Just when you think Amazon can’t expand its product range any further it’s set to offer something rather different. If the rumours are true, Amazon will enter the car insurance market in the not so distant future.
What’s more, it may not be the only international megalith to enter the market, with Google and Facebook reportedly thinking about offering car cover to the masses as well.
So, what does this mean for the UK insurance market? Well, some are of the view that it could be left vulnerable to these new entrants who, if they get it right, could convince around 30% consumers to buy insurance from them according to research produced by GlobalData. It would mean that insurers would lose out on around £9 billion in gross written premium.
Besides their size, what else makes these companies such a threat? Well, GlobalData claims that current insurance incumbents could be caught ‘asleep’ because Amazon and Google’s technological capabilities could make them leap ahead.
If you think about it, they do have a point. If they, for example, notice an uptick in searches for new furniture or a car they could easily send some targeted and relevant car and home contents insurance advert their potential customers’ way.
If the likes of Amazon and Google do enter the short-term insurance market more insurers are likely to struggle and will be a further blow following what has already been a difficult year due to business interruption claims and other types of claims emanating from the coronavirus (Covid-19) pandemic.
Ben Carey-Evans, insurance analyst at GlobalData, pointed out: “The tech giant is launching it in India, but has an enormous global reach, and could eventually make it a strong competitor for incumbents around the world. Motor insurance has been one of very few product lines relatively unaffected by COVID-19 so far, with claims largely declining, due to people traveling less. However, insurers will not welcome the extra competition as vehicle sales are expected to decline in the wake of the pandemic, as consumers continue to work from home.”
A matter of trust
But insurers may still have one advantage – trust. It may feel strange for consumers, who have been so familiar with Amazon as an online retailer, to suddenly purchase insurance from a company that will be a newcomer to the sector.
The Amazon, Google and Facebook brands are well known. All three have the ability to leverage off their large following and cross-sell insurance, particularly when they see activity that supports a targeted attempt, such as a car or home search.
Back in 2019 GlobalData conducted an insurance survey, which found that 62% of consumers would not purchase insurance from Amazon. They also found that 63%, 66% and 78% of consumers would not purchase insurance from Google, Apple, and Facebook respectively.
So, while all four companies are well known they still have much work to do in convincing the public that they are serious contenders in the insurance space. So how would they go about doing that? One way would be to undercut on price. But others believe they’re likely to form partnerships to penetrate into the short-term insurance market.
Yasha Kuruvilla, insurance analyst at GlobalData, says: “Since customers are reluctant to purchase insurance from tech companies, partnering with a third-party provider is the better strategy, at least until they become recognized names in insurance.
Amazon’s partnership with insurtech Acko rather than an incumbent also highlights the retailer’s desire to work with digital and agile companies. This will put added pressure on incumbents, not only due to the emergence of a new large entrant in the market, but also the need to digitalize if they want to work with tech companies in any other future insurance ventures.”
It looks like small, agile insuretechs can soon expect a knock on the door from Amazon, if they haven’t done so already.
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