Amazon’s latest partnership could mend insurance sector's broken trust

Amazon’s Business’s recent partnership with insurtech Next Insurance could help fix the damaged trust in the insurance market, following the sector taking a reputational hit from the fallout of the FCA’s business interruption test case.

The two firms joined forces in March on a small business proposition, which allows Amazon Business Prime members to get quotes from Next Insurance for general liability, professional liability, workers’ compensation, commercial auto and tools and equipment cover.

When asked why Amazon’s B2B marketplace might have focused on an SME proposition, Matt Connolly, chief executive at Sønr, said it can be put down to two reasons – firstly, it links to the e-commerce giant’s Business Prime membership and secondly, to explore insurance.

He told Insurance Times: “[Amazon is] on a big push for Business Prime – they recognise the value of increased sales and better retention should they move people to Prime.”

Connolly explained that the willingness to trust tech companies like Amazon, Apple, Facebook and Google comes down to consumers being familiar with the brand.

With many using Amazon to deliver essentials when retailers were shut during the UK’s pandemic lockdown, he admitted this has helped to increase trust with the brand.

Insurance Times explores how this might be an opportunity for the insurtech sector and what the wider implications for the insurance industry could be.

Open innovation

With both Indian insurtech Acko and Next Insurance in Amazon’s repertoire, Connolly sees this as an opportunity for insurtechs to capitalise on - he predicts more partnerships ahead.

Next Insurance is an insurance unicorn - a company with a valuation above $1bn - which raised a further $250m in April. This takes its value to $4bn.

Ben Carey-Evans, insurance analyst at GlobalData, said: “The partnership is therefore likely to offer modern and digital SME insurance. It will allow Amazon Business Prime customers to purchase several business products online and instantaneously.”

Connolly added: “For an incumbent, the tools for innovation are limited. The challenge they have is one of pace.”

This is because companies have two routes to accelerate digital transformation – partnership and acquisition.

“We are shifting to a world of open innovation and companies working together to provide better value,” Connolly said.

Open innovation is a business management model that promotes collaboration between people and organisations outside of the original company.

Connolly also pointed to the trend of consumers being more open to buying insurance from non-insurance providers and retailers. For example, John Lewis partnered with Munich Re’s subsidiary firm Digital Partners to deliver flexible home insurance.

Other technology companies and high street retailers are offering embedded insurance, which refers to cover that sits within a product or service, such as a smart home product that comes with optional cover.

This is one of three key themes that Oxbow Partners identified in its recent 2021 Insurtech Impact 25 report. The advisory firm said it has a “bullish” stance to this model - as sharing economies and e-commerce companies are creating a huge demand for embedded insurance, this approach has become critical to accessing new customer pools and is now needed for innovation.

Connolly added: “If there is an appetite from consumers for buying insurance from non-insurers, then why wouldn’t those big tech retailers be bolting on [an] insurance service? Then the question is who do they bolt on with? It needs to be a seamless digital experience that is easy to buy, use, etc.”

He stressed that insurtechs have the agility to do this, which is why he predicts opportunity knocking.

Neil Brown, partner at RPC, added that many industries, including hotel or taxi bookings and TV viewing services, have been completely transformed by digital startups in recent years.

“We haven’t seen that with insurance, at least not to the same degree, as barriers to entry remain high, such as the burden of regulatory compliance and the need for scale. However, seeing huge tech companies such as Amazon entering the insurance market suggest this could change,” he continued.

Holy grail

Connolly also tipped Amazon’s latest partnership as a “distribution play”.

Greg Brown, partner at Oxbow Partners, agreed. He described using partnerships to access distribution as “the holy grail” for insurtechs.

Moving forward, he predicts an uptick in embedded insurance and usage-based insurance models via partnerships.

”Everyone has been talking about embedded insurance for a long time and this is exactly what [Amazon] is trying to do,” he added.

For Paul De’ath, Oxbow Partners’ head of market intelligence, the impact of the Covid-19 pandemic on working practices, as well as the FCA’s general insurance pricing review, act as “potential triggers” for players like Amazon to enter the insurance market with embedded insurance offerings.

However, despite these propositions potentially working well for straightforward risks, it could lead to the disintermediation of brokers. For more complex risks, Connolly stressed that a broker would still be needed, especially as emerging risks arising from the Internet of Things (IoT) evolve.

De’ath warned: “As you get more complex [risks], the need for the broker increases. But, as technology gets better, where that line is drawn probably moves further up the complexity scale.

”There will always be a place for brokers, but if you are a mass market SME broker [that] gives policies with slight tweaks, this is going to be a challenge as opposed to [those offering] bespoke policies.”  

Reluctance, but…

Meanwhile, Carey-Evans argued that one obstacle to Amazon’s trajectory could be consumers’ reluctance to purchase insurance from it.

GlobalData’s 2020 UK Insurance Consumer Survey revealed that 65.1% of consumers would not want to purchase any insurance policies from Amazon.

By establishing a partnership with Next Insurance, Carey-Evans said Amazon could tap into the insurance expertise it needs to win over consumers at an early stage.

He added: “It is also likely that this percentage will continue to decline as people around the world have been forced online by the pandemic” and that “Amazon is likely to feel less unusual as a result”.

Both Amazon and Next Insurance have been contacted for comment.