Amazon U.K. is selling insurance. Should Canadian brokers be worried?

Amazon in the U.K. has launched a new online store to sell home insurance, prompting Canadian insurance company and broker executives to ask: ‘Could it happen here?’

“In my view, it’s a turning point,” Intact Insurance CEO Louis Gagnon commented Thursday during a panel discussion at the Insurance Brokers Association of Ontario (IBAO)’s 2022 Annual Convention. “The distribution of financial products is becoming something very different now.”

Gagnon went on to say he was “a bit concerned” about the impact of Amazon’s entry into the distribution side of the insurance business, noting Intact’s U.K. business had been preparing for this very thing for more than a decade. But now that it’s happened, insurers in Canada should take note, because Amazon is more than just a digital disruptor.

“In my view, Amazon [goes beyond] what a digital player is….Amazon is a marketplace. Amazon is an ecosystem, it’s not a digital play. If you look at who’s buying on Amazon, it’s everyone. So, we’re talking about a completely different [distribution] approach.”

Gagnon said Intact’s U.K. operations strategized around how to respond to Amazon selling insurance. He said the move means insurers and brokers will need to be very clear with consumers about the products insurers are offering, their branding, their value to consumers, and where and how consumers can find the products to be purchased.

In the U.K., the new “Amazon Insurance Store” offers a baseline home insurance product underwritten initially by three insurers (Ageas UK, Co-op, and LV= General Insurance). Consumers can customize their home insurance policies by adding features and getting immediate online quotes on the cost of the package if certain policy features are added or subtracted.

“All policies in the Amazon Insurance Store start with the same level of cover, called the Amazon Standard of Cover, which includes protection for some of the most common home insurance claims,” as Amazon describes its U.K. home insurance offering in a press release.

“In developing the Amazon Standard of Cover, the company conducted comprehensive research on the U.K. home insurance sector to determine which aspects of home insurance are most sought out by customers.”

Customers can add elements to their home insurance policy if they wish to move beyond the base cover, according to Amazon. “Customers can compare quotes and further personalize their policy in the areas that matter most to them,” the company says.

“If a customer chooses to add to their policy, quotes are updated in real-time to see how an insurer’s policy compares to others. Once a policy is selected, customers can checkout using their preferred payment method on Amazon.”

So, the question then becomes: Will people buy their insurance products online with Amazon?

Some Canadian insurance company and brokerage CEOs are skeptical. Financial products are complex, they argue, so they aren’t really conducive to the online store environment. Since consumers don’t really know how to interpret the language contained in their insurance policies, there is ample room for brokers to provide advice, expertise or advocacy — all part of their value proposition, said CAA Club Group’s president of Insurance Matthew Turack.

“I wouldn’t buy my financial financial products from an Amazon store,” Turack said at the CEO panel. “Why? There’s no advice. There’s no consultation. I don’t have a personal relationship with Amazon.

“Great, I get my stove from there and my razor blades, but I wouldn’t buy financial services products. I don’t trust it, I haven’t built a personal relationship with it, and it doesn’t give me advice.

“I’m not saying you can’t get some advice online. I’m saying I have to form a relationship with a broker, a financial advisor, to give me advice on a very valuable product that I’m going to purchase. I think the broker channel continues to leverage that value…and to me, any online site won’t do that.”

The Amazon news prompted further discussion among the CEOs about the aggregator sales distribution model. Insurance aggregators are intermediaries that operate an online platform, whether hosted on an Internet website or a mobile app, that provide price comparisons and facilitates the purchase of insurance on behalf of insurance companies.

Aggregators generally play a much larger role in the U.K. insurance market than in Canada. GlobalData’s 2021 UK Insurance Consumer Survey reported aggregators were the third-largest distribution channel in the U.K.’s non-life insurance market, with a 29.2% market share.

The role of online quoting is expanding in Canada. “From 2008 to 2013, Canadian consumers obtaining insurance quotes online went from 23% to 40%,” as noted in a 2015 Deloitte report. That number may be now as high as 69%, according to a study referenced during the IBAO panel discussion by Definity Financial president and CEO Rowan Saunders.

Of course, consumers getting online insurance quotes doesn’t mean they are buying the product online or through the aggregator channel, as Saunders observes. “Still today, there isn’t 30% transacting purely through digital channels,” he said. “There’s an indicating preference, but it isn’t being followed through.”

Carol Jardine, president of Wawanesa Mutual Insurance Company’s Canadian operations, says she would hate for Canada to go the way of the U.K., with more aggregators eclipsing the broker’s market share, which, at about 60%, is one per cent higher than it was 10 years ago, as observed by the panel members.

To bulwark against the rise of aggregators in Canada, the brokers need to make sure they are adding value above and beyond finding the best price for the consumer, which is what aggregators offer, the CEOs observed.

“I get worried with aggregators who are basically trying to commoditize insurance and making it all about price,” said Jardine. “When I see a question around Amazon in the U.K., my first thought is, ‘Oh my goodness, please don’t let that happen here.

“I think it’s up to each of you as a broker to decide if you want to commoditize the product you sell, which is a strategic choice you could make, and that’s your choice. We do not want to commoditize insurance as a mutual [insurer].”

Jardine said Wawanesa’s strategy has been to pursue business that enhances the value brokers provide to the insurance transaction. So, among other things, that means offering customized insurance products designed to meet specific customer needs, as identified by brokers, such as sustainability products.

It also means providing brokers with risk mitigation and prevention messages for consumers who wish to lower their risk of making a claim. This kind of value is not offered in the Amazon marketplace, as she observed.

 

Feature image courtesy of iStock.com/kasinv