What Should Insurers Do about Amazon?

It’s reasonable to fear the competitive power of Amazon, but here are some questions you should ask yourself in order to formulate your strategy in a world where Amazon may become an insurance industry player.

(Jeff Bezos, founder, chairman and CEO of Amazon. Source: Amazon.) 

Rumors and debate abound in the U.K. property/casualty insurance market about what Amazon’s intentions are for this industry, especially after the furor that has been caused over the last several months by observers noting the company’s hiring campaign to attract experienced insurance professionals. According to Shai Wininger, Co-founder and Chief Lemonade Maker at Lemonade, Amazon has been actively poaching people from his team, enticing them with “obscene” amounts of money. The company’s recent partnership with Berkshire Hathaway and JP Morgan Chase to disrupt the healthcare insurance industry is only lending fuel to the fire.

Naturally, the key question is what are Amazon’s intentions? Will it merely extend its existing warranty business, branded Amazon Protect? Will Amazon become an aggregator? Will Amazon become a distributor of insurance, underwriting itself or via white-labelling products from conventional insurers? If Amazon sells insurance, what products will they provide? Where, ultimately, do their ambitions lie? Insurers are stressing about these questions, and they are right to do so, not just in the hyper-competitive U.K. market, but globally. Amazon is a frightening competitor, has the power to change industries, and apparently only funds internal initiatives that have a realistic chance of reaching $1B in revenue.

The stress is understandable. But I have two suggestions for insurers about how to reduce the worry about what Amazon will do, and to instead use it to your advantage. First, assume that Amazon will do the thing that you find most terrifying. They will try to eat your lunch. Just write it down and take that question off the table. For example, if you sell auto (“motor” in the U.K.) and home insurance, assume that Amazon will compete directly in your market, at point of sale and throughout the lifecycle, in the next 1-2 years. Second, use your assumption to define and implement your business strategy with urgency. This approach means you can turn your mind to questions that are more productive and with a sharpened sense of urgency. Even if your assumption is incorrect, your business will be better for the thinking and work it causes. Here are some of the strategic questions that will help drive your business:

  • What is your reason for being, your mission?
  • Do you have a strong, healthy culture?
  • What do want to be world-class at? Are you there already? Where do you not need to be world-class?
  • Do you have the will and perseverance to change?
  • Where do you want to be five years from now? What size? Do you need to expand your market reach to get there?
  • As more “non-insurance“ companies and InsurTechs enter the industry, are you going to participate and/or lead ecosystems that will play a prominent role in the industry, presenting new opportunities and threats? For more on this, read the fascinating McKinsey article “Insurance beyond digital: The rise of ecosystems and platforms”, published in January.
  • Do you have the requisite skills to get where you want to go? Do you have the right leadership?
  • Do you have the technology you will need?
  • Do you have the partners you will need?

By asking these questions, you will be better positioned to handle any potential disruption Amazon may bring to the marketplace.

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Brian Desmond // Brian Desmond is Chief Marketing Officer at Guidewire Software, a provider of software solutions for the global property/casualty insurance industry aiming to help insurers adapt and succeed in the era of engagement. Desmond can be reached at bdesmond@guidewire.com.

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