Electronics

Digital download insurance

Updated: 04 Apr 2008
Digital-download-insurance-hero

Introduction

If you've got a large collection of downloaded music, ringtones or movies - check your insurance policy.

Teenagers, adults, and even grandparents have taken to the digital music revolution. But not New Zealand's insurance companies. Most say they don't cover music and other downloads if lost.

Many insurers need a kick up the pants to get them into the 21st century ... and fast.

A changing world

More than 100 million iPods, not to mention other MP3 players, have been sold worldwide. Most contents insurance policies cover the loss of a CD collection. But now Kiwis en-masse are downloading their music instead of buying it on CD, they're not covered if it gets stolen or lost.

It's the same story for legally downloaded and paid for ringtones, movies and digital art.

We're not talking small amounts of money here. Songs cost $1.79 each (including GST) to download from iTunes, and music videos cost $3.49 each. That can add up to an awful lot of money for even a few hundred tracks, let alone thousands. Then there's games and books: iPod games cost $7.99; audio books can be more than $30 each.

Legal downloads of full-length movies are becoming increasingly popular. When we checked CinemaNow, one of the leading movie download websites, prices ranged from US$3.99 to US$14.95 for any one of the top 10 movies on offer.

Insurance cover

Only one insurer that we got in touch with - Ansvar - says its policy automatically covers the loss of legally downloaded music and other data such as movies, ringtones, and digital art.

One other, IAG, says that although the wording of its policies exclude data, the company will pay out on claims that are otherwise valid. (IAG owns State and NZI, and provides the insurance cover available through the ASB, BNZ and PSIS.)

The insurers' arguments

Some of the insurers we spoke to supplied disingenuous answers. Not, we believe, because they were trying to be clever but simply because they hadn't given the issue sufficient thought.

Two devices

Some insurers argue that the issue is a storm in a teacup, because music and ringtones at least are usually kept on two devices, such as the player in the case of music and the original download stored on the owner's computer.

Reality check

It's not inconceivable that someone could lose both their player and computer (especially if it's a laptop) at once, through theft or fire. What's more, other data that's been legally paid for (such as a movie) is often stored only on the same computer it's downloaded on.

Download it again

One insurer told us it wouldn't cover music downloads because the music can be downloaded again if a person loses the devices it's held on.

Reality check

This is a common misconception. Like with anything else you lose, having a receipt won't necessarily allow you to get a replacement. That's from Fiona Martin, public relations manager for Apple. She adds: "We would always ask our customers to contact Apple directly should anything happen to their iTunes library or any Apple offering they have purchased. This will ensure that every opportunity can be made to resolve any concerns a customer may have."

Back it up when you buy

Several insurers whose contents insurance policies exclude data downloads told us that people should back up all of their music and other downloads on to CD or DVD as soon as they buy it.

Reality check

This is beyond the technical capabilities of many of us. Banks have realised recently - in the context of internet banking - that customers can't be expected to be tech savvy.

Prove you had it

Then there's the claim that, even if data downloads were covered by insurance policies, people would have to prove that they'd downloaded the data.

Reality check

Few people keep receipts for all the books or CDs on their shelves. Why should the burden of proof be greater for data downloads?

Attractive to burglars

Some insurers maintain that customers should pay additional premiums to have their digital music covered. John Whitta, policy product manager at Tower, said his company's experience shows that computers are more attractive to burglars than CDs.

Reality check

But that would be true of many household items - some are more attractive to burglars than others. Are insurers going to increase your premium because you own a widescreen high definition TV?

Illegal downloads

Insurance companies also claim the levels of illegal downloading make it impossible for them to insure any downloaded data: "There is currently so much illegal downloading occurring, that the potential for fraudulent claims in the area of downloads just adds to insurers' concerns about providing cover at this time" said Richard Godman, chairman of the personal lines committee for the Insurance Council of New Zealand.

Reality check

Insurers could solve this by setting coverage limits. But if people can produce receipts or other evidence that they have legally owned goods, we think this viewpoint doesn't hold. Online purchasers have credit card or PayPal statements to prove they've legally downloaded music, ringtones, or movies.

Software downloads

Home PCs often house hundreds if not thousands of dollars of software - some of it bought on disk and more downloaded perfectly legally from the internet. Few people have any idea whether their contents insurance covers it.

Downloaded software is often cheaper than the disk-based version and has other advantages - for example, you can start using it straight away, without having to go shopping or waiting for it to be delivered. Adobe Photoshop CS3 photo-editing software, described as suited to "keen amateur photographers", costs US$649 (NZ$875) downloaded compared with $1399 from Dick Smith Electronics. So it's not surprising that people download their software.

If your computer is stolen then that loss can be extremely expensive unless you've kept the purchase receipts and serial numbers for your software packages, says Keith Davidson, Chief Executive of the Internet Society of New Zealand.

The software serial number should allow you to download the software again or get a replacement disk from the supplier, for a nominal fee. But this might not be the case for all companies - such as Apple. Fiona Martin, public relations manager for Apple, made it clear that having a receipt didn't automatically allow you to download Apple's data again. You'll need to check before you download about what happens if your data is lost or stolen.

Gaps in the cover

Most insurers do cover the loss of legally downloaded software. But there's usually no cover for re-installing the software. Unless you can do it yourself, installation can be time-consuming and expensive.

What's more, even when software is included in a policy it may only be covered for its current value (after depreciation) - not its replacement cost. As IAG points out: "software depreciates or becomes obsolete or superseded very quickly." That's tough, if you prefer the version you've got.

IAG's cover, however, is better than that of AMI, which provides cover only for "operating software" (such as Microsoft Windows) that allows your computer to function.

AMI's policy goes on to say: "Optionally installed software to carry out activities (and for which the customer will hold the programme disks) is not covered. However, should the programme disks themselves be damaged or destroyed they would be covered, as the disks are physical items." That's very limited cover indeed - and doesn't relate to the increasing use of the internet for downloading software of all kinds.

Our advice

  • If you've got a sizeable collection of downloaded music or ringtones, get an email or letter from your insurer to spell out what's covered.

  • In case you ever need to prove you've paid good money for legally downloaded software or data, print a receipt and file it at the time you do the download.

  • Make it a habit to back up downloaded data and software to a CD, DVD or memory stick (flash drive) immediately. And store these "off-site".

  • Check whether your policy covers software at replacement or indemnity (depreciated) value.

  • Use a back-up program such as those that come automatically with Microsoft XP, Vista and Mac OS X operating systems.

  • When you download iTunes music, use the site's back-up facility.

  • Many insurers provide the full wording of their policies online. Make sure you read it carefully. And don't presume your expensive items are covered.

  • Write or email your insurer and ask when digital downloads will be covered by standard contents-insurance policies. You could also write to the Insurance Council of New Zealand.

  • If you can't burn to disk or you don't know how to, go to an online backup service such as backitup.co.nz (250mb of online storage for $120 a year) or SOSOnlinebackup.com (1gigabyte of online storage for $22.40 per year).

Ex-what!

You've lost your downloaded music and your claim's been turned down? Ask the insurer to pay you "ex-gratia" - out of the goodness of the company's heart. The company pays out but doesn't accept legal liability for the claim. Several insurers said they would consider such a claim.

For example, Vero said in an email: "Each case would be decided on its unique set of circumstances ... though the policy excludes such a loss." Vero now tells us this isn't "as easy as just asking", although in this case we think it should be.


More information

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