Insurers Should Keep A Wary Eye On E-Commerce Firms
By Linda Koco
Should the traditional insurers fear non-insurance firms like e-commerce companies? The answer will interest agents, since the issue impacts them as well as their carriers.
According to a June survey of 338 C-suite executives in the life and property-casualty insurance business, the answer is yes, they should. Researchers for the Economist Intelligence Unit (EIU) found that 32 percent of the group believes that insurers should fear non-insurance entities such as Google, Amazon and other e-commerce players.
That is their No. 1 non-insurance threat right now, according to an EIU report sponsored by enterprise software firm SAP. Banks came in a very close second, at 31 percent.
The runners-up were aggregators (14 percent) and large retailers (11 percent).
The poll question cited firms such as confused.com and Keystone as examples of aggregators. It didn’t provide an example of large retailers, but Wal-Mart surely fits the bill. (If you doubt that, take a look at Susan Rupe’s eye-opening INN blog post on Wal-Mart’s moves into health care. It is must reading.)
News that banks are viewed as a threat may puzzle some readers. After all, life and annuity insurers have been nuzzling into that market, or trying to, for many years. They view it as a viable distribution channel. (And with good reason, at least on the annuity side. Bank annuity fee income hit a record $3.43 billion last year, according to the 2013 Michael White Bank Annuity Fee Income Report.)
But distribution partnerships are not where the fear lives. The source of the fear is potential loss of control. And that’s where e-commerce firms and banks share billing.
The EIU researchers pointed out that “insurers have struggled to keep pace with other industries with regard to consumer facing capabilities.” The upshot? “If customers make purchase decisions based on a customer experience that insurers struggled to deliver, then those customers may be up for grabs.”
That could mean insurers may risk losing customers who traditionally bought insurance face-to-face with agents, they warned. Presumably, those customers would go to non-traditional insurers, via the direct route, leaving the traditional carriers and the agents in the dust.
The barriers to entry to the insurance business are not as great now as they were in years past, observed Gary Scholten, whom the researchers quoted on the potential disruption. He is senior vice president and chief investment officer at Principal Financial Group.
In today’s environment, new entrants to the business could form “alliances” and establish “digital connectivity” with insurers, he suggested. Or, he said, “The new entrants could acquire an insurer to serve as the manufacturer while the acquiring company handles the consumer-facing side.”
My take: It is the last possibility — non-insurance entities with great consumer-facing systems and culture could acquire insurers — that may be fueling the fear detected in the survey. In the U.S., the industry has seen its share of not-altogether welcome “outsider” acquisitions. The private equity purchases of annuity carriers in recent years provide a case in point. But purchase by an e-commerce firm? That’s a much bigger leap. Bigger firms, bigger money, bigger technology models.
That is not outside the realm of possibility. As Scholten noted, “It makes sense for disruption to happen in distribution first, followed by services and then — once consumers are in charge — product manufacture.”
The old-fashioned approach to threat is to “meet fire with fire.” Maybe it’s time to revisit that notion, but with the “fire” being carrier adoption of consumer-centric approaches that have worked for successful e-commerce operations (and certain large retailers too). These approaches would be tailored to insurance, of course.
Some carriers have already done this, according to EIU. But what about the rest? And what about running some ideas by the agents, who have a lot of skin in the game? If there is a strategy in place, maybe the fear-factor will subside.