The great economist Joseph Schumpeter coined the term and the concept creative destruction, which is the idea that business is in a constant state of innovation and change, and companies that can’t adapt will lose customers, market share and ultimately go out of business. With the ever-increasing dominance of companies like Google and Amazon, could the traditional sale of insurance fall prey to this phenomenon too?
When it comes to insurance, this is not a new concept. In the post-WW2 era, Sears, Roebuck & Company was the dominant retailer. Witnessing their market dominance at the time, they eventually decided to dive into the insurance business and created Allstate. Along with Allstate came a market-changing sales model: place Allstate insurance agents in Sears’s stores, and as Mom shops, Dad can buy insurance. Together, Sears and Allstate were very successful in selling everything from clothing to kitchenware to sporting goods to, yes, insurance. In short, Sears was the Amazon, the Walmart and the Google of the post-war era.
Logically, if a non-insurance retailer could do it then, why not now? The short answer to that question is that times have changed. The insurance market now is highly regulated, capital intense, low margin, and commoditized. If you look at Amazon, Google, and Walmart you can quickly see that their business model is built around a high volume of transactions, where regulation isn’t problematic, and vast amounts of capital is not tied up in the business. One area where Amazon and others excel is in how they handle commoditized products, which happens to be the area where insurance companies are struggling.