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The unique threat from technology companies in insurance



For several years, the established insurance industry has viewed start-ups as disruptions. And rightly so – they are flexible, responsive to customer needs and based on modern technology.

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

However, there is a new disruptive player looking at the insurance market that can hit that tipping point much faster. When serious technology companies like Tesla and Amazon go into the insurance space, how seriously should we take them? Will these companies take large chunks of our business, or will it perhaps usher in a new era of partnership?

Insurtech Versus Tech Disruptors

I can not talk about insurtech disruptors without talking about Lemonade. By utilizing the best in technology and offering practical online insurance at a lower price, Lemonade caused a great deal of concern in the industry. As with most start-ups, established carriers adopted a "wait and see" strategy for when Lemonade can be turned into a real threat.

Lemonade is still a powerful pest that should not be ignored, but as of today it has not. made as big of a splash as we might have originally thought. In 201

7, we wrote about how Lemonade can make bigger waves in the industry and wonder how, or if it would extend to customers. Regardless, time will tell how much Lemonade will grow and what impact this will have on market share carriers.

But now that companies like Tesla and Amazon are entering the insurance space, the threat is different. These companies are based on technology, which makes them look like start-ups. But they also have the size and customer brand awareness that startups like Lemonade do not have, making them even more formidable players. But how deep into insurance will these companies go?

On their own contra partnership

Tesla is a technology company that manufactures cars, gives them a direct connection to car insurance and has the technical background to do so. Because their cars are so unique, older insurance companies struggled with how to insure them, leaving an opening for Tesla to fill.

Tesla partnered with Liberty Mutual in 2017 to offer Tesla-specific insurance. But Elon Musk became increasingly frustrated with what he considered to be high prices, not only with the Liberty Mutual partnership but with other insurance companies. Tesla now employs actuaries to find out how to price, rate and develop products, which means that Tesla wants to bypass partnerships with insurance companies and offer insurance directly to customers.

But building an insurance company is complicated. Hiring actuaries is just one piece of the puzzle that also includes rules at the state level and writing, analysis and service. Instead, some brands partner with insurance companies to take advantage of an already functioning machine, avoiding "reinventing the wheel" and letting them move into the insurance space faster and for less money. Amazon is investigating this in India by partnering with Acko General Insurance to offer car insurance.

But where Amazon begins, Tesla moves past. Only time will tell whether Tesla's attempt to take on the insurance industry will succeed. Elon Musk has made a brand of going after established industries. His latest attack on insurance, although he has the potential to be formidable, also helps position the Tesla brand as a knight fighting the stubborn baits that do not treat the little guy fairly. It's likely how Musk sees it, but only time will tell the level of success.

What we can learn from the banking system

We can learn something from looking at a similar situation in banking. Apple, Amazon and Google have all expanded into the banking sector with digital wallets and credit cards. But at the end of the day, these companies simply partnered with banks, such as Apple's partnership with Goldman Sachs.

Banking is complicated and comes with a wide range of legal requirements, making partnerships a more logical way forward. Now, if any companies can overcome regulatory barriers, it's Apple, Amazon and Google. But are they coming? The same question arises when you think of Tesla and Amazon in insurance. Just because they can, does not mean they will.

Expansion in car insurance

So far, Tesla and Amazon have dipped into car insurance. But how far do they go? Tesla is likely to stay focused and will not start insuring other types of cars, at least for a while. Amazon is testing its car insurance partnership in India, and it is unclear how much appetite there is to address the deeply established North American market.

Domino Affect

Right now, many luxury car brands have bundle insurance through partnerships with heritage carriers. For example, we see Land Rover offering packages through the AON broker channel to find the best fit and Porsche is partnering with Mile Auto.

As Tesla and Amazon enter the insurance space, it may provide a new angle for companies such as BMW or Mercedes to rethink their partnership strategies. We know that there is a constant picture of M&A in insurance – what happens if car companies only choose to buy versus a partner or even build their own insurance company?

Expansion in other insurance areas

So far I have talked about car insurance. It makes sense for Tesla to stay in the car insurance business, but for a company like Amazon, it may eventually begin to expand into other areas. Amazon has been researching the health insurance market for a couple of years now, and it can also be a natural fit for home insurance as it becomes the center of your home technology ecosystem.

Competing for talent

Much of what I & # 39; I have so far speculated about the future. Right now, we do not know how much Tesla and Amazon will disrupt the insurance industry. But there is one thing we can guarantee right now: fighting for talent.

Part of the reason why the insurance industry has been so slow to respond to better technology is due to a lack of talent. From the perspective of the younger labor market, insurance companies are not "sexy". They come across as boring and old. But a company like Tesla or Amazon? These are exciting companies that look impressive on a resume and offer the chance for innovation while providing unique benefits and advantages. When these technology companies start hiring, it will put additional pressure on older insurance companies to hire and retain top talent to remain competitive. To do this, carriers should focus on brand insurance as "helping the world" and not just a for-profit business model.

At the end of the day, the future is unknown. Just because we do not hear about any of these major insurance technology companies does not mean that they do not think about it. As the cliché says, it is not "if", it is "when". And more importantly, it's "how". If partnership is the way of the future, older insurance companies will have a space. But if these major technology companies start to develop into real insurance companies, the industry will become extremely competitive and may be unrecognizable in a few decades.

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Disclaimer: This document is for general information purposes only and does not take into account the reader's specific circumstances and may not reflect recent developments. Accenture disclaims, to the extent permitted by applicable law, any responsibility for the accuracy and completeness of the information contained in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, auditing or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed personnel.


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