Amazon has hinted at the possibility of selling homeowners insurance, but what’s fact and what’s fiction?
Amazon is once again considering entering the insurance business. Indeed, The Information reported that the e-commerce heavyweight has discussed selling homeowners policies in connection with “smart” home devices such as locks and security systems.
This isn’t the first time in recent months that Amazon has shaken up the insurance industry with talk of offering coverage. While the company currently sells insurance to consumers who buy certain products from its site, Jeff Bezos’s juggernaut has hinted at moves into health insurance as well. Earlier this year, Amazon even teamed up with Berkshire Hathaway and JPMorgan Chase & Co. to develop better healthcare options for employees.
At this point, however, Amazon has yet to announce a definitive homeowners insurance product. The company does brings some advantages if it decides to sell insurance, but it also faces major hurdles and a wealth of state and federal regulations.
Entering the homeowners insurance market would require Amazon to abide by a complex series of insurance regulations that vary widely from one state to the next. “Insurance is not something you put in a box and ship,” Lynne McChristian, Director of Disaster Response and Florida representative for the Insurance Information Institute, told CNBC. “It’s one of the most regulated industries in the U.S.”
McChristian added that Amazon would also need to partner with a well-funded entity to backstop claims payments, which could rise when natural disasters hit. After all, the most significant property damage is typically the result of weather-related events like lightning, wind, and hail.
For a business that operates primarily on a national level, establishing legal entities to underwrite risk in a way that adhere to state laws would be a major departure from a well-established business model. And while Amazon has displayed a talent for disrupting long-standing industries such as publishing and television production, insurance would put the online marketplace to the test.
Nevertheless, if Amazon muscles into the homeowners insurance marketplace, it may have the chance to get in on rising profits. According to data from the National Association of Insurance Commissioners (NAIC), the top 25 homeowners insurance carriers wrote direct premiums totaling more than $94 billion in 2017, up from $91.3 billion the previous year.
In the past, Amazon has successfully moved into new markets by offering competitively low prices. To be sure, many consumers want lower insurance rates: a 2016 study by the Insurance Information Institute (III) revealed that 31% of homeowners felt the cost of homeowners coverage was too high. In 2015, monthly premiums averaged more than $1,173. If Amazon could lower those rates, it might attract buyers.
Amazon could also tie reduced rates to a purchase of one of its smart home devices, although many insurers already offer discounts if homeowners buy security systems and other connected gadgets. Data from connected devices might help provide greater insights into claims and lower premiums in the process.
For all the convenience Amazon offers shoppers, it may not lure away many homeowners from their current insurer — at least initially. After all, homeowners with existing policies that they enjoy and agents that they trust might be uncomfortable shopping around for another.
Amazon would also face a difficult task of providing the personalized service insurance agents can. Agents are uniquely positioned to understand clients’ property insurance needs, insure those risks, and touch base in a friendly, substantive way.Conversely, while the threat from Amazon may be far off, agents and insurers would be wise to recognize the benefits the online retailer brings to the marketplace. Lower costs and a streamlined online shopping experience are attractive to prospects, even if they’re not ready to make the jump just yet. To prepare for Amazon’s possible entry into the industry, agents should consider how they can invest in the their digital presence and craft online services that are, first and foremost, oriented toward clients.