Alternative providers of insurance: Posing a real threat to traditional insurers
Updated: Jun 16
Summary The insurance industry has seemingly awoken from a slumber in the last few years, and is now comparatively surging with innovative energy and insurtech propositions. However, the most advanced technologies are rarely utilised, and with the industry still learning to build closer engagement with customers, the market remains vulnerable to the entrance of alternative (or non-traditional) providers. The most disruptive alternative providers are likely to be technology specialists, as leveraging the latest technology will enable them to operate more efficiently and greatly improve the customer experience. Some non-insurance companies, such as Google, have already ventured into the insurance industry but failures have left them largely undeterred. Other big tech companies, such as Amazon, Apple, and Facebook are all potential threats to traditional insurers, as are telecommunications companies and reinsurers. However, not all of these companies are suited to a lone venture and may partner up with traditional firms. Consumers may initially be reluctant to purchase insurance from companies with no track record in the industry, but there is no doubt that alternative providers pose a very real, and growing, threat to insurers.
Technology helps alternative providers enhance the customer experience
The most disruptive alternative providers are likely to be technology specialists, as leveraging the latest technology will enable them to operate more efficiently and greatly improve the customer experience. Technology-based businesses offer strong platforms from which to disrupt insurance and consequently, much of the potential to disrupt lies with large tech companies. A key differentiator is the management of customer relationships. Companies such as Amazon and Apple have established strong customer relationships that are fundamental to their business model. They can use the large amount of user data they harvest to do this and this is a clear advantage over traditional insurers.
What are alternative providers?
Advancements in technology and shifts in consumer behavior have created opportunities for companies to venture into markets that would not be considered their core operating area. With insurance often perceived as lagging behind on innovation relative to other sectors, there would appear to be a considerable opportunity for alternative providers to enter the insurance market, leveraging strengths and technological capabilities in order to gain market share. Alternative providers include Google, Amazon, Facebook, and Apple. All well-established, respected brands and leaders within their respective markets, they offer significant disruption potential should they enter the insurance space.
How do they differ from traditional providers?
Alternative providers are often at the forefront of the latest technological developments (such as AI and process automation), putting them in a unique position to implement this technology and enhance the customer experience in a number of ways. In areas like deep data analytics – through which personalised products and targeting can be created (something traditional insurance providers have struggled with) – these tech-based businesses are capable of providing a far more bespoke product. A key differentiator is the management of customer relationships. Companies such as Amazon and Apple have established strong customer relationships that are fundamental to their business model. In comparison, the strength of the relationship between insurers and their customers is often weaker. While newer propositions are seeking to break the status quo, many customers continue to only speak with insurers at the point of renewal or following an unfortunate event.
Large technology players are the best placed to disrupt but other possibilities are also present
Technology-based businesses offer strong platforms from which to disrupt insurance. Other disruptors are present too however.
Google Despite a previous failed venture within the insurance market, Google remains a potential alternative provider. The impact it could have is significant, largely the result of its technological capabilities, big data analytics, artificial intelligence (AI), and the development of autonomous vehicles.
Apple The threat posed by Apple is a little different to other alternative providers. Unlikely to undertake a lone venture, Apple’s impact will lie in future collaboration with an incumbent player, enabling it to leverage technology and Apple’s loyal customer base.
Facebook Operating as a lone provider is unlikely to be a realistic option for Facebook. However, the social network’s vast customer base and successful integration into everyday life could position it as an invaluable partner – particularly if it is able to break into the commercial space.
Amazon poses a serious threat should it venture into the insurance industry. Renowned for customer service and the logistics behind this, should it collaborate with a current insurer it would vastly improve its technological capabilities, providing an edge over competitors.
Telecommunications Operators Some telecommunications operators currently operate within insurance, highlighting the possibility for further products to be offered. The current level of disruption is minimal, but as future propositions rely more on constant connectivity these businesses will wield increasing power.
Reinsurers An alternative provider that already has a detailed insight into the industry could prove one of the most disruptive entrants. Some reinsurers have been investing in a variety of companies and building a network of potential disruptors – creating the possibility of them bypassing primary insurers in the future.