Could New Insurance Players Disrupt the Market?

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 the 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.

While Google’s initial entry into the auto market in California (Google Compare Auto) has been in the news of late, their current efforts are evolutionary, building upon existing e-commerce models. But Google has never been content with evolutionary change. They look 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 on your commute, and all sorts of other helpful information.

Even though there is good money to be made via commissions for writing auto policies, Google’s ultimate intent is probably more strategic: their first step is rarely their ultimate end goal, as we saw with Google Maps. That 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, market share changes will take place as business is written through their channel. Carriers and agencies who participate will see market share gains as they write business formerly written by non-participants. Those agencies and carriers who don’t participate will see their market share decline.

The barriers to carrier participation are low. A carrier can choose to either present their rates and write the consumer direct, or can work through Coverhound as an agent/broker to do the final bind, issue and service.

It isn’t clear whether Google will chose to work with additional agencies or not, but if they are going to expand the 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

Major disruptions could take place if Google decides to aggressively change their current model in order to revolutionize insurance underwriting, sales and service. To simplify pricing, Google could demand that any participating carrier be able to generate a bindable rate based exclusively upon publicly accessible records and write policies without an agent. These requirements would quickly divide the industry into those carriers who are willing and able to make the required changes, and those who can’t or won’t.

The wild card in the mix is if Google decides to use their access to behavioral data to form an insurance company with a new underwriting paradigm. Their strong suit is data. The carrier who can underwrite and price more effectively wins every time.

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 continues to evolve and technology improves, opportunities for innovative companies to revolutionize the business will continue to be created.

Agather is the senior vice president of client development for TrustedChoice.com.