Amazon looking over Europe's top insurance companies

Insurance
16.08.2018 12:32 pm

Amazon.com to tap the financial comparison market and check out Europe's pioneering insurance companies if they can contribute to a possible launch in the UK.

It was mentioned on Reuters that three industry executives had already held talks on this topic with Amazon. One said the talks were part of several discussions Amazon is having with insurers. A second said there were no imminent launch plans.

While it was not immediately clear what type of insurance would be sold on any Amazon site, home and motor policies are popular sellers on existing UK price comparison sites.

“As Amazon becomes a larger part of the home, whether it’s products delivered to the home, security monitoring, home services like Wi-Fi installation, you can make the case that insurance is the next logical step for this company,” said Morningstar analyst R.J. Hottovy.

The industry sources declined to be named as the talks are confidential. Amazon declined to comment.

An Amazon price comparison website for insurance products would be a potential challenge to existing UK sites given the U.S. company’s cutting-edge technology, reach and loyal customer base.

Two of the most high profile are comparethemarket.com which shows products from insurers including AXA (AXAF.PA), Hastings (HSTG.L) and eSure (ESUR.L); and GoCompare (GOCO.L), which lists insurance from firms such as Santander (SAN.MC) and LV= [LV.UL].

A UK insurance site would also build on Amazon’s existing products in Europe offering extensions to manufacturers’ warranties, a service known as Amazon Protect.

While Amazon’s loyal customer base and reach would probably prove attractive to some insurers happy to cede some of their premiums to Amazon to expand sales, the potential for premiums to be forced lower through competition could deter others.

One of the industry sources said the comparison site model fitted Amazon’s strategy of offering a range of products, as opposed to partnering with one firm.

A price comparison website, in particular, could also be used to help drive traffic to its other marketplaces, Hottovy said.

It was not immediately clear what financial arrangements Amazon would strike with insurers if it were to go ahead.

Tech-rival Google launched a financial services comparison site in the United Kingdom and the United States in 2016 but shut it down after only a year due to low traffic.

In the United States, Amazon has a joint venture with insurer Berkshire Hathaway (BRKa.N) and JP Morgan (JPM.N) aimed at slashing U.S. healthcare costs. It also offers a small business loan program.

In Europe, Amazon has had a partnership with The Warranty Group since 2016 to offer the warranty extensions. It also offers co-branded credit cards in the United Kingdom and Germany although it does not lend money of its own.

In a sign of potential expansion plans, Amazon began to place job ads last year for staff for a new insurance business in Europe, without giving details.

While Chinese tech giants Alibaba (BABA.N) and Tencent (0700.HK) have large finance arms, leading Western tech firms have taken a more cautious approach to heavily regulated financial services, which often have hefty capital requirements.

A comparison site, however, would let Amazon give its customers access to insurance from a variety of providers while avoiding that level of regulatory burden, industry sources said.

The use of comparison websites to buy motor and home insurance is more prevalent in the United Kingdom than Europe or the United States.

Some insurers rely heavily on comparison websites for sales. UK insurer Hastings (HSTG.L), for example, told Reuters it sells 90 percent of its motor policies through such sites.

Rival car insurer Admiral (ADML.L) also relies on websites for sales and would be open to joining any Amazon site, its chief financial officer, Geraint Jones, said.

“If it establishes a comparison site then I suspect Admiral will be interested in being a member, potentially. Price comparison is the main source of distribution of our products and we’ll await with interest what they do,” Jones told Reuters.

Stuart Rye, Director Business Development, Financial Services at Fujitsu said:

This has the potential to be the major industry shake-up both feared and expected by many. An Amazon price comparison website for insurance products could challenge existing UK products given the company’s cutting-edge technology, reach and loyal customer base. But in this instance, Amazon is well-placed to shake up comparison websites – often, these do not prioritise customer needs and fail to include all insurance firms, meaning the prices listed are not necessarily the lowest, This is detrimental to both customers and insurance firm. Amazon however, certainly has the experience in customer data analysis and the ability to create additional value by connecting this to their development of home and life services with Alexa.
Given the busy UK market, the question is whether Amazon can actually disrupt existing aggregators. As the insurance aggregation market in the UK is already pretty mature, very competitive, rapidly evolving and improving, driven by digital native tech companies, other companies – such as Tesco and Google – have tried and failed before. If Amazon has any unique value over them, this is more likely to come not from technical prowess but from value chain integration, given the digital depth and breadth of Amazon.
The truth is, despite the changes to date, the insurance industry is only at the start of its own transformation. So far, the industry’s response to changing customer behaviour and demand for digital offerings has been automation of typically slow processes, creating mobile apps and investing in chat bots. The digital age has ushered an incredible opportunity for insurers to evolve the very purpose of the industry –by challenging their mindset and shifting their business to focus on prevention, rather than reaction to an incident.