Cell phones are ubiquitous and have become critical to social, professional, and leisure activity. The cost of a smart phone is expensive, typically well into the hundreds of dollars. To protect against loss, most manufacturers provide a limited warranty to cover certain damages to cell phones, but often it's for a brief period and may or may not cover perils that are introduced outside of the cell phone's component parts.
For example, a manufacturer's warranty would likely cover a component failure (e.g., the phone stops working) but not necessarily damage resulting from juice or wine spilling on the device. The latter exposes consumers to financial exposure that may not be covered without the purchase of a separate insurance product that is outside the manufacturer's warranty or an extended service contract.
Under most state service contract laws, a consumer's electronic device (the focus of this article is on cell phones) would have coverage if there was a component part that failed to perform as intended; in other words, the device breaks or has a mechanical failure. These types of losses happen, and the industry pays out millions of dollars in losses to consumers (via repair or replacement of the cell phone) annually. However, some states permit ancillary benefits, such as damage, to be covered under a service contract, but the laws are inconsistent across states and are not always clear.
Further compounding the dilemma, a producer's lines license is typically required to sell any type of insurance. To sell insurance, however, a seller must secure a producer's license with the applicable state and be appointed by the insurer. Prior to portable electronic insurance (PEI) legislation, this posed a problem because retailers and data service providers did not have the appetite, nor the desire, to secure such licenses for their sales associates, which are cumbersome, expensive, and time-consuming to secure.
To solve both problems (providing loss, theft, and damage coverage for consumers and thereby reducing the onerous licensing requirements for retailers and data service providers), there was an insurance industry push to pass state legislation to provide a consistent and clear structure around the product development, distribution, and licensing requirements of PEI. As of the publication date of this article, 49 states (all but Wyoming) and the District of Columbia have passed PEI legislation in some form, which provides much-needed clarity.
In brief, the legislation outlines the requirements for those engaged in the sale of insurance for the repair or replacement of portable electronics due to theft, loss, or accidental damage.
The most beneficial aspect of the legislation is the relaxation of requirements for a producer's license to sell this insurance. The following are four types of producer licensing requirements.
With loss, theft, and damage coverage, there is more expansive coverage than under a standard service contract, which typically only covers product failure or mechanical breakdown. Under PEI, coverage can include any of the following.
PEI is a critical product for consumers in light of the escalating costs of cell phones. With the unexpected loss, theft, or damage to a cell phone, a consumer's life can become incredibly disrupted, exposing them to moderate to extreme inconvenience. Having insurance protection—via PEI—can be an effective risk-transfer mechanism for consumers to help alleviate the challenges of a missing, lost, stolen, or broken device. Without the advent of PEI legislation, consumers would have limited or no access to this valuable product.
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