Google Enters Insurance Business, Insurance Companies Begin Selling White Paint
News of Google’s entrance into insurance has been chronicled in the past two years and recent news announced that Google was now in the process of selling insurance policies. Although this, in and of itself, isn’t earth shattering news, a spate of articles in the past year on “What if Google or Amazon Sold Insurance?” have been published in the insurance-trade press. Point of fact, VUE Software has written on this subject in blogs as well as published articles.
To understand Google’s motivation to sell insurance—actually more of an exchange concept—you need to understand how Google makes money. Google is in the data collection and resale of data business. If you are a client of Google, you are probably well versed in the type of data and metrics that Google collects vis-a-vis access to your website. This foray into insurance is just a way for Google to get more data that they can then sell to interested insurance companies as well as agents and insurance trade organizations such as IASA, LOMA, ACORD, CIAB, The Big I, and others. A major concern is that Google will also have access to underwriting information that is full of personally identifiable information. Take a look at the typical auto insurance application where there is a lot of information that an insured would not want to give to Google.
The larger issue is, why would an insurance company be so willing to commoditize themselves to the point that one policy or one company is as good as another, so the product or the carrier makes no difference and only the price matters. Google is working with the business model used by the aggregation sites for travel, where a person can get the lowest in airfares, hotel rooms, rental cars, and so on. A fundamental difference between travel and insurance is that travel is a perishable product. A hotel will discount a room based on their projected vacancy rate for a given day. And if a hotel has 100 rooms that will be empty tomorrow, they will cut the price considerably to get those rooms rented. The same is true for airline seats or cruise ships or rental cars.
Insurance isn’t a perishable product. There is no compelling reason to buy that policy today because it will cost more tomorrow, or the next day, or a week after that. In fact, once companies get into the Google insurance exchange, they will quickly lose their market differentiation. Market and product differentiation is the absolute key for competitors in a crowded market space such as insurance. I often ask insurance companies what the difference is between a bushel of corn from Iowa and a bushel of corn from Illinois? When you cannot cite a difference, then you are in a commodity business. And being a commodity business relegates a company to compete on price and price alone, since they have no clear differentiation other than price. In other words, you are one of many who are simply selling white paint. And, trust me on this, you never ever want to be stuck selling white paint.
Some companies realize they are in the commodity box and work to get out of it. A good example is the advertising campaign that Liberty Mutual is running. Those ads talk about how Liberty Mutual covers a claim on a new or recently purchased car. For Liberty Mutual they are bringing their claims handling and coverage into the mix. Liberty Mutual is trying hard not to be selling white paint.