- Google has established a subsidiary called Google Compare Auto Insurance Inc.
- Google has established relationships with existing insurers, including MetLife, America’s second largest auto insurance provider, and Britain’s Admiral Group, which operates Compare.com.
- The U.S. insurance industry generated $413.1 billion in revenue in 2012.
- One auto insurance company, GEICO, spent $935 million on advertising in 2013.
The largest underreported online retail story so far this year has been Google Inc.’s (NASDAQ: GOOG, GOOGL) exploratory foray into the United States auto insurance market. For those who didn’t notice, Google is quietly laying the groundwork to sell auto insurance through a feature called Google Compare.
- Taking out licenses to sell insurance in 26 states, including such major markets as California, Texas, New York, Illinois, Pennsylvania, and Florida, Forrester Analyst Ellen Carney noted on Jan. 7, 2015. Carney believes that Google may have taken out licenses to sell insurance in other states.
- Setting up a subsidiary called Google Compare Auto Insurance Services Inc. to handle the insurance business.
- Establishing relationships with a number of auto insurance providers, including MetLife (NYSE: MET), America’s second largest insurer of vehicles.
- Working closely with CoverHound Inc., a privately held online insurance marketplace based in San Francisco. Carney speculated that Google could be planning to acquire CoverHound at some point. CoverHound currently offers auto policies from top insurers, including The Travellers, Progressive (NYSE: PGR), Safeco Insurance, Allstate (NYSE: ALL) subsidiary Esurance, and the Hartford (NYSE: HIG). Carney noted that CoverHound’s name appears on Google’s California insurance license. CoverHound also sells homeowner’s, renter’s, and motorcycle insurance.
- The New York Times reported that Google signed a deal with Admiral Group (OTC: AMIGY), a large British insurance company that owns and operates an online insurance marketplace called CompareNow or com. The deal gives Google access to 30 insurers in CompareNow’s network. In exchange for access, Admiral will get a cut of the royalty every time somebody buys a policy through Google Compare. Insurers in Compare’s network include Liberty Mutual, the General, and the Hartford. Interestingly enough, Compare also offers life and health Insurance policies.
Despite these moves, it is not clear when Google will bring its online auto insurance marketplace to the United States. Carney thinks Google could start offering auto insurance comparisons in California, Texas, Illinois, and Pennsylvania sometime this year.
Why Does Google Want to Be Your Insurance Agent? The Money
There is a very simple reason why Google wants to take the place of your insurance agent: money and a lot of it. Google has identified another industry where it can charge small royalties on millions of transactions, much like it does for advertising. The numbers below will tell the story much better than I can:
- The total annual revenue for the U.S. auto insurance industry is around $220 billion, according to IBISWorld. That’s only one component of the U.S. insurance industry.
- The value of all the insurance premiums written in the United States in 2013 was $1 trillion, the Insurance Information Institute estimated.
- The total value of the auto, home, and commercial insurance policies written in the United States in 2013 was $481.2 billion, according to the Insurance Information Institute.
- The total value of the life insurance, health, and insurance and annuities written by U.S. insurance companies in 2013 was $560.3 billion.
- There were 6,036 insurance companies operating in the United States in 2013, according to the National Association of Insurance Commissioners.
- The American insurance industry generated $413.1 billion in revenue in 2012, or 2.5% of the gross domestic policy, according to the U.S. Bureau of Economic Affairs.
- Insurance companies invest vast fortunes in advertising and marketing—Google’s bread and butter. One auto insurance company, GEICO, a Berkshire Hathaway (NYSE: BRK.A) subsidiary, spent $935 million on advertising in 2013, Bloomberg reported. Bloomberg also reported that State Farm spent $608 million on advertising in 2013 and Progressive spent $604 million in 2013 while Allstate spent $655 million. At least six other auto insurers spent $300 million on advertising.
Google’s Opportunity in Insurance
As you can see, the potential revenue streams from insurance are huge, and insurance is one of the online revenue streams that Amazon.com Inc. (NASDAQ: AMZN) has not yet tapped. Google has a clear opening here without a major competitor.
The insurance market, like the advertising market before Google, is also highly inefficient. A survey by InsuranceQuotes.com determined that the cost of identical auto policies can vary by 33% just in the city of Los Angeles. Another Insurance Quotes study found that buyers in some states could pay up to 50% more for auto coverage if they took the policy out in the wrong month.
Such anomalies occur because both customers and sellers lack adequate information about products and costs. One of Google’s core areas of expertise is collecting and correlating real-time data and providing it to both buyers and sellers. By providing such data, Google could make the insurance market more efficient, which could make it the go to place for insurance, just as it is for many kinds of advertising.
Google will face many challenges in the insurance business, including the fact that the industry is heavily regulated and extremely vulnerable to litigation. Contrary to popular belief, the biggest factor that determines car insurance rates in the United States is state laws. The next biggest factor that determines costs is the legal environment in state courts, which determines how easy it is to sue insurers and the amount of claims paid out.
Yet even those obstacles could create new opportunities for Google because accurate data about insurance costs and driving habits could help insurers customize policies for specific individuals in specific situations. Providing that data could give Google even more streams of revenue to tap.
The legal and regulatory environment means that Google will never be able to dominate insurance like it has advertising. Despite that, Google will still be able to make a lot of money in the insurance business because of its data processing capabilities.