Welcome to the US Health Insurance Industry, Amazon

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A lot of us in the Insurance and Insurtech world have been following Amazon’s potential move into Insurance for the past few weeks/months.  Bernard wrote a great piece on this a few weeks ago and I also mentioned it in my 2018 predictions piece.

In Asia, Amazon is looking to potentially invest in Acko.  In Europe, Amazon has posted job advertisements for Insurance.  We were waiting for what they were going to do in the US.

And then, the announcement came this week.  Not just from Amazon, but from 2 other financial US heavyweights:  Berkshire Hathaway and JP Morgan & Chase.  

This is exciting and potentially great news for US citizens as it relates to their healthcare.

It could also be very scary for other companies that compete in the US healthcare market.  Just take a look at how some of the healthcare related stocks performed on the day of the announcement.  

In this piece, I will look at:

  • Decoding the Announcement
  • What is the potential?
  • How competition can get ahead of this pack

Decoding the Announcement

The beginning of the press release states “The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”  Combine this with the quotes from the three CEO’s of these firms and there is a lot to unpack.  

Warren Buffett – “The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes”

Jeff Bezos – “The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty.  Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”

Jamie Dimon – “Our people want transparency, knowledge and control when it comes to managing their healthcare.  The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.”

Let’s be clear, this is NOT something these companies are doing for just their employees.

Their employees are simply guinea pigs in a longer term ambition for these three CEO’s to take on an industry that has been in serious need of some change over the past few years/decades.  

Number one, they come right out and say that “the initial focus of the new company will be on technology solutions.”  The very fact that they start with the press release with this shows why Amazon is in the picture and why they will make this a success.  As mentioned in the introduction, many of us have been monitoring Amazon’s entrance into Insurance for a while.  

Number two, all the CEOs mention something in regards to long term play:

  • Buffett – ‘in time, check the rise in health care costs’
  • Bezos – ‘long-term orientation
  • Dimon – ‘potentially, all Americans

I also find it interesting that this company being set up will be “free from profit-making incentives and constraints.”  

It’s not abnormal for large companies to have some form of self-Insurance.  However, this announcement may also lead to the forming of a large Health Insurance cooperative as well.  We have covered this concept before at Daily Fintech.  The idea of a cooperative would be very interesting and could massively disrupt the overall Health Insurance market here in the US.

Warren Buffett has made his comments in the past about healthcare and his most recent quote during this Announcement of being a ‘hungry tapeworm on the American economy’ shows that whatever the route may be, these 3 CEOs are out to disrupt an industry that massively needs it.

What is the potential?

A few months ago, I wrote a piece on the current state of individual US health Insurance based on my own experience of purchasing a plan upon my return to the states.  

Some of the key success factors that I mentioned in that post were:

  1. General interaction with participants/policyholders (i.e. enquiries, booking doctors, etc)
  2. Treatment, monitoring AND prevention
  3. Claims process

The fact that this announcement started with a focus on technology signals to me that these companies will try and tackle these three areas by building a tech-enabled platform that helps their employees select doctors, monitor/track their health and submit claims with ease.  

Amazon has already invested in healthcare with GRAIL and 14 of the 18 insurers offering voice computing skills according to Coverager use Amazon’s Alexa.  Couple Amazon’s technology capabilities and massive amounts of data with Berkshire Hathaway’s experience in Insurance and JP Morgan & Chase’s cash, and you’ve got yourself the potential for a great healthcare ecosystem.  

Plus, they have the perfect pilot to do it with – 1.1 million employees.  

How competition can get ahead of this pack

The full details of this announcement remain to be seen.  While the three CEOs have indicated a longer-term ambition bigger than just serving their employees, this will/may take some time.  

In the interim, the other players in this space have a chance to get ahead of this trifecta and have already been making moves to do so even before this announcement.  

The acquisition of Aetna by CVS, as covered by Daily Fintech is a great start from a provider standpoint to help build and establish a powerful ecosystem for consumers.

Oscar has set out on a long-term strategy to tackle US health Insurance and is well on their way to building a differentiated customer experience via technology and their own ecosystem.  Their recent announcement with AXA signals not only a play for the individual market, but also the employee benefits side.

Speaking of AXA, their partnership announcement with Maestro Health signals a further diversification play for them in the US employee benefits space.  

While the Amazon/Berkshire Hathaway/JP Morgan & Chase announcement looks like it will focus on their own employees first and then scale to the rest of the US, the three companies mentioned above have a head start.  

I’d suggest they look to China to see what Ping An is doing there with it’s Good Doctor program.  If a really good ecosystem can be built around healthcare and at a reasonable cost, then consumers may not want to switch to a new plan that is being offered by these three corporate heavyweights.  

That is, unless these three companies eventually take the GEICO approach.  I can certainly imagine a commercial stating ‘switch to us and save 15% or more on your health Insurance’…

Summary

We have seen many full stack and MGA start-ups in the US starting in some of the less complex insurance lines such as renters, auto and term life.  

Being the aggressive company that Amazon is, it’s no surprise that their first move into the US Insurance market is in the most complex one, health.  They picked some pretty good partners to go at it with too.

US healthcare and health Insurance need an uplift.  Regulation & profits are two of the main things that impact the way that it is done here.  

However, there are still ways to work within those confines to bring about a meaningful solution (not to mention making a bit less profit while still being massively profitable).  

I’m not sure how the whole Amazon/Berkshire Hathaway/JP Morgan & Chase announcement will ultimately play out.  

What I do know, is that this will be a huge wake-up call to those in the US market currently providing care and Insurance.

Ultimately, that should result in some better options and solutions for customers.  

At least, one can hope for that.  I know I am.

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Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.

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