This isn't generally the point of insurance. The point of insurance is to amortise risk. Yes, the insurance company expects to, on average, get more money from insuring my house than the cost of any damage to it. But if something really bad happened to my house, it would cost far more than the sum of my insurance payments to fix it, and I don't have that sort of money. I am losing money on average, but I guarantee I will always have a house, so overall I am better off by reducing the extremeness of the worst case situations.
This is why I don't buy insurance or extended warranty for anything I can pay to replace. A company wouldn't offer it if they didn't expect to make money, and I can afford to replace a phone or my luggage, so I'm happy to just take the risk. I buy home insurance because I can't afford to replace my house and travel insurance because there are countries where emergency medical bills can bankrupt you. The government also forces me to buy third party insurance to drive my car, which seems fair enough since I can't afford to pay damages for someone permanently crippled from negligent driving.
In the case here for apple care, I'm not sure. What apple charges for repairs almost definitely has markup, so it's possible that they can provide insurance that averages out below the expected "cost" of repairs but still makes apple money. So maybe it is actually a win-win. Definitely makes sense to add it all up and see if you're getting value for money.
They started out insuring farms against calamities. If a farm burned down, it was a proper disaster: for the farmer, for everyone who worked there, and for the surrounding area relying on the farm for food. So the farmers got together and started the insurance company on the premise that it's better for all of them, together, to take a continuous economic hit than to live under a constant existential threat, individually.
It's not only that they continuously pay to be insured before the disaster happens, it's also the fact that if they are helped during a disaster, they can continue to contribute afterwards, for as long as the farm exists. Whereas, if disaster hits and they are permanently gone, that's a permanent end to their contributions, as well as a hit to the community in countless other ways.
This particular insurance company was non-profit from the start, and still is.
For device insurance, I agree that you pay mostly for peace of mind. But like parent, I'm not sure I'm willing to write off all insurance as a racket.
But that angle seems to have been covered already so just to be different - insurers also have the strongest incentives in the market to make sure risks don't play out. There is nobody with more at stake in the event of a bad flood or other disaster. The incentive structures around insurance (in a free market, though) are actually really healthy. It is probably the strongest argument against insurance being a racket short of not-for-profits.
It is fun to imagine a big US insurance cartel acting as the counterbalance to Big (Insert Industry Here) in a city planning meeting because they are worried about the risks.
This is usually because insurance hedges against tail risks that wipe out the individual, and in these cases utility is a nonlinear function of dollars.
Most people would rather pay 1% of their net worth to deterministically avoid a 1/100 chance of losing their entire net worth.
Because insurers pool risk, it ends up being simultaneously rational for the individual to carry insurance and profitable for the insurer to write insurance policies.
Investments are a similar kind of risk pooling, but for upsides. You would not gamble your entire net worth on a prospect with uncertain profitability, but a large number of investors each risking a small fraction of their wealth make it possible to raise capital for risky but possibly valuable projects.
Are you also against loans?
Insurance is just a way offload risk onto someone else for a fee. An insurance companies profits are not risk free, but they hope a large diverse pool of insured will keep them from being wiped out in a large event.
Most of us don't have a choice on whether to carry insurance or take out loans. I think it's more interesting to look at what the rich do, and from my reading it seems to be mixed depending on cost.
This isn't true. There are risks an entity with a billion dollars can profitably take on that a person with a thousand dollars can't. Insurance can reallocate those risks to leave both parties better off in expectation.
This model is clearly breaking down with really low interest rates, hence why you see insurance companies actually caring about premiums and investing in new technology/data to reduce the cost of claims/increase premiums on high risk customers.
When you bring in peace of mind and avoiding risk of ruin, those are utility concerns (which make purchase of -EV insurance sensible in many cases).
They poured a lot of money into political coffiers when CA decided to go to demanding auto insurance at DMV. (Before auto insurance was required, but not demanded. So basically if you wanted to chance it, you could drive witout insurance.)
Thus guy told me the Insurance induesty gives politicians the most amount of money, behind unions.
Why is the insurance industry so concerned with state bills?
I think we all know the answer. And I'm at odds at what the Insurance Commissioner does all day? I guess a VPS to Pornhub?
I went on-site to check it out. The company was amazing to me. A massive, newish building in the middle of a very wide expanse of corn fields. I felt like I had landed in the wrong state.
In the end, I thought their SCSI terminators seemed awful small. I brought one back with me and the hardware engineers found that the company making their computers had skimped on the terminators in some way. Switching to Iomega's own terminators solved the problems.
In your example, the farmers can't afford to replace their farms, so they buy insurance.
The fact that the insurance company in your example is a non-profit is incidental. The farmers have two risks when paying insurance: paying too much and the insurance company not paying out in a disaster. If the insurance company has perfect information, premium == risk probability and everyone wins. Since they don't, they probably have to slightly overcharge - which is OK for the farmers bc they can't afford to replace their farms. If they undercharge, that's also a big risk for the farmers, since insurance in a geographic area faces massive correlation risk. If an earthquake burns down all the farms and the insurance company goes under, the farmers just lost their farms AND all the premiums they've been paying.
Some cases are more trouble than they're worth.
For them to make money from offering the insurance, it would have to be a gain over their alternative of you not having the insurance and then paying them to repair the device if it breaks.
They also have to be making enough to cover the moral hazard. People who buy insurance are more careless because someone else pays for the carelessness, so the insurance has to be more expensive by the amount of the resulting increase in damage.
Mac repairs aren’t anymore, but non-Applecared people might switch off the Apple platform if the cost to repair is too high.
It’s possible that AppleCare is a win for both Apple (customer retention) and the customer (lower cost to stay within favorite ecosystem) because it is NOT a zero sum game between them - there are many other players in the game.
Now you're making the case for not buying the insurance because you have a way of paying less for the repairs out of pocket which makes the insurance less valuable.
> It’s possible that AppleCare is a win for both Apple (customer retention) and the customer (lower cost to stay within favorite ecosystem) because it is NOT a zero sum game between them - there are many other players in the game.
The theory being that if you pay out of pocket to Apple they have a $100 margin, but if you pay out of pocket to an independent repair shop they have a $10 margin, and Apple would profit from selling you the insurance by transferring that $10 profit from the independent repair shop to themselves.
By this logic they should also have lowered the price of their repair service to be price competitive with the independent one because then they would get more repair business and attract customers to their ecosystem by having lower repair costs. But they evidently prefer to have higher margins.
And claiming the independent repair shop's margins, evidently only in the case of the insurance and not for actual out of pocket repairs for unknown reasons, would only be possible if the independent shop's margins are larger than the cost of the moral hazard and all other administrative overhead of offering the insurance. But their margins are very slim.
I broke my 6s home key last year. The phone was 5 years old at this point. Apple would fix it, for $200 or so. A local guy fixed it for $30. But there is a difference (I was made aware of by both Apple and local guy before choosing):
Fingerprint reader would only keep working if Apple fixed it. Was it worth $170? Not to me. It might to someone else.
In this case, it’s way after the end of AppleCare. But these values (working fingerprint reader, and in general Apple certified original parts vs aftermarket) has a value that differs among people.
Apple decided they prefer to cater to those with higher value for this stuff - and they likely are right economically, as it likely lets them capture value in other places in the ecosystem.
P.s. still typing this from the same 6s.
Why should it break? These things have been out for a while now. They should be bulletproof by now. As in MIL-SPEC 810G. You can certainly buy phones that are. They're less bulky than iPhones in cases.
Exactly. _Given_ that this is a situation where I'd assume the vast majority of those who could buy the AppleCare brand of insurance could instead just pay for the replacement (how many people can afford precisely 1 macbook but couldn't possibly afford a second one? Some, but not many) - the only thing left to 'play' is to be so sure that you'd be the statistical oddity, that it is 'worth' it.
MacBooks are $1300 pros are around $2500. Most people consider that a large amount of money. A new computer is a big purchase for most people. Most would consider replacing one due to damage to be a big loss.
And if you did replace it, would you buy insurance the second time?
The insured population as a whole is a loser (in terms of dollars) or else Apple wouldn't sell the insurance, of course. But I'd guess that individual winners are still common enough - maybe 20%, 30%? - to not be an "oddity".
I did the math and it made sense to me for several reasons:
- historically, I've broken my phone about once every 2 years. I'd prefer to not use a thick case to protect my investment.
- the CAC on mobile phone repair is probably around $50.
- the cost to me for mobile phone repair is about $120, or more than the cost of the premium.
- the cost to Google to get the repair is probably like $60, because they are providing customers.
- so if there is 1 repair needed, Google makes money, I save money, and the repair shop makes what it would have without needing to spend on AdWords or something.
The most likely scenario is this, so most likely it's a profitable trade for everyone. If I don't use it, I get peace of mind. If I use it twice, Google "loses".
I consider it more like "prepaying for repairs at a steep discount" than "insurance". It can make sense in some cases. Home, car, and life insurance aren't nothing like this, as counter examples.
If you only take Apple's word for it. Their lawyer said in court they do not make any profits for their repairs. And may be running at a lost. Apple then also did a few PR pieces on how they lost tens of millions every year due to repair fraud.
I wouldn't say it is a flat out lie, but it is definitely a spin if you know anything about BOM and operation cost.
The AppleCare Services itself of course make additional profits, it is often the money making item for 3rd party resellers. Selling AC makes more profits for them than iPhone or Mac. If Apple can pass those on to retailers, you can guarantee Apple is making lots of profits on it.
As a matter of facts this is all just Insurance and Data Science. You can buy similar protection from other insurance companies, and you should immediately notice the price difference.
I don't think so. Insurance doesn't amortize risk for the individual (though it amortizes risk for the pool). Say you have a 1 in 1.000 years of your house getting destroyed in an earthquake; this means you most likely will never get a payout in a 50-60 years period.
If you pay 1 in 500 odds (the insurance makes money), you can never amortize this risk over your lifetime. However, such an event might be too catastrophic for you to bear, so you go with the insurance. I mean, some people are going to go through earthquakes/fires every year. So for society, as a whole, you are better off being insured.
> In the case here for apple care, I'm not sure. What apple charges for repairs almost definitely has markup, so it's possible that they can provide insurance that averages out below the expected "cost" of repairs but still makes apple money. So maybe it is actually a win-win. Definitely makes sense to add it all up and see if you're getting value for money.
That's Apple care for you. It certainly doesn't cost the markup that Apple's is asking for. But for people who are too deep into Apple, it provides them into a window of staying Apple compliant. People who do not care about Apple Care might be the one who needs it the most, but Apple might know that which is why they put a price on it. (this is solely my assumption).
I agree with your post overall, but this piece always struck me as incomplete at best. My state’s mandated minimums for 3rd party bodily injury are $20K per person, $40K per occurrence (and $5K of property damage liability).
In the scheme of things, those minimums seem like “technically, but not practically” being insured against the risk.
Separately I have several hundred thousand dollars of auto liability coverage but no collusion/coverage on the actual car, and am often surprised to learn others don’t do the same (with middle aged used cars)
Companies certainly offer 'extended' or longer warranties compared to a competitor as a selling point with the intention to deny all claims and issues. Asus is particularly bad about this.
1) would this be a loss I could afford to bear, if not most people insure and stop there (Home insurance, health insurance, Auto (liability), etc.)
2. If it’s a risk they can afford to self insure than the question becomes “does my view on expected losses differ from that of the insurer?” (E.g. I’ll definitely break an iPhone screen in the next two years so AppleCare pays for itself)
Side note: I think the real genius of AppleCare is that it’s priced extremely attractively and creates a great customer experience, but due to the sticker price of repairs, the math shifts to, replace vs repair when out of warranty…
They come in various forms, but mine covers anything from throwing a wii controller into a TV to losing your laptop in a bag or having it stolen. It also covers all family members and is $80 a year.
It does require you to pay the first $230 of damages, so it’s not very useful to protect smartphone glass or other small damages, but it covers all the big stuff and it makes “do you want to buy extra insurance for your appliance” really easy to answer with a no.
Here, too, some more expensive items and personal electronic devices (phones, laptops) are not part of the basic home contents insurance policy options but can be added for a small additional annual fee similar to what you have indicted, and they’ll usually want to know if any of those devices or items exceeds a specific value ($2000 last time I checked) and lost them on the policy.
I sort of get why too. I had an early long distance ebike, that cost me $3000 that I didn’t buy the extra insurance for because I always locked it in the basement. The one afternoon I didn’t, it got stolen. Right outside our apartment building in plain view of like 120 apartments, and basically in the middle of the university of Aarhus where we have security patrolling the roads every 30 minutes, a 23kg bike got stolen. :p
Anyway, the police and insurance process was basically a webworm that told me directly that the police wouldn’t spend time on it and then paid me my insurance money right away after I signed in with our national ID. When it’s sort of a free crime to steal bikes, it makes sense that insurance is hefty. On the flip side, I guess expensive MacBooks are stolen less often in Denmark than in Australia.
> This is why I don't buy insurance or extended warranty for anything I can pay to replace.
Yes, yet you're forgetting that this is only possible for privileged knowledge workers, as well as capitalists. That group of knowledge workers, specifically, is only a tiny percent of the working class overall (all those who are paid in wages, and who do not own capital such as land, machines or intellectual property, etc.), especially when you include both the working class in the global north as well as the global south.
For a lot of 'non -knowledge worker' working class people this threshold of affordability, for being able to buy a replacement when something breaks etc., is much much lower. They are forced to live paycheck to paycheck, and do not have the financial security available for emergencies.
Add to this equation the parasitic American credit card industry, and the toxic culture of excessive credit card spending they have created (which is reinforced and perversely rewarded by the US' shoddy credit rating system, no less) and your hypothetical scenario starts to crumble under the weight of the reality of the capitalist exploitation that the US working class has to deal with in the US today.
In other words, yes, you might be able to replace your iGadgets because you're cash flow positive due to your privileged position and ability to withstand the manipulation described above, yet many really cannot, by no fault of their own.
I am excited for the open protocol, cooperative, insurance/saving pools/mutual credit funds that are emerging; such as what is used in Enspiral circles (CoBudget.co)  and elsewhere, which allow small groups of people to build financial resiliency together without the ultra-financialized, rentierist capitalist insurance industry in the middle.
Another exciting alternative/example/experiment is the unemployment insurance circles in the Netherlands, called Broodfonds (translates to 'Bread-fund').
> So maybe it is actually a win-win
In the case of AC, I think it is a win-win.
Apple could make money and it still be a good deal for the customer. AC on a phone for example. If the user comes in with a broken screen they can pay $100 and get a replacement phone (or $30 for only a screen). The replacement phone didn't cost Apple anywhere near retail (they are probably refurbs), and it cost the user $100+AC cost.
It also keeps users in the Apple ecosystem, and in part leads to their very high customer satisfaction scores. As someone who has used AC a number of times in the past, it's very nice to walk into any Apple store with a broken phone and walk out 15 minutes later with a new phone.
I think this is something that should be taken into balance.
It's probably less the case with an iPhone, but there is value in the insurance being able to quickly get your widget back to a wrking state.
Say you're a contractor and your computer breaks down. You're not just out the price of a new computer (or of the repairs) but also the fact that if you can't replace it right away, you're losing billable days, maybe weeks. My sister needed to wait a few weeks to have her new Lenovo laptop delivered, and it had no custom options. I wouldn't be comfortable with so long a lead time if my income depended on it. If they're able to deliver on the next business day repair, then it's completely worth it.
For all of those repair estimates you could've bought one or even two similar devices from other brands. I understand that people get locked into the Apple ecosystem, but even then they should be able to spot these outrageous bills, shouldn't they?
Apple can greenwash their product all they want but as long as it's cheaper to buy a new device from their competitors each year than to repair their old devices, their claims can go right intotthe garbage.
I've paid €200 for a screen repair on my phone, of which the part itself cost about $120 (because I couldn't be arsed to learn how to use a heat gun) for a screen that's bigger and is frankly of better quality than that of a similarly sized iPhone of the same build year. The screen replacement service was a third party, so they didn't even have the advantage of controlling the flow of replacement parts to repair centers, instead having to buy the components off the internet. Apple's repair program is a complete sham, and the fact someone has needed this many repairs in only three years is a testament of their devices' lack in build quality to boot.
As most repairs (screens for example) are capped within the AppleCare period and carry an excess I think the only situation where Apple doesn't make a profit is when breakages and faults are solely their fault and a result of poor engineering. As we all know, they are terrible at admitting fault in these instances because what it could cost them is mind-boggling.
The other point I took from this post is how increasingly fragile these devices are. Aside from a pre-unibody 17" MacBook Pro that regularly fried it's components, all my iDevices have been pretty reliable and sturdy. That said my iPhone 7 Plus suffered a smashed screen from far less abuse than my 4S did. Equally my wife's new 12 Mini seems even more prone to damage than the 7 Plus.
If I was repairing or replacing devices as much as he seems to be (particularly headphones) then I'd be reconsidering my purchasing preferences. You wouldn't buy a car where where misfires and free replacements are expected (as with most AirPods and crackling issues) - you would find an alternative.
Out of all of my Apple devices, my Airpods are probably the "most essential" behind my Mac and iPhone. Working from home all day and taking calls, being able to handoff between my iPhone and Mac is a true game-changer.
Both my Airpods fell victim to the crackling issue and had them both replaced. I did consider another brand for a moment but I ended up sticking with the Airpods because of all the other benefits.
It's hard to leave Apple products, I'm sure their are better ones out there for every category, just the way they make everything work so well together, it provides so much relative benefit that the drawbacks are acceptable.
5 years in Scotland, 6 in England; I can't recall what Ireland has but believe it is in the same region 5-6.
However one has to know it exists, and argue the point with the supplier, and they will often try to push back.
Added: This is for the goods being of merchantable quality, not for accidental damage.
2. Why are repairs so damn expensive? Several hundred dollars each to repair a scratched screen or replace a torn earcup fabric!?!?!?!?
Louis Rossmann's videos are definitely worth watching.
The upgradeability has certainly decreased, but unlike most laptops on the market the losses in most ThinkPad lines typically felt like genuine tradeoffs rather than the product of laziness. I, for one, don't want a machine that weights 2.5 kg or more, and this is possible with the modern ThinkPad line while still having a replaceable keyboard, 14" display, RAM, 2.5" disk drive, two batteries, WLAN, etc.
• “1010 Battery pack” on page 67
• “1020 ExpressCard blank bezel” on page 68
• “1050 DIMM slot cover” on page 73
• “1070 PCI Express Mini Card for wireless WAN” on page 75
• “1080 Keyboard” on page 77
• “1110 PCI Express Mini Card for wireless LAN” on page 85
• “1120 Keyboard bezel assembly, FPC cable, and Bluethooth daughter card” on page 87
• “1150 Speaker assembly” on page 95
• “1160 LCD unit” on page 97
I had many laptops and I can say that the accessing the fan assembly was far easier in non-thinkpad ones. I like to clean the fans by directly accessing them, a gust of compressed air cleaning it is wishful thinking.
I'm generally happy with Apple products, but Beats products specifically have very poor build quality, and from talking to genius bar employees when mine were broken, "repairing" broken headband/earcup/etc. = giving you a new one. I don't touch anything Beats now.
My home insurance is merely about 130 € per year and covers all of the accidental damage to all Apple (and all other) products in my home. Granted, the deductible is 150 €, so I'd only be able to get the screen repair of my Apple Watch down to 150 € (instead of $99), but it seems like hell of a lot better option than buying AppleCare.
In the US, the average policy is around $1,500/yr, the deductible is $500-$2,500, and your rates will go up the more claims you make -- so obviously nobody uses it for a damaged phone.
I'm baffled by how UK insurers could possibly turn a profit on insurance... if people were filing a claim for every piece of technology they owned every time they accidentally damaged something, it seems like that alone would make it unprofitable. Not even accounting for, you know, actual theft and home damage.
I feel like something's missing here but I can't tell what.
Here it's split into home insurance and contents insurance, if you rent you only require contents insurance but if you own a house you generally get both combined.
For my house (home and contents), I pay about £250 which is quite a bit higher than usual because this area had a history of flooding (before they put flood defenses) and I insure some high value items extra which increases cost.
My excess (I guess you call it a deductable) is £250.
if you open this link, give a random name, phone, email, and set place to delhi, property value to lets say 2 Crore and home contents value at 10 Lacs, which is around us $ 284,000 and that is a big big home in india. 95% cant even afford it. anyways, for this huge property value, the monthly premium comes at a mere USD $ 11/month. yeah.
They really should have done this with their Services Strategy, not trying to push Apple Music, TV, App Store etc.
Those expensive but cosmetic fixes aren’t the kind of thing you use insurance for generally. If you are Apple you might be happy to keep your customers on the latest OEM accessories and machines in good repair. Profit on the plan isn’t the only reason to offer AppleCare. Keeping consumers buying the next greatest Apple device might be part of how Apple value AppleCare. Apple may be designing the coverage to be used as the author is using it in which case makes the plan less profitable than we all might imagine. However the overall customer lifetime value benefit to Apple is probably still positive.
This article threw me, first with the "you're" in the caption, then the muddled second paragraph. It's a "Where's Waldo?" of grammatical errors. I lost count.
iPhone screen repairs cost almost $400??
OLED has actually been cheaper than LCD since 2020 for Mobile Display Panel at the same PPI. Even at it peak ( iPhone X ) including glass it wouldn't cost Apple more than $120. Right now it down close to $80. Mostly because Apple insist on using flexible display and how they blend the notch.
There are plenty more OLED cost optimisation coming in the next 10 years.
I use laptops, pretty much exclusively, though they spend most of their lives docked. They run continuously, for 10-16 hours per day, fans whirring (Xcode, dontcha know).
I treat my computers well, but ride them hard. Cosmetically, they always look great, but I have had some severe problems.
My 2017 MBP suffered multiple problems at once, and they ended up replacing pretty much the entire internal computer (not sure why they didn’t just replace the whole unit).
Sadly, I've had to have enough major defects that while I'd continue buying Macbooks, I'd have to buy the extra coverage, and I guess that's probably by design.
I then spilled beer over the replacement and was able to get basically the entire laptop replaced for the ~£300 accidental damage charge. I might have been able to claim this on my home insurance, but again, much more straightforward with AppleCare.
Not sure I'd bother on lower priced items though.
Think of it this way, laptops by their nature do not fair well under heavy usage in the year after Apple designed them to last.
But this is only for 3 years??? Some people are just prone to break stuff I guess.
a) if catastrophic risk is infinite - no premium will be acceptable due to price.
b) if catastrophic risk is discrete - it is optimal not to insure since the expected loss is ruinous anyways.
Led me to be highly skeptical of all insurance ever since. Paying out of pocket previously felt scary - now it feels good since I know I am saving money with acceptable risk.
Of course - I am more than happy to have mandatory insurance for healthcare, liability, etc. since I am not living in the US.
Going back to my game theory text books now :)
An insurance company makes money because they don't expect many of these cases to happen at once. But that's not a position you should take.
Or you do what I do and live with the cracked back screen on your phone, because it is under a case anyway.
How much does that policy cost?
Are you hedging against running into a gas pipeline, school bus full of children, or something along those lines?
I'm honestly really curious about this.
This car insurance costs me around 40€/month, but there's a steep curve based on how many years you've been free of damages. A new driver would pay around 6 times as much, AFAIK.
The reasoning behind the high damage rate is indeed the risk to it injure a child for life. In that case the insurance will cover lifelong costs.
We have an umbrella liability policy for 100M EUR - generally recommended in Germany. Our home insurance is less than 300 EUR/yr. Most expensive insurance we have is long-term disability. However, we do not insure older used cars for anything other than liability, and certainly never insure consumer electronics. If a month’s pay could replace it, or it’s not something that absolutely must be replaced right away, we wing it. Insurance is for risks that we could not cover from savings or that would cause long-term financial hardship, not disappointments.
"A casino offers a game of chance for a single player in which a fair coin is tossed at each stage. The initial stake begins at 2 dollars and is doubled every time heads appears. The first time tails appears, the game ends and the player wins whatever is in the pot. Thus the player wins 2 dollars if tails appears on the first toss, 4 dollars if heads appears on the first toss and tails on the second, 8 dollars if heads appears on the first two tosses and tails on the third, and so on. Mathematically, the player wins 2^(k+1) dollars, where k is the number of consecutive head tosses. What would be a fair price to pay the casino for entering the game?"
The expectation value for how much you'll win from this game is infinite, so a naive game theory assessment might conclude that it's worth paying up to an infinite amount of money to play this game.
Of course, the issue is that nobody has an infinite amount of dollars in their pocket. That, incidentally, is also the issue with your naive assessment of insurance policies.
I'm not sure if this still holds if you account for inflation. They really screwed the pooch on that one, so it wouldn't surprise me if it did.
If you are interested in this and want to further your studies in this field try looking up this thing called "Prospect theory", it's like game theory+.