Up to this time, Google steadily and progressively builds up its information database with more than six billion daily unique searches and indexing over fifty billion websites as per 2013. Still, many digital expert have wondered whether those big data will be feasible for everyone at certain price. They concluded that one of the industries that will have the special access to the world’s information is insurance.
Until now, Google has been able to managed the capitalisation of those big data through Google AdWords. The latest data shows that insurance and other financial services are the top spenders on AdWords, with a combined annual spend of $4 billion. The biggest sector in Google’s AdWords revenue is auto insurance, where State Farm, Progressive and GEICO alone accounted for $110 million in keyword advertising revenue.
Google hinted that insurance is among its top five product categories in advertising while the other four are travel, digital media, ticket purchasing and books/magazines. Digital experts also predicted that 75% of all insurance purchases will be online by 2020. If the prediction is proven to be accurate later on, it will give Google a dominant position as the primary sales channel for the insurance industry.
This is not just a baseless prediction, as Google slowly but sure gained the insurance-based key revenue sources such as car, home, and life and health insurance. The first move Google has made towards the insurance industry was back in 2012 with the acquisition of BeatThatQuote, a price comparison service for car insurance, for £37 million. Google charges up to $54 per click for insurance quote searches. In addition to this service, Google already has a real-time monitoring of traffic through obtaining metadata from all Android devices and is able to give accurate traffic reports through Google Now.
In January 2014, Google made its second-largest acquisition by acquiring thermostat and smoke detector manufacturer Nest Labs for $3.2 billion. Forbes commented this will strengthen Google’s position in smart homes and provides an opportunity for the Android operating system to become the primary platform in the world.
Google Glass is another sector where Google has the possibility to create a position within the insurance value chain. In January 2014, Google and the VSP, the nation’s largest insurance player in optical insurance, signed an agreement, subsidizing Google Glass with prescription lenses for VSP’s policy holders. This may at first glance be dismissed as a move to boost short-term sales of Google Glass, but rather it will provide ample opportunities for collecting insurance data such as real-time health information from each user of the device.
Insurance industry has been abandoned its product-centric logic and is becoming increasingly consumer-centric. This leads to ever-increasing expectations and demands, as well as declining customer loyalty. Combined with a possible threat from new entrants such as Google, the insurance value chain is facing big changes.
The truth is probably somewhat less dramatic than what is claimed, as the industry already has a high degree of technology adaptation and has systematically developed digital channels, with GEICO and Progressive as good examples. However, despite on the systematic work on continuous improvement and incremental innovation, the data shows that it requires a new mindset when an industry is exposed to disruptive innovation.
For the insurance industry, this fact poses a number of challenges when a lot of the focus and resources are tied up in compliance with the regulatory requirements of Solvency II and ORSA, the search for alternative allocations of capital due to low interest rates, high complexity and technical debt in core systems.