Wednesday, 21 February 2018
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Home Warranties Picking Up Steam

Home Warranties Picking Up Steam

One financial product which has been gaining popularity across the U.S since the 2008 subprime mortgage crisis is home warranties. A home warranty is essential a service agreement between a client and a company which guarantees to supply repairmen to fix, or replace, certain home systems and electrical appliances when they malfunction. In exchange, the client is paying a monthly premium in addition to a per-service-service-call fee.

Why did it catch on to the extent it did? A lot of it has to do with the psychological effects of the subprime crisis. 2.8m Americans lost their jobs, and as many as 10m Americans lost their home. These people, their neighbors, and essentially all Americans, are now being extra careful. More than 90% of all Americans had a health insurance in 2015, in comparison to closer to 85% in 2009 (some of which lost their workplace insurances as they lost their job, so the number prior to that was even lower). Although a home warranty is a far cry from a health insurance (it’s not even an insurance, but a service agreement) - it is also a form of risk mitigation. Replacing a refrigerator will cost several hundreds of dollars in one go. A washing might cost thousands.

The popularity of home warranties seems to have increased on a national level, as companies like American Home Shield has passed the one billion dollar mark in annual revenues during 2016. Although they do no publicly admit to the number of clients they are servicing, we can assume it is no less than 10m Americans, and that’s only one company out of dozens of service providers.

If we look at Google searches on a state-level, we can see the levels of interest in Florida are less than the national average. Florida is the third most populated state in the USA, but yet it is only the 30th in number of searches for home warranties. It can be rationalized by the comfortable weather conditions in Florida, but it’s hard to know whether this is indeed the reason, or whether it’s something else. The industry has been getting smacked all over the media for years now, and perhaps it has been getting particularly bad reputation in Florida. Still, the large majority of home warranty providers are happy to accept clients from Florida.

What does the future lies ahead for home warranties? That will heavily depends on the level of service and value this product will give clients. The industry is notorious for a high burn rate of clients who don’t renew their annual memberships because they were disappointed with the service. As long as this situation remains, home warranties in Florida and elsewhere in the USA will ultimately hit a glass ceiling and. If the product improves over the course of time, home warranties may become a household name used by the majority of people.

photo from Deposit Photos

 

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