Last week we’ve learned more about the potential roles that GAFA and BAT could play in the future of insurance. Now moving on to question no.3 for our 50insurtech influencers we will see what makes GAFA (Google, Apple, Facebook, Amazon) and BAT (Baidu, Alibaba, Tencent) fit candidates for becoming major players in the insurance industry. We’ve collected the opinions of top insurance thought leaders as they go through advantages and disadvantages of the big tech players.
Q: Do you expect G.A.F.A. and B.A.T. to capture a large part of the insurance industry profit pool in the future? What are the most relevant advantages and disadvantages they have?
Sam Evans: Highly likely. They have relationship, brand strength, digital capabilities, distribution. They lack insurance expertise but are building capabilities and partnering.
Matteo Carbone: No way! They will not own any material part of the insurance industry profit pool. I think the culture of the internet players is opposite with the key element of a sustainable insurance business: underwriting discipline. On top of that, the execution will show how each market has its particular characteristics, one size fits all doesn't work...opposite than the social media or internet business. I'm speaking about what the customer want (need) to buy in the different market and how they want to buy it.
Let's take the example of auto insurance. The U.K. auto insurance market is dominated by online distribution. I remember 10 years ago the discussions with insurance executives I was advising, where their assumption was that all the Western European markets would follow the U.K. evolution path in few years. After 10 years, the auto insurance distribution in Europe continues to be dominated by the old traditional channels. You can argue the fault was in the execution of the local carriers...well, let's consider the European branches of the UK carriers. U.K. insurance group develop the experience and the technology in U.K. to run this approach amazingly...but no one of their European branches was able to replicate this success in other markets. I don't think things cannot be changed, as opposite I believe there are a lot of opportunities to do things in a different way. But "one size fits all" doesn't work, and I’m skeptical about the tech giants’ ability to deal with this local insurance characteristic. Let's image the tech giants decide how to deal with that form their office in Silicon Valley or the European hub in Dublin. As I answered in the interview: this approach could work when each of this players is selling adv to insurers, adding a light coverage bundled with an electronic device they are selling…but when they dirty their boots on the insurance distribution (or more steps of the value chain ) this weakness will emerge. Google Compare doesn't exist anymore in US...only to name one recent tentative.
Tim Attia: Yes. Owning the customer will be more important than underwriting the risk. They will also create more value from the customer that is not directly tied to premium. Disadvantage is that the regulators will to limit the reach of Gafa and bat which is already under scrutiny in the western world.
Danielle Guzman: Yes. Two of their most competitive advantages are their speed and agility to keep pace with evolving tech and customer needs, and the depth of data they own and analyze. Those are powerful advantages.
Disadvantages to GAFA? They lack the centuries of deep experience that incumbents have. But while GAFA lacks here, this does make them good partners in the new tech first digital ecosystems of today. Collaboration is a win.
Jim Marous: The tech giants won’t get into insurance from a straight revenue perspective but to improve their lifestyle ecosystem offerings. So, while they will greatly impact the major profit centers of traditional insurance firms, they will offer current services at greatly reduced costs. Similar to Insurtech firms to date, the tech giants will reduce friction and improve personalization through digitization and data analytics.
Nigel Walsh: Depending on where insurers focus their energy on driving profit. I expect them to drive material competition into the sector, driving a fight for carriers to become the most efficient manufacturer. Importantly, getting it right means it could help drive the insurers to greater profitability here, by unlocking new ways to increase profitability and efficiency.
It also depends on the state or maturity of the firm that is engaging here. If you are a startups, your initial focus may actually be revenue or customer growth (not at any cost or bas business) before you then move to unlocking and retaining these in different ways.
Robin Smith: Depends on how good they are at partnering with insurtech players. They will play a major role if they can effectively partner with rising insurtech players and leverage their existing technology advantage effectively. The advantage of GAFA is their technology, distribution network, and consumer base. Their disadvantage is their lack of industry expertise; which is where the insurtech partnerships come in. With legacy systems, traditional carriers have already opened themselves up for ongoing disruption from nimble tech startups, but that could extend to larger digital players going forward.
Paolo Cuomo: Initially they will likely grow the pool by creating something new.
Spiros Margaris: My Forbes article “We Were Kings or When Fees Went to Zero” https://www.forbes.com/sites/lawrencewintermeyer/2017/09/21/we-were-kings-when-things-went-to-zero/#3572bcb370d7 paints a bleak picture for the banking and insurance industry. The financial incumbents will face profit margins that will decrease dramatically to a level where their businesses won’t be able to survive in their present form.
Andrea Silvello: One thing is certain in my opinion, and that is they will play an important role which is a bit early to accurately define. But the premises of success are hidden in these players’ core advantages: they are smart & quick to act, they have no legacy systems and less rigid and they have a huge base of super engaged users.
Denise Garth: The race to the future of Insurance … Digital Insurance 2.0 has begun. It is a race with new insurance entrants, like GAFA, BAT and others, are challenging traditional incumbents. Change is being forced on insurers, whether they like it or not. Several of the orthodoxies traditionally underpinning the industry are being challenged and disrupted. Customer expectations are increasingly being set in unrelated or adjacent industries. Technologies allow start-ups to compete using customer-centricity, as opposed to products, as their value offering. And a new insurance paradigm is being crafted regardless of whether incumbent insurers choose, or are able, to play to compete in a new digital era … Insurance 2.0.
Insurance 1.0 business models of the past 50+ years have been based on the business assumptions, products, processes, and channels for the Silent and Baby Boomer generations. Gen X was the first to begin to shift. Today, Millennials and Gen Z are intensifying their influence by significantly shifting the fundamental business models by demanding the use of digital technologies, new products and services that align to their demographics, needs and expectations … creating Insurance 2.0
Digital Insurance 2.0 is silo-less (or silo-reduced) insurance operations, enabled by digital technologies. These companies have expansive data and analytics capabilities, cultures of creativity and experimentation, strong brands, extensive customer base and lots of cash that together they can focus on an industry like insurance that is ripe for disruption. It is a new business platform that utilizes digital efforts to reconstruct a future-proof model with fewer barriers between systems. In general, digital insurance platforms share these traits:
- Maximized effectiveness across the entire customer journey with deeper, personalized engagement.
- Process digitization that improves operational efficiencies and customer experience.
- The ingestion and use of digital data-driven insights for better decision-making and to proactively identify customer needs.
- The ability to rapidly roll out new products and capabilities while expanding into new markets, provinces or other geographies.
- Quick adaptation to rapid changes.
- Extensive partner ecosystems that offer significant value to the customer and insurer with new capabilities and services through a “Find and Bind” architecture to keep up with innovations.
Mark Breading: In a word, no. Many of the early InsurTech entrants planned to become insurers and expected to become unicorns. Many of those have now decided that underwriting risk and dealing with regulators is not something they want to do. They still have valuable solutions and may, in fact, become unicorns, but will likely do so in partnership with insurers rather than taking away their business. The GAFA and BAT companies certainly have the capital and the talent to start insurance ventures, and some may do that. They may be able to build on their strong brands to be successful in P&C personal lines or term life. But it seems unlikely that they would want to tackle the more complex lines of P&C and Life/Annuities.
Stay tuned for the last from this series of posts featuring answers from our 50insurtech influencers to pressing questions for the insurance industry. Remember to subscribe to our newsletter in order to stay updated.
See here for the previous posts from the series:
Are GAFA and BAT sinking their teeth into the juicy insurance industry? https://insurtechnews.com/insight/are-gafa-and-bat-sinking-their-teeth-into-the-juicy-insurance-industry.html
Will these big tech players be enablers, distributors, insurance carriers or insurtechs? https://insurtechnews.com/insight/will-these-tech-players-be-enablers-distributors-or-insurtechs.html