The FCA has already taken note of the potential for big tech players to disrupt the insurance market

Last month (19 October 2022), online retail giant Amazon launched the Amazon Insurance Store for select test groups of customers, with the hope of rolling out access to all customers by the beginning of 2023.

The online store – which can be accessed via Amazon’s website – allows customers to enter their information, compare different providers and prices and then purchase home and contents insurance without leaving Amazon.

Amazon has initially partnered with Ageas UK, Co-op and LV= General Insurance to deliver its online store - although the company is also already in discussion with further insurers to add to its distribution platform.

The e-commerce giant has long been expected to enter the insurance sector.

Back in 2018, there was industry-wide talk of an entry into the market that didn’t bear fruit, but Amazon has since entered into various partnerships with insurers, insurtechs and brokers - including Marsh, Superscript and Next Insurance.

In 2020, Insurance Times reported that Amazon was preparing to enter the motor insurance market.

At the launch of the online insurance store last month, Amazon’s general manager of European payment products, Jonathan Feifs, told Insurance Times that the initiative simply intended to improve the customer experience of shopping for home insurance.

However, he hinted that the company did not plan to rest on its laurels where expansion into the insurance industry was concerned.

Feifs said Amazon would “continue listening to customers” regarding the expansion of its online offering into other insurance lines.

“Watch this space for future launches,” he added. “This is very much day one for the Amazon Insurance Store and I would expect new features to continue to launch and the site experience to continue to improve while the selection continues to expand.”

But what will Amazon’s entry into the market mean for the wider insurance sector?

Regulatory concerns?

A week after the launch of Amazon’s store (25 October 2022), the FCA announced that it was exploring the potential of big tech firms – such as Amazon – to “disrupt established markets”.

Although the regulator said that no regulatory changes were being proposed at this point, it added that big tech firms could pose competition risks to financial markets if they rapidly gained market share and were able to exploit market power.

While noting the potential benefits of big tech’s growing influence in these markets – including driving innovation and reducing costs for consumers – the FCA’s executive director of consumers and competition, Sheldon Mills, noted that the regulator wanted to ensure that these benefits could be realised while also ensuring “good consumer and market outcomes”.

The FCA’s concerns about the potential impact of Amazon’s entry into the insurance market reflects that of the wider industry.

Some commentators feel that the scale and capital that Amazon can bring to bear provides it with an inherent advantage which would surely impact on competition within the industry were the company to decide to go further than simply distributing insurance.

Speaking in Las Vegas at Guidewire’s October Connections 2022 conference, Guidewire’s president and chief revenue officer John Mullen told delegates what he thought of Amazon’s entry to the market. 

”The UK is already an aggregator market,” he said. “We could look at Amazon as just another aggregator or as disruption in the market – it is something we should pay attention to. 

“There’s going to be winners and losers in this market, more than ever.” 

Mullen also suggested that Amazon was simply filling a niche left by a lack of innovation from incumbents in how to distribute insurance.

He believes the insurance sector has “such a distance left to travel in meeting consumer expectations” around the distribution of insurance. 

Disruptive model

In its current state, Amazon’s online insurance store functions akin to a price comparison website, allowing customers to compare between policies based on key metrics such as price and what is covered.

The current iteration of Amazon’s proposition offers no fundamental change to the insurance market outside of adding another distribution channel – but could this disrupt the price comparison website market?

Ben Carey-Evans, senior analyst at data analytics and consulting company GlobalData, said: “Amazon’s move into price comparison services for household insurance could significantly disrupt a model that long been dominated by the big four – Compare the Market, Go Compare, MoneySuperMarket and

“The retail giant will offer a serious threat to these staples, as it has a reputation for digital expertise and value in the UK alongside significant brand recognition – with a total of around 12 million Prime members.”

GlobalData’s Consumer Survey – which polled 4,389 consumers in Q4 2021 – found that 19.7% of UK consumers were willing to purchase home insurance from Amazon, showing that a sizeable proportion of consumers were open to buying insurance through Amazon before it even offered this service.

Carey-Evans added: “The current cost of living crisis will make consumers focus heavily on price and value when choosing policies.

“However, given its reputation for low prices, alongside its presence within UK households and its digital expertise, [Amazon] is likely to have an immediate impact on the market and become the fifth key player.”

Cost cutting?

Despite its size, Amazon is not immune to economic shocks and is currently experiencing a hard financial situation.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, explained: “Amazon’s jet fuelled expansion during the pandemic has come back to haunt it.

“Inflationary pressures and a highly uncertain economic outlook add to [these] concerns, where the world’s largest retailer shocked investors in October when its third quarter results fell short of Wall Street estimates.”

Lund-Yates cited competition from American retailer Walmart as a further factor for Amazon to consider.

Despite its current monetary difficulties, Amazon certainly doesn’t seem to be going away.

This – combined with its long-held interest in the insurance sector – suggests that there is more to follow for the insurance industry from the world’s largest retailer.