"recover your data insurance" scam (hard drive, how to, work)

[harry chickpea]

I just bought another external hard drive and was given the option of an extra three year data recovery on it.

Cost - $15
If the data was NOT recovered, the company would return the $15.

OK, think about this for a while...

Collect $15.

Two years later IF you are still in business as a recovery company, someone sends in a hard drive. Cost of a tech to go through and recover data and then send out a disk with the data... $50 (just a guess, based upon looking into data recovery years ago). As a business owner, what do you do? - "Here's yer $15, Sorry!"

In the meantime, 99 other customers have sent in their $15 and not needed any service. If the money is invested wisely, there is a 10% or more gain.

I now want to start a business where for $1,000 I will guarantee you live to 200. If you don't, I'll give you your money back.

[Peregrine]

Doesn't the $15 cover that $50 charge?

[Yelling_at_Birds]

In psychology, the pain of losing something is experienced with greater intensity than the joy of gaining that same (relative) amount. Plenty of people are easily swayed into purchasing warranties and protection schemes on things which should never need them, and industry knows how to exploit this.

EDIT: The term is "Loss aversion", in case you would like to look it up.

[harry chickpea]

Originally Posted by Yelling_at_Birds

In psychology, the pain of losing something is experienced with greater intensity than the joy of gaining that same (relative) amount. Plenty of people are easily swayed into purchasing warranties and protection schemes on things which should never need them, and industry knows how to exploit this.

EDIT: The term is "Loss aversion", in case you would like to look it up.

My late wife was a psychologist and I worked in a state hospital and have done serious study, but thanks. I don't recall whether "loss aversion" has a number for treatment and payment, but I think not.

In all seriousness, data accumulated over the years can have significant value, so "loss aversion" might not apply. If I were to take a disk with valuable data into a brick and mortar shop, or an online place that has good reviews and a track record, I would be fine with paying a significant dollar amount for recovery. If it didn't recover the data, I would go from there.

The issue here is the business model that provides a ridiculously easy out for non-performance. REAL insurance companies are regulated. Even with that regulation, "making whole" is often far less than that. An unregulated offer of data recovery or your money back is a scam, pure and simple - which is why I made the facetious counter-offer using that same business model in my original post.

So what would a more realistic business model look like? Say that 1 in 100 buyers of the plan have actual need of the $15 "service." The business owner has an expectation of making $1,485 on those 99 freebees. If the cost of a valid attempt at recovery is $50 (at wholesale cost) and $250 retail, a simple money back deal clearly shortchanges the customer under the best of circumstances. If the "insurance" offered inspection of the drive and referral to one of three independent data recovery firms with a credit of somewhere around $250, then yes, it would be something worthy of consideration.

Caveat emptor