Altus Consulting, a specialist provider of financial sector consultancy services, has cautioned that Amazon’s entry into the insurance industry could act as a major disruptor for traditional re/insurers.
In 2016, Amazon launched its first product protection insurance cover, Amazon Protect, and has since begun investing in InsurTech start-ups and partnering with companies such as Warren Buffett’s Berkshire Hathaway and JP Morgan on employee healthcare.
Altus observed that Amazon would already have a huge advantage if it chose to more actively enter the insurance market due to its existing brand recognition, large customer base, and abundant capacity, which would allow it to use very flexible pricing.
This would also leave the company well positioned to streamline the quote and buy experience for customers, as it could forego lengthy questionnaires by utilising customer data that it already legitimately holds (such as age, location, purchasing history etc.), and could repurpose its existing one-click payment process.
Reinsurance News spoke to Mark Andrews, Domain Director at Altus Consulting, who explained: “Amazon are to retailers, what price comparison websites are to insurance – they own customer acquisition. Amazon has a far greater reach than any insurer and also very persistent customers.
“Insurers are one step removed from the customer due to price being king (customers want to compare prices and then click through to insurers), whereas Amazon’s customer engagement is constant. Insurance companies have a cyclical relationship with customers, Amazon have multiple touchpoints and opportunities to cross/upsell to customers.”
Additionally, Amazon needn’t become an insurance expert overnight, as it can simply act as an MGA for now and use the expertise of other insurers to underwrite its policies, as it did with Allianz for its Extended Warranty (EW) product and The Warranty Group’s London General Insurance Company for Amazon Protect.
Andrews continued: “Amazon just need to create the products that customers want, and then allow insurers to take on the risk. They could even create relationships directly with the reinsurance community, (cutting out insurers completely), much like many InsurTech’s have done recently.”
Altus also speculated that Amazon could wrap up the cost of EW insurance cover within its existing Amazon Prime membership, potentially offering differing levels of subscription to avoid raising prices, and bypassing FCA legislation that prevents insurance product bundling.
Further disruption could be generated through the introduction of new products, such as cover for DDoS (Distributed Denial of Service) attacks for Amazon’s hosted websites, WiFi disruption, or Online Identity Protection.
Altus’s research also suggests that there is currently a significant lack of digitalisation with regard to claims and query management in the insurance industry, which Amazon could overcome by leveraging artificial intelligence (AI) to automate processes, potentially even utilising its existing voice-activated technology.
Andrews said: “By creating partnerships with IoT device companies, and with the information Amazon already hold on customers’ key purchases (bicycles, gadgets, electronic goods etc) and risks (property, interests, locations, family), Amazon could put together a compelling household proposition and, no doubt, a digital journey that would delight their customers.”
However, Altus also noted that Amazon would face several major challenges if it decided to move further into the insurance market, such as re-configuring its user interface, meeting heavier tax and regulatory requirements, and scaling up its call centre and customer service operations.
What’s more, Amazon has been wary about pushing through a rate rise on its Prime membership recently, and, given the very slim profit margins for most lines of insurance, Amazon may not have enough of a financial incentive to more widely explore insurance opportunities.