The Distinctive Menace of Tech Firms in Insurance coverage

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The established insurance industry has viewed insurtech start-ups as disruptors for years. And rightly so – they are nimble, respond to customer needs and are based on modern technology.

But there is a difference between a disruptor and a threat. Large insurance companies still have customers and data, so it is unclear when or if these insurtech companies will become a real threat.

However, there is a new disruptive player that has its eye on the insurance market and could reach this tipping point much faster. How seriously should we take giant tech companies like Tesla and Amazon as they enter the insurance space? Will these companies start taking over large chunks of our business or will this perhaps usher in a new era of partnerships?

Insurtech versus Tech Disruptors

I can’t talk about Insurtech disruptors without talking about lemonade. Lemonade took advantage of the best technology and offered convenient online insurance policies at a cheaper price. This was a major concern in the industry. As with most startups, incumbent carriers took a wait-and-see approach to when soda could become a real threat.

Lemonade is still a major nuisance that shouldn’t be ignored, but to date it hasn’t caused as much buzz as we originally thought. In 2017, we wrote about how lemonade could make a big splash in the industry and wondered how or if that would affect customers. Regardless, time will tell how much lemonade will grow and what impact this could have on market share for established carriers.

But now that companies like Tesla and Amazon are stepping into the insurance space, the threat is different. These companies are built on technology and are therefore similar to startups. But they also have the size and notoriety of customer brands that startups like Lemonade don’t have, which makes them even more impressive players. But how deep will these companies go into insurance?

On your own against partnerships

Tesla is a technology company that makes cars, gives them a direct link to auto insurance, and has the tech background. Because their cars are so unique, older insurance companies struggled to insure them and gave Tesla a chance to fill them up.

In 2017, Tesla partnered with Liberty Mutual to offer Tesla-specific insurance. But Elon Musk became increasingly frustrated with what he believed to be high rates, not just with the Liberty Mutual partnership, but with other insurance companies as well. Tesla is now hiring actuaries to find out how products are rated, rated and developed. This means that Tesla no longer wants to work with insurance companies and offer insurance directly to customers.

However, building an insurance company is complicated. Hiring actuaries is only part of the puzzle, which includes country-level regulations, as well as writing, analyzing and maintaining policies. Instead, some brands are partnering with insurance companies to take advantage of a machine that is already working, to avoid reinventing the wheel and to get into insurance faster and for less money. Amazon is investigating this in India by partnering with Acko General Insurance to offer auto insurance.

But where Amazon starts, Tesla is moving past. Only time will tell if Tesla’s attempt to take over the insurance industry will be successful. Elon Musk turned established industries into a brand. While his recent attack on insurance has the potential to be formidable, it also helps position the Tesla brand as a knight fighting the Stogy behemoth who doesn’t treat the little guy fairly. That is probably how Musk sees it, but only time will determine success.

What we can learn from banking

We could learn something from looking at a similar situation in banking. Apple, Amazon and Google have expanded into the banking sector with digital wallets and credit cards. Ultimately, however, these companies simply partnered with banks, such as Apple’s partnership with Goldman Sachs.

Banking is complicated and has a multitude of regulatory requirements, so partnerships are more logical. If any company can overcome regulatory obstacles, it’s Apple, Amazon, and Google. But will they? The same question arises when you think of Tesla and Amazon in insurance. Just because they can doesn’t mean they will.

Expansion in auto insurance

So far, Tesla and Amazon have taken out auto insurance. But how far will they go? Tesla will most likely keep its focus and not insure other types of cars for at least a while. Amazon is testing its auto insurance partnership in India and it’s unclear how big the appetite is to tackle the deeply established North American market.

Domino affect

Many luxury car brands are currently bundling insurance policies through partnerships with old carriers. For example, Land Rover is offering packages through the AON broker channel to find the best fit, and Porsche is partnering with Mile Auto.

When Tesla and Amazon enter the insurance space, it may offer a new angle for companies like BMW or Mercedes to rethink their partnership strategies. We know that there is a constant view of mergers and acquisitions within insurance – what if auto companies decide to only buy against partners or even build their own insurance company?

Expansion into other insurance areas

So far I’ve talked about auto insurance. It will make sense for Tesla to stay in the auto insurance space, but for a company like Amazon it could at some point begin to expand into other areas. Amazon has been researching the health insurance market for a few years now and it could also be a natural addition to home insurance as it becomes the center of your home technology ecosystem.

Vying for talent

Much of what I have said so far speculates about the future. Right now, we don’t know how much Tesla and Amazon will disrupt the insurance industry. But we can guarantee one thing now: fight for talent.

One reason the insurance industry has been slow to respond to better technology is a lack of talent. From the perspective of the younger job market, insurance companies are not “sexy”. They look boring and old. But a company like Tesla or Amazon? These are exciting companies that look impressive on a resume and offer the chance to innovate while offering unique perks and benefits. As these tech companies start hiring, it will put additional pressure on older insurance companies to hire and retain top talent to stay competitive. To achieve this, carriers should focus on branding insurance as a “help to the world” rather than just a for-profit business model.

Ultimately, the future is unknown. Just because we don’t hear from some of these bigger insurance companies doesn’t mean they don’t think about it. As the cliché says, it’s not “when”, it’s “when”. And more importantly, it’s “how”. If partnerships are the way forward, then older insurance companies have a place. However, if these larger tech companies develop into real insurance companies, the industry will become extremely competitive and potentially unrecognizable in a few decades.

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Disclaimer: This document is for general informational purposes only and does not take into account the particular circumstances of the reader and may not reflect the latest developments. To the fullest extent permitted by applicable law, Accenture disclaims all liability for the accuracy and completeness of the information in this presentation, or for any acts or omissions that may have occurred as a result of this information. Accenture does not provide legal, regulatory, auditing, or tax advice. It is the responsibility of the readers to obtain such advice from their own legal counsel or other licensed professional.
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