Fret not about Amazon insurance comparison website

Amazon.com is sounding out some of Europe’s top insurance firms to see if they would contribute products to a UK price comparison website in what would be a major foray by the US online retail giant into the region’s financial services, according to an Aug. 16 Reuters report.

An Amazon price comparison website for insurance products would be a potential challenge to existing UK sites given the US company’s cutting-edge technology, reach and loyal customer base, Reuters noted.

Two of the most high profile platforms are comparethemarket.com which shows products from insurers including AXA, Hastings and eSure; and GoCompare, which lists insurance from firms such as Santander and LV=.

The online price comparison model is more than 20 years old, and the market is mature, Mendel argues.

“The four main price comparison sites all provide a good experience and tangible savings for their users on mainstream insurance products (particularly car insurance). It is hard to imagine what extra value Amazon - or anyone else - could add to generate more demand,” Mendel says.

On the supply side, analysts have speculated that Amazon might charge lower introducer commissions to insurers than the incumbent players, Mendel notes. “That might indeed be a lever to get insurers onto Amazon's comparison platform - a precondition for winning market share - but it would come at the cost of driving down the overall revenues available from providing comparison services,” he argues.

Reuters noted that a UK insurance site would also build on Amazon’s existing products in Europe offering extensions to manufacturers’ warranties, a service known as Amazon Protect.

While Amazon’s loyal customer base and reach would probably prove attractive to some insurers happy to cede some of their premiums to Amazon to expand sales, the potential for premiums to be forced lower through competition could deter others, Reuters noted.

But by Amazon's standards, the market opportunity in price comparison is already pretty small, Mendel says. “If Amazon took 20 percent of the UK market, it would bring in another $285 million in revenue. Compared to Amazon's $11.4 billion UK revenue, this represents an unexciting 2.5 percent. Compared to its $178 billion global revenue, it is a minuscule 0.16 percent. Why even bother?” he asks.

Still more disappointing is Amazon's apparent lack of imagination, Mendel says. "Amazon Compare" hardly has the feel of the bold moves we have come to expect of the big four tech companies.

The insurance industry has been worrying and speculating about the consequences of a potential entry into the insurance sector of technology giants like Apple, Google, Facebook and Amazon for quite some time.

Mendel argues that there would be far more disruptive insurance opportunities for Amazon that a comparison website.

“Amazon is the archetypal ‘long tail’ business,” Mendel says. “Its success with consumers in retail is based on a simple value proposition: Amazon is the place where you can find anything and everything you might possibly want to buy,” he explains.

Key to delivering on this proposition is Amazon Marketplace - the platform which multitudes of much smaller-scale retailers use to list and sell their products, Mendel says. Marketplace means Amazon can meet the most obscure of consumer demands without sourcing any products or holding any stock, he notes.

“Insurance is also a ‘long tail’ market,” Mendel says. “The parallel to obscure retail demand is niche insurance needs, as Bought By Many has learned developing products for groups as diverse as people with cancer, nail technicians, and parrot owners,” Mendel says.

Bought By Many launched pet insurance for cat and dog owners as well as travel insurance for people with medical conditions in 2017.

Later on, the insurtech firm also acquired UK’s provider of insurance for exotic pets and pet businesses Exoticdirect. Bought By Many works with more than 30 insurers around the world while having gained over 400,000 members, according to the company.

“While profits in mainstream insurance have largely been competed away, there is still plenty of margin in niches,” Mendel says. While the mainstream insurance market is highly consolidated, the niche insurance market is fragmented across a large number of specialist brands, he argues. At the same time as mainstream insurance can be bought quickly and easily from the touchscreen of a mobile, arranging niche insurance typically requires phone calls and posting proposal forms, he notes.

“What if Amazon created "Amazon Insurance Marketplace", and equipped all those specialist suppliers with a platform to distribute their niche insurance products digitally?” Mendel asks.

With Amazon's enormous resources channelled into onboarding specialists onto a Marketplace platform, consumers would suddenly find it much easier to buy insurance for their out-of-the-ordinary needs, Mendel explains. Furthermore, greater transparency over competition would encourage suppliers to develop more innovative products and keener, more sophisticated pricing. The UK niche insurance market - already worth $32 billion, according to Swiss Re - would grow, driven by the new demand Amazon had unlocked, according to Mendel.

“Over time, Amazon would become the go-to destination for insurance in the same way it already is for retail products,” Mendel says. “It would be the place you could find any and every insurance you might possibly need. That is an opportunity worth getting excited about,” he says.

Meanwhile, the incumbent comparison websites will need to move beyond price and mobile customer experience as points of differentiation, Mendel notes. “It’s time for them to get closer to insurers, and work together to fill the gaps in cover that exist today. Years of data about consumers’ insurance needs – which comparison sites and insurers have, but Amazon do not – should be put to use in developing better products for customers,” he says.