As cell phone robberies have soared nationwide, phone companies have found a lucrative side business offering insurance to customers who are anxious their devices may be lost or stolen.
The top four wireless carriers will earn more than $7.8 billion this year in insurance premiums from their customers, according to an estimate by Warranty Week, an industry trade publication. Asurion, a phone insurance company that pays the wireless carriers for each policy they sell, made an estimated $98 million in profit in 2010, according to Businessweek.
“If you do the math, the phone companies are making out like bandits," said Richard Doherty, a director for Envisioneering Group, a market research firm.
Now, a top prosecutor is claiming that phone companies looking to preserve their profits from selling phone insurance are standing in the way of a solution that could protect consumers from violent robberies.
San Francisco District Attorney George Gascón said Tuesday that he had reviewed emails showing how phone companies are blocking the introduction of a so-called kill switch that would render phones inoperable if stolen. The feature could undercut the value of gadgets now trading on a global black market, leading to a sharp reduction in thefts.
“These emails suggest that the carriers are rejecting a technological solution so they can continue to shake down their customers for billions of dollars in insurance premiums,” Gascón said in a statement. “I’m incensed. ... This is a solution that has the potential to end the victimization of their customers."
About 1.6 million Americans had their phones stolen last year, and about 40 percent of robberies in major U.S. cities involve mobile devices. Gascón and New York Attorney General Eric Schneiderman have demanded that manufacturers create new smartphone technology to make the devices less attractive to thieves. In response, Apple and Samsung introduced new features this summer that they said would render stolen devices useless.
CTIA, the industry group that represents wireless carriers, did not respond directly to Gascón's comments. But the group has said that a kill switch would not effectively combat smartphone crime since the technology could be vulnerable to hackers.
Phone companies have “worked hard over the last year to help law enforcement with its stolen phone problem,” the CTIA said in a statement, citing a new database of phone serial numbers being shared among carriers. Wireless companies agreed last year to share serial numbers after facing pressure from the Federal Communications Commission and police chiefs around the country to reduce cell phone thefts.
But the database has not stopped the flow of stolen phones being shipped overseas, underscoring the need for technology that can disable devices anywhere in the world, law enforcement officials say.
On its website, Asurion, which is based in Nashville, Tenn., says it works with carriers "to provide the most comprehensive protection plans at a low monthly cost." The company did not respond to a request for comment.
But in a recent blog post, the company noted that new measures being introduced to reduce thefts, such as a kill switch, wouldn't eliminate the market for cell phone insurance. Without it, consumers will have "hundreds of dollars in replacement costs looming overhead."
Phone insurance plans typically cost between $7 and $11 per month, and require consumers to pay deductibles as high as $200 for a replacement phone. These are often refurbished used phones, not new ones, and Asurion doesn’t guarantee customers will receive the same model as the one they lost.
Some have noted that they can find used replacement phones on sites like Craigslist for about the same price as the insurance deductible, and without having to pay monthly premiums.
“The plans are expensive and not really worth it for consumers,” said Mike Gikas, who covers electronics for Consumer Reports.