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.
With insurance, some products are easier to sell than others. Most people need automobile, homeowners, and term life insurance. Insurance products like these have moved towards a “dial-a-quote” model, and could be sold very easily on commerce sites like Amazon or Google. However, there is a lot of insurance that doesn’t lend itself well to this do-it-yourself approach. Some products require a professional insurance advisor who can take the time to understand the needs of the client and provide the correct coverage that is required. These advisors work toward a level of trust with the client that Amazon and Google will never achieve.
When a life insurance advisor is working with a client, that advisor is in a position of trust similar to that of a tax advisor, lawyer or physician. This side of the insurance business isn’t commoditized, rather it is highly specialized and requires specialized underwriting, products and service. It is highly doubtful that someone would trust anyone other than a professional insurance advisor to develop their estate plan. Likewise, when legislative mandates like the Patient Protection and Affordable Care Act (PPACA) bring about changes within the industry, agents are inundated with calls about plans, coverage or deductibles. Essentially, when an insurance plan becomes complicated, customers want to hear from their personal advisor, not Amazon or Google.
Overall, shifts in buyer behavior show certain personal lines and voluntary life and health insurance are products that can be mass marketed, as they have been for many years. But, for an Amazon or a Google, they would need to drastically increase their level of staff at call centers to work with customers and regulators, which would essentially be departing from what has made these companies successful in the first place. This isn’t to say that changes to the way insurance is distributed aren’t in the future. Certainly, Sears proved that it could be done. In fact, the insurance company they created ultimately had more value than did the retail side of Sears. Could it happen again?