What Movies and Cars Tell Us About Handset Insurance
Why are companies disrupted and beaten by new, initially weaker competitors? Because they’ve gotten slow, they’ve stopped innovating, and they’ve stopped working in the best interest of their customers. This allows a new attacker to steal market share by better serving customers and, in the process, reshape the industry paradigm.
If you look closely enough, certain markers emerge indicating an industry is ripe for disruption: stagnation in product innovation, short-term focus on profits, and a high cost structure. Stagnation occurs when customer needs change and product features don’t keep up. A focus on short-term profits comes from either a narrow focus on particular, highly profitable customer segments or from cost-cutting. This narrow focus can degrade the customer experience and make it challenging to justify future investment. High-cost business models are generally vulnerable because they require more revenue to support them. Depending on the profit margin, they may also leave little to invest in innovation or customer experience.
We see all three of these disruption markers in the handset insurance industry. Exploring how these dynamics play out in other well-known industries, like movie rentals and cars, illuminates universal trends.
Netflix vs Blockbuster
Blockbuster was slow to adopt new technology, including DVDs and ultimately streaming. They failed to see the threat from Netflix because of their dominance of in-home entertainment. They were unwilling to give up their complex rental structure with confusing rental windows and late fees because they were focused on short-term profitability. Blockbuster had high fixed costs from their store footprint, physical inventory, and retail employees.
Netflix offered a superior customer value proposition in multiple ways. They provided a much broader library than Blockbuster ever could. Netflix allowed customers to rent on their own timeline, returning the DVD whenever they wanted with no fees: there was only one, flat price. In addition to forgoing physical stores, Netflix got more views per DVD than Blockbuster because of features like the content queue and algorithm-driven recommendations that drove demand for back titles, and they invested in technology to lower their operational costs (e.g., automatic envelope opening and DVD sorting machines).
Netflix didn’t just unseat Blockbuster as the category champion. They redefined the industry paradigm for in-home entertainment. We see this in the rush of new streaming apps. It wasn’t just a wake-up call for Blockbuster — the whole entertainment industry shifted.
Tesla vs Detroit
While the Netflix vs. Blockbuster story is from the past, another disruption is currently unfolding on our roads. When Tesla debuted, they were dismissed as niche and amateur, rife with production problems. They’re now worth more than the Big 3 Detroit automakers combined¹. Just like Netflix, they did it by better meeting consumer needs while exposing their competitors’ vulnerabilities.
The Big 3 dismissed changing consumer preferences towards electric and hybrid vehicles, continuing instead to focus on higher margin legacy vehicles like pickup trucks. With employees who had spent most of their careers in automotive, they designed cars to be only incrementally better rather than designing anew. Their distribution model (dealerships) is famously intimidating to customers. High labor costs, legacy costs (e.g., pensions), and expensive distribution via dealer networks make Big 3 cars more expensive to build than even traditional competitors like Toyota.
Tesla succeeded by addressing these shortcomings directly. Product innovation and customer experience were central to their entry into the market. They hired engineers and designers from tech, consumer goods, and automotive who considered the customer experience holistically. For example, most in-car controls are via touch screen since consumers are used to this experience from smartphones and tablets. Customers can buy a Tesla online, forgoing the dealership.
Finally, Tesla’s cost structure is lower than their competitors in key ways. Not only did they avoid the legacy costs of the Big 3, but they were also able to capitalize on some of Detroit’s legacy investment mistakes, such as buying the old GM/Toyota NUMMI factory for only $42M — a relative steal². Their lower cost structure allows them to invest heavily in key electric car components, like battery technology.
Once again, this isn’t about Tesla — it’s about the way Tesla has prompted the industry to change. Multiple startups now allow you to buy cars online, even if you pick it up at a dealership. Electric cars are projected to double their market share this year and account for 10% of all cars sold in 202⁵³.
How is this relevant to mobile handset insurance?
Handset insurance shows similar traits to Blockbuster and Detroit.
A lack of competition is stifling product innovation. The 3 largest providers share a cozy oligopoly, protecting fat profit pools and steadily increasing prices. Handset insurance was developed for flip phones when phones cost a lot less and were less central to our lives. Now that our lives are on our phones, coverage that only protects against drops, damages, and loss is outdated.
Furthermore, the largest players focus on short-term profits over customer experience. Handset insurance is just that — insurance. They make consumers navigate complex claims processes with confusing rules while getting passed off to third party call centers. This helps keep claims rates down — which means insurance companies dampen payouts to consumer and improve profits — but also means customers don’t have the device experience they deserve.
Traditional handset insurance requires call centers, claims teams, and a refurbished phone inventory, all of which add up to a high cost structure. High cost business models make for a bad customer experience for consumers, but also makes the industry vulnerable to a new competitor with a fundamentally lower cost structure.
Handset insurance is ready for disruption. It hasn’t evolved with consumer needs, it focuses on profits over customer experience, and it relies on a high cost structure. The stage is set for new thinking and better solutions.
At Kingfisher, we’re pioneering a fundamentally better device ownership experience. We’ve built customer-centric solutions that make life easier, not create unnecessary complexity for carriers and their consumers. We bring together diverse perspectives from within the industry and across consumer products, mobile devices, and consumer finance to reimagine what’s possible rather than tweak legacy insurance models.
We partner with brave, industry-leading carrier partners to transform the industry, today and tomorrow.
¹Tesla Now Has A Market Cap Larger Than The Big Three Combined (fordauthority.com)
²Tesla paid only $42 million for Nummi plant (sfgate.com)
³Electric cars will double their market share in 2021, forecast says — Roadshow (cnet.com)