Amazon is in the insurance business. The retail giant is offering Amazon Protect across Europe. The policy covers accidental damage, breakdowns and theft of objects. Coverage is for two to four years from the delivery of the product. All these incidents are thus covered.
This major retailer is considering offering home insurance as well. Rivals in the industry are worried. At the S & P Global Ratings insurance conference, analysts assured competitors that there was no reason to panic. Joshua Shanker, a Deutsche Bank AG analyst stated that initially Amazon would offer a “bare-bones” policy.
Last year insurers in the US and Canada generated $92 billion of premium from homeowners. Another point made was that it is time consuming to set up the legal entities needed to underwrite risk.
Amazon has made moves into other big regulated industries. Pharmacy companies were nervous when Amazon acquired licences in more than a dozen states to sell healthcare products as a wholesaler. The retailer has an edge over competitors in that its vast store of data on consumers could be a tool for pricing insurance.
Furthermore, Jeff Bezos, Warren Buffett and Jamie Dimon want to fix healthcare. A partnership has been developed between Amazon, Berkshire Hathaway and JP Morgan Chase. The latter is the nation’s largest bank. Together they believe that one of the country’s biggest problems is soaring healthcare costs.
The new company is still unnamed. However, a spokesperson said that the new company will be “free from profit-making incentives and constraints”. There are 840,000 global employees between these three companies. Initially they will concentrate on providing health cover for these employees. They will not offer a product to other companies.
The three companies mentioned have extraordinary resources. Berkshire Hathaway which owns the auto-insurer Geico is a big player in the insurance and re-insurance business.
The insurance industry has always been slow to grasp the different facets of technology. The reason lies in the fact that the industry is reliant on historical data. They are therefore understandably averse to risk.
The insurance industry is thus being put under pressure by technology. Customers want to pay an individualised insurance premium which reflects the actual risk taken by the insurance company.
The cyber security market is growing at an alarming rate. There is also pressure to incorporate and manage the risk more effectively. Traditional insurers are however reluctant to make plausible offers to vulnerable clients.
Huge amounts of data are provided by technology. In addition, insurers spend vast amounts of money on claim processing as well as fraud detection. New algorithms are able to predict risk. They allow for vast automation in the underwriting process. Furthermore, contracts can be managed more efficiently. Examples are wearables for healthcare and GPS trackers for cars.
Between eight and fifteen factors are taken into account when an underwriter issues a policy. This may be a motor, home or life policy. As many as 60 answers may be required from a life insurance applicant. A sophisticated automated system could supply vast amounts of data.
Policy writers are wary of underwriting risk based on technology which supplies no justification for pricing. Furthermore, staffing will be reduced with increased use of underwriting automation. Risk assessment algorithms will become more reliable. Executives will have increasing confidence in them. Low-level underwriting will become cheaper and more consistent.
John Halamka served in both the Bush and Obama administrations, and has several ideas about what the Trump era means for healthcare information systems. Here are some of his notions of what happens next:
- More funds available for innovation (due to reduced taxes)
- Elimination of some regulations
- Free market competition increases, political infighting around Medicare drug price negotiation decreases
- Repatriation of offshore tax dollars creates inflow of cash
- Streamlining of the Affordable Care Act (aka Obamacare): “it’s likely that it will simply be amended to reduce the focus on health insurance exchanges. There will be no public option for health coverage. Private payers will be encouraged to offer products across state lines. Pre-existing conditions will still be covered. Children will be covered on their parents health plans until age 26.”
- States benefit from Medicaid reforms and cost savings
- Reduced FDA scrutiny of new products
- FTC enforcement actions relaxed
- NIH funding might be cut
- The transition from fee for service to value-based purchasing continues
John provides this advice:
remain agile, keep calm, and assume that many Obama-era health care IT programs will persist. Focus on reducing total medical expense, measuring quality across the community, providing stakeholders with tools that are valuable to them, spreading the burden of data capture among teams of caregivers, and enhancing interoperability.