Technology November 11, 2010, 5:00PM EST

Is Asurion Cell Phone Insurance Worth It?

The little-known Tennessee company insures the handsets of more than 100 million cell phone owners globally. Consumer advocates say the policies are a poor value

By Brad Stone and Olga Kharif

Verizon Wireless calls its mobile phone insurance program Total Equipment Coverage. Sprint Nextel (S) has Total Equipment Protection. T-Mobile USA: Premium Handset Protection. The names are barely distinguishable, and the insurance all comes from the same place: Asurion, a 16-year-old company in Nashville that would prefer you never heard of it.

Asurion, which has 5,000 employees in more than two dozen offices around the world, is the quiet giant of the mobile phone industry. The four top U.S. wireless carriers offer its insurance exclusively, and more than 20 percent of the 293 million mobile customers in the U.S. pay Asurion to protect their handsets, according to the company. Asurion charges policyholders between $5 and $12 a month, depending on the model and type of coverage. If a customer loses a phone, breaks it, drops it in the toilet, or renders it unusable in any way, Asurion will try to ship a replacement in a single day—after the person pays a deductible.

Some accident-prone owners—and parents of phone-toting kids—praise the sense of security Asurion provides. Consumer advocates, though, almost uniformly say the insurance isn't worth the extra expense. "We think it's worthless," says Michael Shames, executive director of the Utility Consumers' Action Network. Consumer Reports magazine advises cell phone shoppers to skip the coverage and hang on to their old phones as a backup should the new hardware meet its demise.

Asurion disagrees with those opinions, of course, but just getting the company to pipe up in its own defense isn't easy. "We like anonymity. We don't think publicity is generally a great thing," says its chief executive officer, Kevin Taweel, who starts an interview by asking a reporter to forgo a story on Asurion altogether. Taweel believes Asurion should stay out of the news because it merely "white labels" its product, selling insurance through 18 wireless carriers around the world and letting them rename and market the service. He adds that the insurance solves a significant problem for the one in four consumers who have some kind of phone problem each year.

Whatever its reason for staying under the radar, Asurion appears to be a growing and profitable company. One person familiar with its financials, who asked for anonymity because the privately held company doesn't disclose revenue or profit, says Asurion is on track to make $3.8 billion in revenue this year and $98 million in profit. Another person knowledgeable about the numbers says Asurion's profit, excluding interest payments to the three private equity firms that own it, is actually about half a billion dollars.

Taweel co-founded the operation that became Asurion in 1995 along with Jim Ellis, a fellow graduate of Stanford Business School. The pair had raised a "search fund" to seek out a company to buy and remake. They first acquired a 45-employee roadside assistance company for $8 million. In 1999 they acquired a cell phone insurer called Merrimac Group. The renamed Asurion acquired its main competitor, Lock/line (DST), in 2006 and consolidated its position as the dominant cell phone insurer in the U.S.

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