News analysis: Has Amazon let the cat out of the bag?
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Online job ad reveals tech giant’s ambitions in insurance, but speculation is rife about the shape disruption could take
The insurance market has questioned how Amazon could position itself in the sector following the news that the tech-giant is looking to employ insurance product managers in order to “disrupt” the market.
There was a mixed response to what they might do next. Some have speculated that Amazon could operate as a managing general agent (MGA) or broker, while others believed that the business may seek to embed insurance into the customer journey when products are purchased.
The plan was uncovered when the organisation posted an advert online looking for an EU product manager tasked with “disrupting the way traditional product insurance services are acquired”.
Personal focus
There is consensus that Amazon will look to focus on personal lines – it already offers Amazon Protect in partnership with The Warranty Group. This product is designed to offer additional coverage outside of a manufacturer’s warranty and accidental damage.
Charles Manchester, managing director of MGA Manchester Underwriting Management, could see the organisation heading further down the warranty route.
“I can’t see why they would go in as a broker but I can see them doing an insurer or MGA,” he commented.
“But it is a big step to go into carrying risk because a lot of insurers do not actually make much money. They would have to disrupt profitability and distribution.
“It sounds like they are looking at extended warranty.”
However, former Arthur J Gallagher head of pricing Louise Birritteri, who recently launched tech broker Inlet, said she believes that setting up as a broker would be a more natural route for the company.
“I’d have thought that the broker route would be easiest but it depends on what they are looking to be,” she stated.
Is it a threat?
Birritteri pointed out that Amazon’s skills make the firm a threat to the insurance sector.
“They have sophisticated analysis and world beating algorithms so they know all about customer behaviour and that lends itself to broking.”
Adding: “They have got the tech skills to understand underwriting but they do not have the data.”
The business also already has products which could be easily linked to insurance. She explained: “Amazon has connected home tech with the Alexa [speaker]. If they can integrate that they could do something there.
“They also have an angle on contents. They can replace goods and get them delivered.”
Birritteri flagged that there was “huge potential” for Amazon to disrupt the market.
“They have the resources to recruit and people use them to buy goods,” she concluded. “They must have a lot of knowledge about people and their homes to develop ancillary products. They could even do some level of aggregation – they already aggregate products.”
Committed move
What is clear is that the move signals that Amazon is really committing to developing its insurance proposition.
According to the job posting the role will cover markets in the UK, Germany, France, Italy and Spain. Paul Lynes, group director InsurTech at Ageas, highlighted that because the role covers a number of European markets that this means the proposition is more than just a pilot.
“It seems like they have decided to go for it,” he summed up.
In Lynes’ view Amazon might seek to follow the model of Chinese retailer Alibaba, which was involved in setting up online insurer Zhong An.
This partnership has seen shipping insurance for products bought on Alibaba embedded into the customer’s online journey.
In terms of who might partner Amazon if it does not wish to provide capacity itself, Lynes stated: “Any number of insurers or reinsurers would be interested.”
He remarked that partnering with a provider would be a “neater, cleaner and faster” way for the retailer to grow its position in the market.
Former director at Allianz and now founder of broker Konsileo, John Warburton, is also impressed with the impact of Zhong An, but advised: “In business model terms, however, it is not massively different to retailers selling extended warranty on washing machines or mobile phone insurance or travel agents selling travel insurance.”
He added: “These are all contextual purchases which manage to catch consumers when they are most risk aware.
“This will be the challenge for any insurer like Zhong An and anybody else who plays in this space. Namely that all the power and therefore the margin should go to the distributor, for example Alibaba vs Zhong An, and little to the carrier.”
He suspected that the Amazon play is really focused on customer journey design roles and contract managers of other party services so that Amazon can participate in the high distribution margin associated with selling or introducing the business.
Regulation barrier
All the experts Insurance Age spoke to questioned Amazon’s appetite for financial regulation.
Warburton noted: “I would expect Amazon to either become a broker or, more likely, not become regulated at all and become an appointed representative of their affinity provider or providers.”
Manchester agreed: “The thing that is a barrier is regulation.”
He speculated that Amazon may seek to get around this by purchasing an established insurer but asked: “Will it be more profitable than partnering?”
The insurer route was also nixed by Birritteri. She has some retail experience and explained: “I would be surprised if they set up as an insurer.
“I have also worked for retailers and the thing with them is they do not want a lot of capital profit in reserve.”
The advert
Extracts from Amazon’s advert which could be found on LinkedIn.
- “Product insurance is a young and dynamic program in Europe, present in the UK, Germany, France, Italy and Spain. Along with internal and external partners, we are re-defining the warranties and product insurance experience, disrupting the way traditional product insurance services are acquired and delivered and creating a new palette of services.
- “We have ambitious plans to significantly grow operations in our current markets and create new, innovative products that will provide excellent customer experience and satisfaction.
- “The Product Manager will be responsible for projects related to customer acquisition, improving traffic conversion, price strategy as well as active contribution in new products launches.”
Disruption worry?
So, is the move a bad sign for brokers? Manchester pointed out that tech giants have poked their noses into insurance before and it has not always flown.
“There have been other tech firms that have tried to get in, but I am not sure they got traction,” he said.
“It is a given that tech will transform. It would be stupid to believe that the tech push is not going to look at insurance.”
A prime example of a tech failure is the Google Compare aggregator which closed in 2016 due to
the facility only generating “minimal revenue” since its inception in 2012.
Indeed Warburton felt that the aims of Amazon would not be to totally broadside the insurance sector as we know it and suspected the impact would be “muted”.
He predicted: “I would be surprised if Amazon became competitive on annually renewable business or on commercial but if I were running a gadget insurance business I might be concerned.”
Birritteri, while acknowledging the potential threats from Amazon, was also confident that brokers would continue to have a place in the market.
“Brokers still have the customer at the moment and this can be an opportunity for brokers,” she concluded.
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