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Incumbents could be relegated, if tech giants come for re/insurance

10th November 2017 - Author: Steve Evans

Incumbent insurance and reinsurance firms could be relegated if tech-savvy, customer focused players like Amazon or Google decide to enter the sector in a meaningful way, and it looks like at least one of these giants is preparing its first foray.

tech-giantsWhile the insurance and reinsurance industry is focused on InsurTech disruptors and how incumbents can work with them, partner, invest in and create technology focused routes to deploying capacity themselves, there are large tech behemoths that have the potential to enter the market and create waves very quickly.

Amazon is currently hiring experienced insurance executives in London, to join a new team it has created that is said to be tasked with disrupting the insurance marketplace in the UK, Germany, France, Italy, and Spain, according to data and analytics company GlobalData.

Of course disrupting an industry like re/insurance on a wholesale basis is highly unlikely, but Amazon’s links to its customers, the loyalty it receives through delivering efficient customer experiences, and the cash-pile it can put to work in such an effort, all suggests that it could make a meaningful dent in the direct to consumer insurance sales space (if it wants to).

Patricia Davies, Financial Services Analyst at GlobalData, commented, “Amazon has a positive reputation for putting customers’ needs at the heart of its propositions. This level of trust is something the insurance industry has really struggled with, especially after the likes of the PPI scandal.”

GlobalData’s own 2017 General Insurance Survey found that 18% of consumers would buy their motor or home insurance from Amazon quite happily and this level of positive response was received while the company is not even in the market.

Should Amazon enter the market and become an established alternative for insurance products that percentage would be expected to increase dramatically.

Davies, continued to explain how Amazon could be ideally positioned to enter re/insurance, “The company is in a good position having established itself as a key service provider for households with it’s “Prime” service, as well as offering a TV channel and movie service. We are already seeing a number of new propositions moving away from annual renewal to a monthly subscription basis, which would fit well with Amazon’s current business model.”

Amazon is also well positioned to take advantage of its internet of things (IOT) developments, including its Echo and Dot voice-activated speakers that use artificial intelligence.

There has been a wave of activity in the insurance technology (InsurTech) space surrounding artificial intelligence and the so-called connected home, an area Amazon may be able to make some headway relatively quickly.

GlobalData highlights that Amazon, and we would add other tech giants like Google, Apple, Facebook, Microsoft et al, have close and interactive relationships with their customers or users which is a considerable way ahead of the annual renewal or claim process touch points that re/insurers have with their clients.

Davies warned, “If insurers are not careful they may be pushed out of having a direct relationship with customers and will be relegated to the role of a price-driven risk carrier at the back end. Either way this is a sure sign disruption is on the way for the UK insurance market.”

These tech giants have a considerable advantage over insurers, as they are becoming part of consumers lives, both from a commerce point of view and increasingly in their homes, workplaces and of course pockets through mobile devices.

Conversely, even the very largest insurers likely only interact with their customers once a year for renewals, or when a painful experience such as a claim has occurred. That doesn’t fill consumers with the feeling of wanting to interact more frequently with an insurer and means it is incredibly difficult to develop a customer relationship or provide a consistent user experience.

Amazon, Google, Facebook et al have all of this in spades, with such regular touch points with consumers that they can almost predict what they want and when. These regular touch points also mean that tech giants can optimise their experience for consumers, sometimes on an individual level, something insurers can only dream of.

So, if these giants ploughed headlong into insurance sales, as Davies suggests meaning that incumbents are “relegated to the role of a price-driven risk carrier at the back end,” what would it mean for the marketplace?

It could mean distribution is upended, with these customer facing technology giants able to provide reach that insurers and their brokers could only dream of, meaning re/insurers become the analysts, pricers and balance-sheet for risks.

Unless of course the likes of Amazon are feeling really ambitious, that is.

Imagine a tech giant (Amazon, Facebook or Google) establishing its own data-driven underwriting, risk analysis and pricing engine, with an MGA style front-end and a special purpose vehicle pooling capacity (perhaps third-party) at the back-end. What role does that leave for the traditional insurer or reinsurer?

Or imagine if a tech giant with the cash pot of Apple (somewhere north of $250bn) decided to follow a Warren Buffett’esque business model, selling insurance to its users and putting the premium float to work on making its big technology bets.

Ok, perhaps a little far-fetched, but it is possible that someone like Amazon or Apple could do exactly this for an insurance product that complements its existing offering (warranty insurance perhaps).

The point is that insurers and reinsurers do not own the customer experience and for all their efforts they may struggle to do so. Consumers do not want a ‘relationship’ with their insurer (currently), but they do with these tech giants.

Maybe that explains why InsurTech is such a buzzword right now. It also hints at why it’s vital not to waste valuable time, money and effort on tech initiatives that don’t promise to deliver the customer experience to you.

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