended warranties by five top truck companies to their business customers topped $1.4 billion last year, a 17% increase. Paccar Inc., one of the largest providers, sold just under half a billion dollars' worth of protection plans to its business customers last year.
However, the outlook for 2020 is unclear. Outside of food, retail sales of everything from airplanes to air conditioners have plunged. And while online sales have softened the blow somewhat, it is exceedingly difficult to convince online shoppers to buy the extended warranty, compared to in-person sales. Yet the early signs are positive. Last week, Assurant Inc., the world's largest protection plan insurance company, reported a 16% increase in net earned premiums during the first three months of the year. And it reported growth in both the automotive and mobile phone segments, compared to early 2019.
Learn how to increase the sale of service contracts and product protection plan.
Mize is hosting a webinar with Eric Arnum and experts service contracts from Mize on May 19th at 1pm EST/12PM CST. During this webinar, you will learn about:
- 2020 Extended Warranty and Service Contract Benchmark Survey Results
- State of Warranty and Service Contracts Industry
- Tools & Technology to Maximize Service Contract Sales