Insurance companies have long behaved as a service marketplace that is contingent on catastrophe. After a car accident, a flood, theft, or fire, the insurance company's service marketplace connects customers to repair or replacement services in times of need. The company's efficiency (and customer satisfaction) relies on the quality of their service provider data. But, what happens to all that rich supplier data between insurance claims? It sits there, under monetized.

Because insurance companies have a rich database of service provider and customer data, they are uniquely positioned to build (or buy) a services marketplace - services such as landscaping, roofing, plumbing, or car maintenance, upgrades and repairs, and so on. In addition, they can layer on microinsurance products, such as flat-tire insurance (more on that below) as a commodity insurance product on top of the service marketplace.

If insurance companies don't move quickly, modern monopolies like Amazon and Facebook, and startups like Handy and Porch, who have already built service marketplaces, will commoditize insurance.

In fact, The Information reported that Amazon has had internal discussions about offering a home insurance product in the US. In late September 2018, they filed for an insurance license in India to enter the market with life, health, and general insurance products.  In China, microinsurer Zhong An offers over 300 products that pay claims centered on very specific events, such as event cancellations and flight delays, which they sell through partnerships with airlines, retailers, ride-sharing apps, and more.

Insurtech startups have begun to disrupt the insurance market, but the time has come for insurance companies to disrupt other industries by putting their data to profitable use - and improving their defensibility in the process.

Insurance Platform + Services Marketplace = Highly Defensible

Services marketplaces have been cropping up over the past two decades. Home services in particular have flourished from everyday house cleaning to bathroom remodeling, and car repair marketplaces, while relatively newer, have also received funding in recent years.

Note that Caroobi, a German auto repair marketplace, works in partnership with the insurer Allianz. In June 2018, Caroobi received $20 million in series B funding, and plans to expand by building a car parts marketplace. The mix of service and product marketplaces gives Caroobi greater defensibility as each marketplace can build upon the other (e.g., buy X product and receive Y% service discount, and vice versa).

Insurers looking to build or buy a marketplace may want to consider both service and product marketplaces where applicable. Doing so could build an end-to-end ecosystem that's highly defensible (i.e., buying the asset > buying insurance > buying repairs/upkeep > buying accessories). By keeping the consumer in the asset's product/service ecosystem, both the consumer and the insurer benefit financially. (Is this not, essentially, the Amazon model? Amazon does it for the supply side too.)

As an added bonus, insurers that offer long term maturity products, such as home insurance, can also solve for platform leakage problems in service marketplaces. Platform leakage, or disintermediation, happens when the supply side and demand side transact off the platform, thereby avoiding a transaction fee owed to the platform that introduced them in the first place. For example, on an insurer's home improvement platform a homeowner may find a contracting company to redo her home's roof. A year later, she wants to re-tile the bathroom. What's to stop her from contacting the contractor directly?

Insurers can offer incentives to lure the customer back onto the platform, such as offering premium discounts for repairs, upkeep and improvements made to assets insured by the premium holder, but only if they source those services on the market.

This is why insurers who offer longer maturity insurance products can create highly defensible moats. Long-term insurance products are a trickier for newcomers to get right. In fact Zhong An experienced its first significant losses after trying to sell insurance products with longer maturities.

Despite this misstep, ZhongAn is highly successful with microinsurance products, offering over 300 products that range from the practical to the weird.

A Quirky Property Insurance Platform in China

In China, tech monopolies Tencent and Alibaba, along with one of China's largest insurance companies, PingAn, collaborated on a joint venture called ZhongAn, an online-only insurance company that launched in 2013.

In 2016, ZhongAn sold policies to over 460 million customers. Currently it offers short term, niche insurance products such as flight delay insurance, event cancellation, or return shipping insurance, which reimburses online shoppers for shipping costs on returned items. In the past, the company even experimented with 'binge-drinking' insurance during sporting events where fans may land in the hospital due to alcohol consumption and suddenly have unexpected medical expenses.  

Often these insurance products are offered at the point of sale of the underlying product, event, or service through partnerships. As Bill Song, the Director of International Business of ZhongAn Insurance and COO of ZhongAn Technologies, disclosed in an interview, they work with ecosystems of partners in airlines, healthcare, retail, and auto. Their partnerships are often with non-traditional companies too, such as Grab, the Uber/Venmo of Southeast Asia, who will offer insurance, even some health insurance, through its partnership with ZhongAn. Song points to these partnerships as the secret to ZhongAn's success. They don't wait for customers to come to ZhongAn asking for flight insurance, instead selling flight insurance right on the airline's website through a partnership.

There's an opportunity for home and auto insurers who build or buy service marketplaces to offer microinsurance products as a bundled offering on the service platform. Doing so could have lasting benefits for the insurer.

Long term benefits of offering microinsurance products

Today, ZhongAn offers over 300 microinsurance products. It's worth exploring in the US insurance market if micropremiums could apply to very narrow home and auto events as well, such as flat tire insurance (which ZhongAn offers). These are low-hanging fruit for insurtech startups and tech monopolies alike, so it's imperative that insurers capture this market if they want to try to keep out the new competition.

In addition, this market tends to be young. Over half of ZhongAn's 450 million plus customers are under 30 which creates a promising pool of potentially long-term customers who may age with the company as their insurance needs change.

Put simply, the combination of a services marketplace, reinforced by traditional and microinsurance products creates new revenue streams that strengthen the defensibility of insurance companies. Tech disruption isn't just a young company's game.

However, insurers would be remiss to wait. In platform business, the first to scale usually has a big advantage - and winner takes all.