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September 15, 2017

Theres been considerable discussion about the potential threats technology companies such as Google, Apple and Amazon pose to established (or legacy) businesses, including insurance. Some of that discussion, however, may seem abstract when you are confronting day-to-day challenges such as regulatory compliance, claims management and developing new business. And you may already be making investments in digital, shifting to omni-channel customer interactions, and adopting best practices from a growing field of insurtech companies. But are insurers doing enough to prepare and position their organizations for a future that definitely will include new competitors that are masters of customer insight, speed and branding?

In the forefront of these likely future competitors is Amazon. Grocers probably did not consider the e-commerce giant an immediate threat but its recent acquisition of Whole Foods changed that Whole Foods changed that. Could insurance be next?

Now there is a way to determine how vulnerable your industry or business might be to Amazons growth ambitions. Brian Nowak, an analyst with investment banking firm Morgan Stanley, created a five-factor framework for identifying industries where Amazon could become a disruptive threat as well as attributes these industries have that may hinder an Amazon challenge. In a note he calls the guide BRIAN, an acronym for the following considerations:

Bespoke products Non-commoditized products that are unique and require customization. Nowak suggests that industries such as luxury goods, travel and intimate and formal apparel have some advantages here.

Regulatory hurdles This applies to industries (such as insurance and healthcare) that make products that are scrutinized by government authorities before they can be sold. This could make it harder for Amazon to enter a heavily regulated market, according to Nowak.

Industry/business models Industries, such as home furnishings, arts and crafts, DIY auto parts and specialty industrials, characterized by lower gross margins and lower order frequencies less compatible with Amazons business model.

Attention post-sale/service element Businesses, such as healthcare, travel and home improvement, where there is an experiential aspect, sales are relation-based, and a transaction requires some form of in-person customer service for training or installation; not how Amazon operates.

Nuances/complexities behind transaction – Amazon has been less likely to push into industries, such as auto or real estate, where purchase transactions are complicated.

At first glance, it looks like the BRIAN model could give insurers some peace of mind. According to the framework, the very regulatory complexities that cause so many headaches within the industry also present a significant barrier to a potential disrupter such as Amazon. Also, as we all know insurance products (especially in the life segment) tend to be complex, with sales processes that often still require human intervention and a lot of education and communication. And even where the product is somewhat commoditized (such as auto insurance), underwriting is sophisticated and there are significant post-sale service requirements when it comes to claims and fraud detection.

Call to action, not complacency
In reality, this should be a call to action. You dont need a fortune teller to understand that the barriers to entry in regulated markets such as insurance wont discourage Amazon, Google, or any other fast-moving technology organization for long. The same goes for the other BRIAN obstacles, such as product complexity, post-sales service requirements. Not only will competitors use their analytics and cloud prowess (not to mention scale and financial power) to reinvent product development, sales and service smart insurance companies are trying to do the same thing.

Theres growing recognition that many insurance products are way too complex, too costly and inefficient to service, and not always profitable. Insurers want to know and engage with their customers in the same intimate and real-time way that Amazon does with its own shoppers. Thats why most insurers are investing in analytics, AI and robotics, cloud and core systems modernization.

Becoming a digital business and striving to be more customer-centric and agile are essential to survival and growth but perhaps are becoming table stakes, not differentiators. What do you think it will take to compete against Amazon or any other tech player, large or small, that sees opportunity in the evolving insurance industry?

Katherine Burger is a Practice Lead with the Insurance and Healthcare unit at Tata Consultancy Services. She is a thought leader and communicator in the area of business technology, with a particular focus on analyzing the ways technology enables financial services organizations to be more productive, competitive and profitable. She served as Editorial Director of Insurance & Technology from 1991-2015 and Bank Systems & Technology from 2003-2015. At I&T and BS&T, in addition to directing the editorial strategy of both brands, Kathy handled both digital- and print-medium publications, spanning from new products and editorial supplements to live and online events, including summits, forums, webinars and roundtables. Kathy has been a frequent speaker and/or moderator at financial services industry conferences, and also has presented at a number of technology company user group and sales force events. She is a graduate of Carleton College.


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