Amazon’s entry into UK home insurance: Spooky
October 28, 2022 Chris Sandilands
Amazon’s statement: What they have said
On 19 October 2022, Amazon announced that it was entering the UK home insurance market with the Amazon Insurance Store. It says it will be a “like-for-like” comparison experience with a “streamlined” question set and “integrated” check-out experience. It is rolling out to “select customers” now and will be available on the website and app by the end of the year (there is currently a holding page).
The ‘base’ policy offered on the site will be a consistent policy called the “Amazon Standard of Cover”. The policy can then be personalised. Customers will receive a £10 Amazon gift card.
The company has partnered with Ageas UK, Co-op and LV= and says that more insurers will be added next year.
Be scared, very scared
Amazon’s move into insurance has been mooted for some time – and it’s finally happened. The fact that the move has come later than expected should, in our view, worry the industry. Amazon is not thinking about a simple ‘me too’ proposition, which it could have launched years ago.
Instead, this is a considered move that leverages the company’s considerable and growing sources of competitive advantage. This should worry the industry, and regular readers of our commentary will know that we do not say that lightly.
Amazon is well placed to ride several insurance trends
Amazon’s press release makes reference to several trends that have been floating around the insurance world for some time. Personalisation will allow customers to create the policy that suits their needs. There will be a new “policy wallet” in the Amazon account. The insurance is embedded as it is sold through Amazon’s website and app. Insurance will be integrated with their review proposition.
Insurers and InsurTechs have been trying to make these trends work for several years, often in isolation, and certainly largely without any kind of breakthrough success. Amazon is, in our opinion, in a position to change the game.
Amazon has obvious customer acquisition advantages thanks to its retail ecosystem. The company appears to be retaining control of the proposition and has the clout to orchestrate its insurer partners; this is essential to build a personalised experience in a comparison environment. It is easy to imagine how the Amazon account can be the starting point for various self-service journeys, for example a digital claims journey which will benefit from policy consistency. It is easy to imagine Amazon collecting rich feedback data through its existing user touchpoints.
Home insurance is virgin, incremental territory for Amazon
When Google launched its Compare proposition in 2015 it was already making estimated UK revenues from insurance advertising of c$1bn. The strategic gamble was that it could make more from taking the full insurer commission as an aggregator than it could from taking advertising revenue from third party aggregators, insurers and brokers. This calculation did not pay off and Google closed its price comparison site in March 2016. Not that we need to feel sorry for Google: advertising spend on insurance keywords remains one of the most expensive categories.
Amazon does not currently have a presence in the standard retail insurance market. Its ventures to date have been focused on its marketplace. In the US, Amazon partnered with Marsh in 2021 to offer product liability coverage to small vendors via the Amazon Insurance Accelerator. In the UK, it offers Business Prime customers business insurance via Superscript.
Home insurance, therefore, is a purely incremental opportunity for Amazon.
Amazon’s ecosystem strategy delivers unique underwriting insight and innovation opportunities
Arguably the most interesting aspect of Amazon’s move into home insurance is to see it in the context of its home ecosystem strategy.
Amazon has been stealthily squatting in people’s houses since it first launched its Alexa smart speakers in 2014 and started listening in to people’s conversations – ostensibly when people asked it to do something but also sometimes in the past when people weren’t expecting it.
In 2018 Amazon acquired Ring smart doorbells for over $1bn. That allowed the company to see who was walking past, coming in and going out, know when the door was open and closed, and to take control over access.
Both Alexa and Ring are now presented as part of Amazon’s Smart Home proposition in the UK.
In August 2022 Amazon bought iRobot, the leading manufacturer of smart vacuum cleaners in the US (responsible for 75% of all smart vacuum cleaners sold there). This not only allows Amazon to own the smart vacuum category, but also to build rich data about the inside of people’s houses, both objective (e.g. the layout, how much furniture they have) and qualitative (e.g. are they messy).
It is not hard to see how these assets combine to provide incredible underwriting-relevant insight. Furthermore, the company can dig a huge moat: in the connected home ecosystem, Amazon’s data is proprietary as it owns the devices (and can give these away at below cost to deepen that moat). The big question is just to what extent data can be shared across propositions – and we imagine that this is a question of when rather than if.
Amazon could build new frontiers in innovation
In a digital and connected world the opportunity for Amazon to innovate around insurance is endless.
An interesting angle could be thinking back to the 1600s when insurers employed Thames watermen as fire fighters – an early risk management innovation following the Great Fire of London. As public services erode, could we see Amazon using a combination of its smart home technology and dense mesh of delivery drivers to become a new generation of early-intervention neighbourhood police force? Could the Ring doorbell identify criminals approaching a house and initiate a pre-emptive response for insurance customers? Could Amazon use its supply chain to disrupt claims?
It’s all a bit like the Matrix – but it is clear that ethics will determine boundaries more than technology constraints. All whilst incumbent insurers continue to think through their legacy tech challenges.
But it’s not going to be plain sailing
Whilst Amazon has incredible opportunities to build a differentiated insurance proposition, it also needs to overcome some familiar challenges.
Consumers still need to be won over
Whilst Amazon could be successful in insurance, it ultimately all rests on whether consumers are interested in changing their habits. One of the reasons we think that Distribution InsurTechs have struggled in the UK is that consumers understand and like the aggregator proposition and have little interest about discovering anything new.
Many would have argued that Google was in a good position to have ‘flipped’ the market back in the early 2010s, but they didn’t. Amazon’s execution therefore still needs to be outstanding.
Amazon is going for experience over price
Amazon is launching its new venture with only three insurance partners: Ageas, Co-op and LV=. There are two possible explanations: that more insurers did not want to join its panel (we think unlikely), or that Amazon wanted to work with a small group of ‘pilot’ partners initially.
Given that comparison science suggests that consumers need to see six plausible offers to feel that a site has adequately scanned the market, and that we think that Amazon could have got this panel together if it wanted to, the conclusion would be that Amazon is banking on customer experience over pure price and comparison in the short term.
That would also fit with the announcement about the Amazon Standard of Cover. This bucks the market trend: Amazon is ‘going high’ when many are ‘going low’ and launching “essentials” products, often in response to the FCA General Insurance Pricing Fairness regulations (“GIPP”, about which we have written extensively).
Amazon is unlikely therefore to offer the cheapest price in the market, either because it is selling a more comprehensive product or because it has a limited provider footprint. In other words, this is an experience play and not a price play – perhaps surprising given the company’s reputation.
Retailers have often struggled to make insurance work
Amazon also needs to be better than other diversified retailers at driving insurance sales. UK brands are generally under-powered when it comes to their financial services and especially insurance presence.
In our experience, this is because governance and operational realities get in the way. For example, insurance needs to make the case at the group level that it should have investment and customer access. Brands only have an advantage if they can use data around the group freely, which is not always the case. Retail management teams can quickly get spooked when they discover the complexities of insurance.
Amazon will face the same challenges if it does not resolve these issues. Unfortunately for insurers, the company has been successful at moving into many new verticals and introducing new propositions over the last decade.
Amazon still needs to validate that insurance is where it needs to be
The tech commentator Benedict Evans once said something down the lines of “Disney is good at entertainment, but they still shouldn’t buy an airline just because airlines compete on the quality of their in-flight entertainment systems.”
Amazon has every chance of being successful in insurance, but might end up not pushing it. Insurance will presumably need to compete for budget against other categories like retail or AWS. That said, with a recession coming which could end up slowing retail sales, insurance might look like a good place to be.
What now for insurers?
Insurers need to think carefully about what Amazon’s entry into the market means and what they should do about it.
Beware the hand that feeds you
Insurers should be vigilant. Even if some early pioneers make money through the Amazon partnership, it is hard to imagine that Amazon won’t seek to pull in more of the value in the longer term.
Squeezing commission is the obvious lever, but we so no reason why Amazon would not buy a carrier if this pilot is successful and squeeze insurers out. Insurers will have been nothing more than helpful educators before being cast aside. After all, Amazon likes to dominate markets and is currently under investigation by the Federal Trade Commission for its control over the smart home market following the iRobot acquisition.
That said, Amazon’s Marketplace proposition also suggests that it is happy playing the role of orchestrator and introducer, or MGA in insurance terms. If it remains in that role, maybe working with a smaller number of integrated insurance partners, Amazon will act as a ‘super-gatekeeper’ – a term we coined in our 2020 InsurTech Impact 25 report to describe digital platforms that control access to millions of customers. Amazon could use its review proposition to aggressively manage its panel, switching out low-scoring carriers every few years. Insurers will need to consider their Amazon review rating in their claims handling approach.
Either way, insurers don’t feel like they are going to be the dominant party in this relationship, and need to think about what their operating model looks like in a world where distribution shifts to “super gatekeepers”.
Make a plan because the Board will be asking questions
This has the potential to be a move as big as aggregators entering the market in the early 2000s. That was a painful period for carriers, who completely missed the implications of the new distribution dynamics. It took years for them to rebuild their business models, transform their capabilities, and return to profitability.
Insurers and brokers need to understand what this move means, what the implications on the market and themselves could be, and make a plan.
Brand-led players need to consider whether they have made enough progress building their own ‘ecosystem’ propositions. Is this an impulse to overcome the challenges that have held them up in the past? Is this the moment where insurance CEOs need to hustle the group CEO and make the case for insurance’s role in an integrated retail ecosystem? Is this the moment for greater management integration with the rest of the group?
Directors will be asking questions at the next Board meeting.