December 30, 2014
Head for the Hills! Google and Amazon Are Coming! (Or Not)
by Barry Rabkin
Despite the hype, they won't want to take on the full role of insurers.
We have all seen the articles that breathlessly announce that Google, Amazon and others are going to become insurers. And somewhere in the next sentence or within the same paragraph, the writers exclaim that insurers must change their ways because doom is nigh.
More detail, please
I’d like to see more appreciation, more introspection and more detail concerning what insurers do (and have done since what I think is the start of the “modern insurance era,” when Edward Lloyd opened his coffeehouse in the late 1600s).
I’m not saying that insurers don’t have to innovate: They do. I’m not saying that insurers don’t need to better understand how to meet, if not exceed, the needs and expectations of customers already on the books and of their target prospects: They do. And I’m not saying that insurers don’t have to reduce and bring up-to-date the far too many core administration systems keeping the company running: They do.
I am saying, let’s take a breath or two and identify where the competition is and could come from for an industry that is heavily regulated, requires continual licensing and training of its sales people, requires specific types of investments (different for life or P&C insurers, if my memory serves) and is capital-intensive.
Further, let’s not forget what an insurance policy is: a legal contract with a financial wrap (i.e. the promise to pay a claim according to the terms, conditions and restrictions of the contract).
What does an insurance company really do?
I welcome others to add to this list of major activities of an insurance company:
- Carries the risk
- Creates the product
- Prices the product
- Files the product forms (different for each state)
- Markets the product
- Sells the product (keep in mind that each sales person, whether an agent or a faceless person at the other end of the phone or screen, MUST be trained and licensed for each insurance product for each jurisdiction – and the training must be continued throughout their career)
- Underwrites the product (whether life or P&C, underwriters must minimize adverse risk as well as strive to put profitable business on the books)
- Services the customer who bought the product (handling administrative “change of address” service as well as claim adjudication, which includes simultaneously providing responsive and empathetic service while setting reserves, estimating incurred but not reported (IBNR) claims and identifying and avoiding/managing fraudulent loss events)
- Complies with all regulations at the federal and state levels
- Makes investments as required by regulations and industry standards
Are Amazon and Google really going to become insurers?
Will Amazon or Google, or others, really become insurers? Are they going to want to do everything on that list?
Or, will they decide to become rate-comparison sites? Marketing sites? (And which insurer will carry the paper – carry the risk? I’m not saying that no insurer would carry the paper, but an insurer must do so.) Will Amazon or Google provide customer service? If you love FAQ pages now or waiting on hold for 25 to 30 minutes now when you have a question. . . .
Insurance service is not a FAQ, self-service situation when someone has a claim.
Insurers do have to understand where non-traditional competitors could and will participate in the value chain … and ask themselves what will happen to their business (customer retention, profits) if they don’t respond accordingly.
But let’s take a breath. I think it is highly unlikely the digital technology firms are really going to become insurers.