INSUBCONTINENT EXCLUSIVE:
Martha NotarasContributorFor the last decade, the largest technology companies have increasingly looked outside of tech to grow their
From automotive to retail to groceries, these companies use massive competitive advantages in the form of data, consumer relationships and
software engineers to fundamentally change markets.Now, companies like Apple and Google and Amazon are eyeing innovation across the
For example, Amazon is teaming with JPMorgan and Berkshire Hathaway to create a new way to approach health insurance, focusing first on the
Waymo, Uber and Lyft are certainly having similar conversations internally.Obviously, these are all preliminary steps
In the end, whether or not companies like Amazon become insurers themselves depends on their appetite for risk, their ability to innovate
relationshipsLike many businesses, a large aspect of a successful insurance business is distribution
Brokers also see better margins than insurers themselves, usually around 10 percent net margins
Facebook, Amazon, Apple, Microsoft and Google (FAAMG) possess direct relationship with billions of consumers and could, over time, disrupt
the broker business.They have deep data and analyticsThe big secret in insurance is that insurers are actually terrible at using their data
Different departments (marketing, underwriting, claims) rarely work together, and their data tends to be siloed
FAAMG, on the other hand, has put data at the core of their offering; they know how to leverage analytics and AI to create better
products.
Tech giants may be tempted to use their troves of data to compete with insurers directly. They also have access to data
that insurers can only dream of having: global geospatial imagery of homes, infrastructure and buildings; location, browsing and advertising
data; even real-world behavioral data from smartphones and IoT devices
Combining all these signals can create a very complete picture of human behavior, interests and risk profile.They have an army of software
engineers and a monopoly of AI talentTech innovation has long been a challenge for insurance incumbents
Old systems are difficult to displace in any industry, but the complexity of insurance, tradition of relying on the past to predict the
future and silos of data can make it a Herculean effort
Tech giants, on the other hand, regularly cannibalize their own revenue with new products and can enlist tens of thousands of engineers to
develop fantastic digital customer experiences and bring large-scale efficiencies to back-end insurance systems through better software and
AI.So, yes, FAAMG has a number of major advantages over insurance incumbents
But for tech giants, new verticals and initiatives are also longer-term decisions around margins and market scope
Can they find that in insuranceThere are a number of reasons why it might be a tough sell.Ultra-low marginsAverage insurance net margins are
3-8 percent, and 25-30 percent gross margins, which are meager for tech standards
tends to have the highest margins, followed by property and casualty (i.e
home and auto insurance), followed by life insurance
disasters like hurricanes, fire, flood, etc.)
might be more prone to misjudging their overall risk exposure.Complex administrationFor insurers, evaluating and underwriting policies is an
Claims, customer support and back-end are costly and complex
That said, most insurance companies are already outsourcing the development of core administration software to companies like GuideWire and
Duck Creek, and then customizing the software to meet their specific needs at the last mile
Or, they could easily buy one of the development companies outright and subsume that expertise.Amazon makes a big moveStill, the creation
and underwriting of policies is something tech giants have avoided to date
Warranty Group rather than Amazon itself
Tesla, as another example, announced it was selling Tesla-branded tailor-made policies for its vehicle owners, but those policies were
backed by Liberty Mutual.
What role will tech giants in the United States play in the insurance landscape Then, in January, Amazon
made a well-publicized announcement, in tandem with Berkshire Hathaway and JPMorgan, around its intention to create a private healthcare
If so, this would be a significant shot across the bow of United States healthcare insurers.Of all the tech giants, it would not be a
surprise if Amazon were the first to jump into insurance
Amazon has mastered the art of building massive businesses off of razor-thin margins
They can test their offering within the company first and then scale across their massive consumer base
be pushed closer to other sectors of insurance, as well, including home and auto.Autonomous vehicle fleets will make companies like Tesla,
Google and Uber the owners of tens of thousands of cars, subjecting them to the risk that comes with that
Meanwhile, IoT hardware and accompanying services are bringing tech giants into the living room
someday, help inform the creation of real-time home insurance policies.East Asia as a leading indicatorIt also can be instructive to look at
These companies can verify identities, enforce trust and access the behavioral and financial data necessary to provide better policies than
determine credit risk, such as phone brand (iPhone users are less likely to default) and whether they let their phone batteries run
down.Still, the question remains: What role will tech giants in the United States play in the insurance landscape Will they act as a
channel for existing insurers, as a provider of data and analytics to those insurers or even as a provider of direct insurance
themselvesInsurance may not be lucrative-enough for tech giants in the short-term, but as real-time data and analytics are used to create
insurance policies, tech giants may be tempted to use their troves of data to compete with insurers directly
Until then, we can expect insurers and tech giants to form alliances, as they have in East Asia, with tech companies using insurance and
warranties as a value-add for their customers, and insurers using tech companies as a sales channel
