Why don’t Apple step into Insurance
Leveraging Data— Case Study on Tesla, Lemonade
Insurance, standalone represents a $4 trillion mature market in the world. It is a B2C enterprise game that is becoming increasingly data-driven and requires an extremely high amount of capital to break in.
As Technology evolves in the past decade, the competitive landscape of the insurance industries has changed. Insurances companies are looking to distinguish themselves with more than just a better investment portfolio, lower loss ratio, or lower policy churns. Some insurance companies are eyeing out for strategic partnerships with private equity companies, some insurance companies are investing heavily into InsurTech in a specific product (e.g Property & Casualty, Life & Health).
In the meantime, there are technology-driven companies like Tesla and Lemonade are stealing market share due to their capability to collect and analyzing data, unlike traditional insurance giants.
Lemonade has succeeded in breaking in with its socially-good reputation and millennial-friendly digital experience. Even with inadequate data availability (which caused super high churns/loss ratios in the past two years), Lemonade has gradually improved its pricing inefficiencies with the increased pool of policyholders (doubled from 562,251 to 941,313 in # of Customers). According to an interview with the CEO of Lemonade, Daniel Schreiber, Daniel described that the “rules of the insurance game” was fundamentally misplaced, whereas incentives are not aligned between insurance companies and policyholders. A “Flat Fee” model will steer the company’s motivation closer with the policyholder because when there is no conflict of interest, people feel more secured getting insured by a company that is transparent about the distribution payers’ premiums.
Tesla Insurance, however, leverages the big-data that they utilize day-to-day when developing Full-Self-Driving technology. Actuaries in the insurance industry solve two major problems — Predicting claims (Predicting future behaviors) and Pricing their products (Adjusting for financial risks). Just by having pools of additional data including driving distance, reaction time, and road conditions could conduct unmatched analytics that yields a greater accuracy of actuarial calculations.
Main Question: Why isn’t Apple into Insurance?
Apple, the largest electronic hardware company is known for its exclusive ecosystem featured with smartphones, laptops, and wearables. If you had to ask a question: Between Apple, Amazon or Google, who knows you personally the best? To most iPhone users, the answer will undoubtedly be Apple. With a great understanding of user habits at an unmatched level, Apple could formulate Tesla with its insurance go-to-market strategy, as early as 2017 when the AppleWatch series was released.
With the iOS ecosystem, Apple has information about individuals about iOS users better than no other company. While Amazon could take your browsing data and draw conclusions about your shopping habits where Facebook could monitor your engagements to define your entertainment preference. Apple could draw your day out by looking into your screentime, app activities, with wearables that track your physical activeness and fitness health. Apple is in such an advantageous position to assert its competitiveness in life & health insurance just like Tesla with auto insurance.
Point 1: Brand Perception
Insurance companies are built with a socially positive image but it is meant to “insure” your financial security if any unexpected accident happens. However, these companies are seen as “devils”, as its business model of collecting premiums from policyholders and investing them does not quite aligned with the socially-good perspective of “insuring” one's security.
Apple’s decision to not enter the insurance company is primarily not reasonable from profitability and competitive standpoints, but however if Apple started selling insurance products, it will create negative sentiments towards Apple’s brand, which had taken them 40+ years to build.
Point 2: Regulatory Perspectives
“FAANG” (Facebook, Amazon, Apple, Netflix, Google) has consistently been placed under scrutiny, for reasons such as monopolist act, misuse of private information, oppression against software developers. Apple’s attempt to go into the insurance industry will alarm most regulators with their ability to heavily disrupt traditional life & health insurance businesses. Any form of acquisition will be easily seen as a redline for regulators to file complaints about Apple’s corporate practices.
Point 3: Opportunity Cost — EcoSystem
It is not likely that Apple’s insurance will continue to further enhance Apple’s ecosystem to any extent, with regards to Apple’s moves from iPhone to Accessories, to Softwares, to Computer Chips. All of them have shared a strong tie to the iOS ecosystem. Hence, even though Apple is better positioned than no one else to monetize its comprehensive data from Apple users, it is not worth it for Apple to take substantial non-financial risks.