Online retailer Amazon is taking a big step into the insurance market. In the US, the company launched the Amazon Insurance Accelerator, which helps protect customers against property damage or personal injury when caused by defective products. The partners indirectly include Munich reinsurer Munich Re and major broker Marsh.
The news is not well received on the executive floors of major insurers. Because they have due respect for the Internet giants. Amazon, Google, Microsoft and Apple have huge amounts of data about their customers, and they can handle it too, freeing insurers from direct contact with customers. If you’re interested in buying a home, Google can easily offer you building insurance, and if you order a drone from Amazon, the online shipper will provide you with the appropriate liability coverage.
Amazon has already made a number of forays into insurance: the group works as an insurance broker in India. Along with Berkshire Hathaway and JP Morgan, the online retailer founded a US health insurer in 2018 but dissolved again after three years. Amazon has also been offering extended warranties with the help of insurers for some time.
Compensation for damages and related lawsuits are a big topic
But now it’s getting serious. Amazon interferes directly in the third-party liability insurance of distributors. Anyone who buys a drill on Amazon and gets hurt because the machine is defective wants compensation. The same applies if a faulty toy causes a fire. Compensation for damages and related lawsuits is a very important topic, not only in the US Insuring companies against such claims is very topical.
Amazon wants to make claims easier. In the future, anyone who has purchased a product through the online marketplace that causes harm can contact the group directly, not the dealer who sold the products as was previously the case. Amazon will cover damages up to $1,000 (851 euros) without requiring a refund from retailers. So far this only applies to US customers, but Amazon wants to expand the offering.
However, for the warranty to take effect, the dealer must have taken out civil liability insurance. The group makes very precise specifications about what the policy must include. Among other things, the amount of coverage must be at least $1 million, the deductible that dealers must pay cannot exceed $10,000.
To do this, the company created the Amazon Insurance Accelerator, a network of insurers through which Amazon offers liability insurance to merchants. The well-known companies Munich Re, Chubb and Hiscox are already participating. The great broker Marsh has adjusted the policies according to the specifications of Amazon. Amazon thus takes a big step in the direction of insurance brokerage and plays with its market power: the group establishes precise rules on how insurers should behave.
Amazon wants to pull the strings
Damages over $1,000 must be handled by the dealers’ own insurers. However, Amazon reserves the right to reassess the damage if the insurer refuses to pay. If the online giant is satisfied that paying a claim is appropriate, it compensates the customer and then recovers the money from the insurer.
Even if a business doesn’t process a claim quickly enough, Amazon can step in and handle claims itself. Insurers have 30 days to process a claim. Amazon itself sets the standards for claims processing, a core of the insurer’s business model.
However, companies are participating in the Insurance Accelerator: they rightly believe they can gain a huge market for lucrative business with small and medium-sized businesses through Amazon. In return, they accept that they are just vendors and must follow Amazon’s rules to the letter.
One of the basic principles of the online retailer is to scale the developments and use technologies proven for other regions and offers. So it is highly likely that Amazon boss Jeff Bezos’ team will soon launch the insurance accelerator in other countries and expand the range. Policies for private clients and offers for companies that go beyond liability protection can then also be ordered with the click of a mouse.