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. Last Updated: 07/27/2016

Insurer Steps Into Risky Mobile Phone Business

A leading Moscow insurer is gearing up to offer a new policy -- cellphone insurance -- a risky business in which companies have been burned in the past.

Renaissance Insurance is set to launch the product Feb. 1. The policy will cover theft from break-ins, mugging or damage from a car accident. The premium will be 5 percent of the insured sum, the price of the phone.

Viktoria Popylkova, head of marketing at Renaissance, said a recent survey proved there was demand for the policy. "More than 60 percent of respondents [to the study] would like to insure mobile phones," she said.

However, Renaissance is cautious about the risks it is willing to cover. To avoid fraud, losses from people dropping phones in the toilet or thefts without break-in are not covered, the company says.

Since the price of a cellphone decreases quickly, the amount a person receives when a phone is lost or damaged would exceed its present value, said insurance specialists, and policyholders could use the extra money to buy an updated handset.

The company will replace the lost or damaged phone with another one of the same model, rather than paying out the phone's value at the time of purchase.

Tom Manson, head of Tacis' Russia insurance project, said that insuring objects that are often targets of theft is quite risky.

"Experience in many countries has shown that companies have to take a careful approach in their underwriting and in the way they handle claims," he said.

Some companies have had a bad experience in cellphone coverage.

East European Insurance Co., now Alfa Insurance, offered policies for cellphones from the early 1990s until 1997, said spokeswoman Olga Yolkina. "It was a highly unprofitable type of insurance, with 300 percent losses," she said.

At the time, Yolkina said, cellphones were large and clumsy, they cost some $3,000 and usually were carried in cars. Thefts of cellphones, which were luxury items at the time, were far from rare, and the company was losing on covering the cost of stolen handsets.

Industrial Insurance Co., on the other hand, has insured more than 1,000 cellphones since it introduced the product in the summer and has had few problems, said company spokeswoman Svetlana Danilova.

The company has not seen any fraud so far, she said, adding that Industrial Insurance aims to have a highly diversified portfolio.

Analysts were optimistic about the product.

"The Russian insurance market needs more products where people can see clearly the benefits of buying insurance," said Tacis' Manson.

Vasily Balog, adviser to the president of the All-Russian Insurance Association, saw any new product as a positive move.

"Insurers are the ones who don't take steps that haven't been thought through," he said.