As the largest U.S. insurers gathered at the Marriott Marquis hotel in Times Square to discuss the prospects for their industry, a threat to that future emerged from the nation’s other coast.
Amazon.com Inc., the e-commerce behemoth, is reportedly considering whether to offer home insurance. The Seattle-based company, which has shaken up industries from booksellers to grocers to shoe stores, tends to incite fear among would-be rivals. Yet while the report was a timely topic at the S&P Global Ratings insurance conference Wednesday, analysts said there’s no reason to panic.
If Amazon does offer home insurance, it would probably start small with “simple, bare-bones” coverage, Joshua Shanker, a Deutsche Bank AG analyst, said at the conference. And he questioned whether the e-tailer would even take such a step. “Does Amazon really want to get regulated? I don’t think they do.”
Amazon has explored ways to offer insurance as part of a push into other consumer offerings including robots to use in the home, The Information reported Wednesday. Insurers including Allstate Corp. and Progressive Corp. fell on the news. Amazon declined to comment.
The market could be a lucrative one to disrupt. Insurers in the U.S. and Canada generated $92 billion of premium revenue from homeowners policies last year, according to data from the National Association of Insurance Commissioners.
Cracking the market won’t be easy, however. Analysts pointed to defenses including a maze of regulation and customer loyalty. And Meyer Shields, an analyst at Keefe Bruyette & Woods, said that established insurers hold troves of data that can be a competitive advantage because the industry relies that information for its models.
“I’m probably a bit skeptical about this,” Josh Esterov, an analyst at CreditSights Inc., said in a phone interview. “I would be very surprised if this is the type of industry they want to get into.” He said home coverage can create earnings volatility when storms or natural disasters generate claims, and it is time-consuming to set up the legal entities needed to underwrite risk.
To be sure, Amazon has made tentative moves into other big regulated industries without yet taking the plunge. Pharmacy companies trembled for months after Amazon acquired licenses in more than a dozen states to offer health-care goods as a wholesaler, and banks have been girding for the tech company’s expansion of finance offerings. Neither push has begun yet.
A few years ago, insurers faced a threat from Alphabet Inc.’s Google, which launched a comparison site allowing customers to shop for auto policies. The technology company eventually discounted the product. Entry by another tech giant could be a “clear negative” for insurers, according to Amit Kumar, an analyst at Buckingham Research Group.
The easiest way for Amazon to dive in may be to act as an insurance brokerage, helping to guide customers to other companies’ policies and earning money for those referrals, according to CreditSights’ Esterov. However it proceeds — if it does — Amazon would benefit from brand recognition, which is key in the insurance world, according to KBW’s Shields.
Amazon has another potential edge. Its store of data on consumers could become a tool for pricing insurance, Seth Rachlin, executive vice president at Capgemini, said in a telephone interview.
A foray by Amazon could be a long way off. In its report, The Information conceded that there’s “nothing that suggests Amazon has any concrete plans for insurance.”
Investors shouldn’t be too concerned anyway, Jay Gelb, an analyst at Barclays Plc, said Wednesday in a note. Homeowners coverage “is a sticky business,” he said, meaning that consumers don’t shop around and premiums are frequently rolled into mortgage payments.
“Our advice to investors is to not panic — yet,” Gelb wrote.