Last week I posted the illustration above, published by CB Insights, of all the work Amazon is doing to disrupt banking and asked the question: will the same thing happen in insurance? As we have heard that Amazon is planning on launching an insurance price comparison website, it’s a very important question for any UK (or global) insurers to be asking themselves.
On the back of my last post, many people reached out and offered their thoughts, which ranged from optimism to concerns. The immediate reaction from insurers to the news was that Amazon’s entry to the market would create downward pressure on rates. With better underwriting capability and a cheap distribution channel, Amazon could undercut the rest of the market on several insurance products. Some insurers are also worried about the huge data asset that Amazon controls, and the tied audience it commands. Looking east, there is also the marauding example of Zhong An, who partnered with China’s version of Amazon, Alibaba, and was able to sell 5.8 billion (!) policies in just three years. The standard rules of the insurance world seem not to apply when big data is combined with big e-commerce.
The most common comments all showed signs of worry and concern
Some of these worries centred around a “race-to-the-bottom” when it comes to rates, a more competitive field when it comes to customer acquisition, and even a better underwriting capability for Amazon, the new entrant, leveraging their unmatched data assets. One insurance broker working in the personal lines space was more pessimistic and simply said “game over” when I asked what the impact would be if Amazon enters his vertical.
Others are more optimistic and are perhaps hoping to become Amazon’s “supplier of choice” when it picks insurers to partner with for its future comparison site. One Head of Strategy for a major UK insurer reached out and said “this means massive partnership opportunities for us, so we are choosing to be optimistic!”. This is a great, and the right attitude, and if it’s backed up with a strategy for innovation and experimentation (which I know they have) it’s definitely possible to win in the new, post-Amazon insurance market.
The incumbent’s dilemma
However, if an insurance company is not an “innovation leader”, what is the best course of action when tech-savvy competitors enter the market? Some insurers are trying to build ‘skunk works’, garages, and other in-house initiatives focused on digitising, but they often run into cultural barriers to innovation and the ‘innovator’s dilemma’ (check out Clayton Christenssen’s outstanding work on this topic if you haven’t already). Furthermore, as is often the case in large organisations. the incentives and structures required to encourage and support innovation are simply not in place, which has been documented by Dilbert on multiple occasions:
Is partnership the solution?
An alternative approach to innovation is to partner with startups or engage with the wider tech ecosystem. This can create validated learning and shine a light on new ways of working that have not been considered before. We recently had the executive board of a leading commercial insurer visit our offices together with McKinsey, simply to walk around and see how people work in an insurtech. I found some of them taking photos of what’s written on our walls (our mission and core values), and even the spacing between people’s desks, so evidently they were doing their best to learn how to emulate our culture and approaches in their own business. Another insurer we’ve worked with for the past year recently explained it very simply to me: “We see you guys and your analytics capabilities as an outsourced R&D function. It’s both cheaper and faster to subscribe to a SaaS-style service and get the latest technology straight into our company. It would probably take five years and £5 million to develop what we’re getting from you!”. As Amazon enters the insurance space in earnest, we’re likely to see much, much more activity around insurance – startup partnerships and it is going to be interesting to see how this develops.
In summary, a motivated technology player entering your market is definitely a threat to established incumbents in any industry. However, in insurance, it’s even more of a potent threat. The future will belong to those who write it, so it’s vitally important not to let other companies write it instead of you. Your best bet is therefore to partner with someone who can help co-author it with you!
Written by Erik Abrahamsson