Amazon has just launched their Halo band and accompanying health app. It has all the usual step counting, heart rate monitoring and temperature sensors one would expect in an IoT health wearable these days, as well as some snazzy new features:
- Using a supervised learning AI/ML computer vision algorithm to accurately tell your body fat percentage from a body scan of your body taken from your phone
- Using microphones embedded into the wearable that listens for stress and other emotion in your voice (again using AI)
- The (usual) promise of using (surprise) AI/ML to make better predictive health analytics
All yours for $99 ($65 temporarily discounted) and $3.99 month. (1)
This is a solid effort to enter a crowded market led by Apple Watch /(Google owned) Fitbit/Samsung and the plethora of other wearable devices all promising to give valuable health metric data insight while transforming your body to be more callipygian.
But what is the real business model?
Amazon’s purchasing + selling power, coupled with owning it’s own market, makes it the retail behemoth we all know, and love to purchase heavily discounted basic electronics from (a 3 pack of iPhone charging cables, anyone?)
At the most basic level, Amazon is making a small profit on retailing a hardware solution. Then, as a SaaS provider, it’ll make great margins from upselling the premium version of the Halo app for $3.99 month.
But it is unlikely Amazon will stop there. Is this their spearhead into health insurance?
To recap, Amazon is no stranger to insurance. They’ve partnered with Acko in India to offer free covid-19 health insurance to their in-country merchants(2) and auto/bike insurance more generally(3).
As I’ve written about here, here and here, we shouldn’t be surprised that Big Tech is getting into insurance: they have better distribution capabilities and access to more data for enhanced underwriting.
The death of the insurance broker has been predicted many times and can (and has been) passionately debated over the years. One of the primary benefits a broker brings to a client is their insight and knowledge of the industry and of sometimes complex and confusing products that the end customer does not have the time/understanding/inclination to research and so trusts a specialist intermediary: The broker. While still true for more complex group or higher insured amount products, the revolution in standardised personal lines products is well underway.
The recently IPO’d Lemonade’s 90 seconds to quote and bind a policy for homeowners (and now the addition of pet insurance), is the most well known of the new challengers(4). Not only is their ability to write a policy game changing from a time saving perspective; reduced from days to seconds, but their all digital experience is also a boon for the consumer. Millennials and Gen Z not only dislike having to set a physical meeting if avoidable, but they hate phone calls (http://bit.ly/2TjvG5b). They want an all-digital app experience that they can buy on their phone, preferably without any human interaction.
And this is one of the reasons Amazon’s Halo is so interesting to those of us who like to speculate on what the future has to offer for the insurance industry.
Is Halo a Trojan Horse for Amazon to enter insurance?
Will actionable data from a wearable plus Amazon’s existing infrastructure, allow the company to not only compete but thrive against the incumbents? To recap the insurance value chain space, here’s a quick Venn Diagram, borrowed from a great post discussing AI’s impact by my friend @Ron Shalit:
Let’s start with underwriting. Two things matter for underwriters: Data + Analytics.
Data: The more data you have for a policy holder, the more accurately you can predict their risk. Wearables bring a plethora of personal user data and the addition of new features – microphones to detect stress, adds additional data streams on top of that. These additional
data points alone are a huge advantage to a potential Amazon insurance, but as every good late night TV infomercial likes to say ‘But wait, there’s more..’
Analytics: Amazon is one of the leaders in analysing user data, with one of the largest cloud computing operations available and an extensive history in analysing big data sets. Couple this with Amazon’s additional insight into insured from their (likely) Amazon purchasing account, and they can continue to build up an unfair advantage over existing insurers lacking the data and computing might. Getting access to user’s phone data was something that Amazon lagged behind compared to the other tech giants and Halo may be the Trojan Horse to get access to this data source.
Distribution, or actually selling insurance is often the most challenging part of the business for an insurer. They are selling what is usually an identical product as their competitors, to consumers who have little interest in said product: the old adage is that ‘(Life) insurance is sold, not bought’, still hold true. And so a carrier will either pay for hot leads (website comparison shopping), or offer commissions to agents or brokers to bring them customers. $6.7 billion a year is spent on advertising by the insurance industry in the United States(5).
Halo gives Amazon another touch point to sell insurance to it’s client base:
-Sales could be made via it’s existing merchant place platform
-Offered for free as part of it’s highly successful Prime service (basic AD&D/Health/Life with an upsell focus: the freemium model)
-Sold in app, with the ability to filter hot, healthy leads via their app data.
- Sales could be made via its existing merchant place platform
- Offered for free as part of it’s highly successful Prime service (basic AD&D/Health/Life with an upsell focus: the freemium model)
- Sold in app, with the ability to filter hot, healthy leads via their app data.
In Claims, Amazon might have a unique advantage compared to it’s tech peers. Where Apple and Samsung (and to a slightly lesser extent, Google) spend huge sums on branding and offering a differentiated, premium experience to their users. Amazon has a different brand definition and relationship with it’s customers. A bad experience with Apple might lead a user to switch cell phones and eco systems to a rival, or chip away at a user’s desire to spend $1000+ on the latest phone: spending driven as much by want for the latest technological feature as the status symbol the newest premium phone portrays.
Amazon however has manged to keep customer loyalty by having few direct competitors (especially if we take Prime into account), and so doesn’t need to create such a premium brand experience. In addition, as upset as a customer might get over an interaction, they tend to return for lower prices and free shipping, especially if they have already paid membership in advance.
This lowered emphasis on brand management gives Amazon an advantage: whereas Apple might worry about the brand damage and resulting loss of users from its eco system by denying a claim (even if justified to do so), Amazon has no such qualms.
They could be in the sweet spot of offering a quicker, automated experience compared to traditional carriers, but also be less affected by brand relationship issues in denying a claim than tech company competitors.
Servicing to might benefit from the Amazon experience. One of the key reasons for Amazon’s growth has been due to it’s ruthless cost cutting, constantly being refined and pushed to the limit. The furore over Amazon’s attempted hiring of a union-buster (6) and their gamification of pick and pack in their fulfilment centres (7) are just two examples of Amazon drive for efficiency and lowered costs. A carrier might find it hard to implement such measures.
Additionally, Amazon could amortise costs across its other divisions, further lowering the capital needed for servicing insured.
Amazon isn’t the only tech giant taking ever increasing steps entering insurance. In late August, Verily, a division of Google, started Coefficient, in partnership with Swiss Re, to offer stop loss insurance to businesses (8). Going via a sub brand (and creating a sub-sub brand) helps protect Google against the brand management issues we discussed above (and they can share blame with Swiss Re if needed). Further, Verily attempted to make IoT wearables previously, and no one would be surprised if Google owned FitBit gets brought into the offering, with its extensive user base and large data sets already recorded.
So How can traditional insurers compete?
Personal lines insurance is not deemed to be lost forever to the great tech overlords. In the US in particular, health insurance (and often life) is sold to employers, not to individual employees, bringing different needs and focus points: ease of management or personalised customer service might be more important than direct price competition to an HR team.
Carriers can also partner with insurtechs to upgrade their value chain and customer offerings. For instance, we @LVLFi use gamification and behavioural economics to help Health and Life insures better engage with their insured populations, lowering churn rates and increasing brand relationships. We then use this gamification tied to a rewards system to encourage and motivate an insured population to be healthier, lowering risk for chronic disease and in turn claims rates and costs to the insurer. And as an app platform, we gain access to valuable user phone data to help carrier’s offer further data sets to their actuaries. Insurtechs like ours are eager to help carriers all along their value chain, optimising processes, lowering costs and increasing revenue, all boosting carrier’s ability to compete with both new entrants and each other.
Amazon’s pricing structure may limit it’s product adoption and access to those who would most benefit from app based metrics and motivation. By asking users to pay for the product itself, and then a recurring SaaS fee, does this filter to only those who are already healthy or have recently become interested in making the hard lifestyle changes that are needed to live healthier? Their service could be bundled for free to corporate clients, but without appropriate incentives, will Halo only appeal to a limited minority of users?
We provide carriers with a different approach: offer a product that has low barriers to entry to all of your insured population. Without the need to buy and use a wearable, or pay an additional monthly fee for access, we believe carriers can target those who might not participate in standard wellness programs. It is these people, more likely to be overweight or obese, where insurance companies have most to gain in risk reduction by effectively engaging this population group.
As Amazon and other tech companies continue to circle the wagons of traditional insurance companies, carriers can increase their innovation efforts both by boosting internal programs and by partnering with insurtechs to better prepare their arsenal in the upcoming clash of incumbents vs big tech. Strategic planning and investment now will offer dividends to insurers and not resign them to the fate of general Custer, or the Trojans.
Sources:
3: https://techcrunch.com/2020/07/23/amazon-now-sells-auto-insurance-in-india/
4: https://www.lemonade.com/de/en/?f=1
5: https://www.iamagazine.com/viewpoints/student-of-the-industry-insurance-ads-who-spends-what-and-why
7: https://www.businessinsider.com/amazon-makes-game-warehouse-workers-tasks-2019-5?IR=T
8: https://www.theverge.com/2020/8/25/21401124/alphabet-verily-insurance-coefficient-stop-loss