New Insurance Players: Disruptors or Duds?

Those with long careers in the insurance industry have seen newer entrants founder on the shoals of our business. Many well-intentioned outsiders don’t understand the innate complexities of the insurance ecosystem — complexities such as the long tail of liability claims, state-by-state regulation, and the technical challenges of a data-heavy industry. Unfortunately, that history may lead some in this industry to underestimate the potential challenges posed by the newest entrants: Walmart, Overstock, Google, and others sure to follow.

What makes these latest interlopers unique is they aren’t just technologists with a better widget. They are marketing and sales organizations looking to crack a new market. A number of revolutionary changes that drive consumer buying behavior and enable fresh approaches to how we underwrite, price, sell and service insurance are combining to provide unique opportunity to upstarts.

Taken at face value, the approaches taken by Walmart, Overstock and Google seem very similar. They are using their ability to generate visitors, either in the cyber or physical world, and offering those visitors the option of researching and comparing insurance options. However, in looking at the three, Google appears to have the highest likelihood of disruptive success. Google has the advantage of being the premier search engine, and has a successful insurance operation in the U.K. upon which to build.

What is Google Up To?

While Google’s initial entry into the auto market in California (Google Compare Auto) has been in the news of late, its efforts are evolutionary, building upon existing ecommerce models. But Google typically looks to revolutionize entire industries.

Remember when Google Maps was just a way to get from here to there? Now it tells you what’s on sale inside the store you are walking past, where the traffic jams are, and all sorts of other helpful information.

Although there is good money to be made via commissions for writing auto policies, Google’s ultimate intent is probably more strategic. Its intent should be seen as a potential threat to agencies, carriers, vendors and the associations that represent them. Other personal lines and small commercial policies are probably in the future mix, and the potential for models other than just facilitating the sale of policies might be under way as well.

If Google is successful in its efforts to aggregate shoppers and offer price comparisons, marketshare changes will take place as business is written through its channel. Carriers and agencies who participate will see market-share gains as they write business formerly written by nonparticipants. Those agencies and carriers who don’t participate will see their marketshare decline.

It isn’t clear whether Google will chose to work with additional agencies or not, but if it expands its number of agency partnerships, odds are that it will only be with a select few. That means that most agencies won’t be able to participate, leading to slow attrition in those lines where Google is having success. This may result in agency valuation taking a big hit, as acquirers derive less value on that business. In the longer term, this shift in market share could lead carriers and agencies to exit those lines where they can’t compete.

The size of the P/C marketplace and the amount of profit it generates guarantees that this industry will continue to see new entrants. As consumer behavior evolves and technology improves, opportunities for companies to revolutionize the business will continue to be created.