Could Google Start Underwriting Insurance Policies?

There’s some speculation online that Alphabet (NASDAQ: GOOGL)—the company formerly known as Google—could start underwriting insurance policies.

Google (NASDAQ: GOOG) has decided to accept responsibility; in other words, to agree to cover the cost of damages caused by flaws in its self-driving car technology. At least one observer, Blake Corbet, the managing director of Vancouver’s PI Financial Corp, thinks that this means Google will underwrite insurance policies for autonomous vehicles, Fortune reported.

Corbet also believes that this will give the search and research giant a sort of beachhead to enter the insurance business. Actually, Google is already in the insurance business big time; it is marketing auto insurance policies through its Google Compare, and it operates a major online insurance agency in the United Kingdom.

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Currently, Google simply sells policies issued and underwritten by other companies. If Mr. Corbet is right, it could start issuing and underwriting its own policies, which can be a very profitable business. As I noted elsewhere, Progressive (NYSE: PGR) reported a revenue of $20.12 billion and a net income of $1.32 billion on June 30, 2015.

Much of Warren Buffett’s fortune comes from underwriting insurance policies. Since Google’s new Alphabet business plan is based on Berkshire Hathaway, underwriting insurance would be a logical step. One reason why Google might start issuing insurance policies is that Sergei Brin and Larry Page think their search business will fall off, so they’re looking for new sources of cash.

How Google Will Disrupt Insurance

They may also be thinking of issuing some sort of data-driven next generation insurance products. If Google has an algorithm that could identify bad insurance risks, it might make a lot of money.

Google is investing heavily in other areas of insurance; Google Ventures has put about $119 million into Collective Health, a Silicon Valley company whose mission is to modernize health insurance. Most Americans would agree that health insurance needs to be modernized.

One of Google’s areas of expertise is to disrupt inefficient industries such as advertising with cost-effective, data-driven solutions. America’s insurance industry could certainly use some serious disruption.
Alphabet certainly has the money to become an insurance underwriter. It reported having $69.8 billion in the bank on June 30, 2015.

One reason why Google might considering underwriting is that it could soon be under pressure to bring cash back into the United States. The company is holding billions in overseas bank accounts to avoid the high corporate tax rate in the United States. If it does that, it’ll need a business activity as a tax write off, and insurance underwriting could be a very profitable tax write off.

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What this means is that Alphabet could quickly become a major player in the insurance business, much as it is a major power in advertising and directories. It also means that your insurance agency could go the way of the telephone directory, and your insurance agent could end up delivering pizza for a living.

It also means that some sort of showdown between the established insurance industry and Google is likely. We have to wonder who will win such a conflict.