Losing Amazon, Seeking Costco
Courteney Cox, known for her role in ‘Friends,’ learned to play the piano on an instrument her mother acquired with S&H Green Stamps, recognized as the first customer loyalty program in the USA. In 1896, Thomas Sperry from Cranford, NJ, and Shelley Byron Hutchinson from Ypsilanti, MI, established Sperry and Hutchinson Company, or S&H. The business model involved selling stamps to retailers, who then distributed them to customers. Customers would collect these stamps and redeem them for items from the S&H Catalog. At its peak, S&H Green Stamps (still in business, btw) earned the trust of more than 30 million households and over 85,000 merchants.
On February 2, 2005, Amazon Prime was launched. This loyalty program wasn’t free to all; instead, it offered free two-day shipping on eligible purchases for an annual fee of $79. “We believe Amazon Prime will get people who shop with us already to shop with us more frequently,” said Patty Smith, a spokeswoman for Amazon, in an interview with The Atlanta Constitution on February 24, 2005. “Amazon Prime is ‘all-you-can-eat’ express shipping. Though expensive for the Company in the short-term, it’s a significant benefit and more convenient for customers. With Amazon Prime, there’s no minimum purchase to think about, and no consolidating orders — two-day shipping becomes an everyday experience rather than an occasional indulgence,” said Jeff Bezos, the founder and former CEO of Amazon.
On October 19, 2022, Amazon introduced its Insurance Store to UK clients, offering them the ability to shop for home insurance. Jonathan Feifs, the general manager of Amazon’s European Payment Products, expressed the company’s goal: “Shopping online for home insurance is a well-established experience, and our goal is to exceed customers’ expectations when it comes to the Amazon Insurance Store.” However, the reality didn’t match these expectations. Home insurance is a product with limited differentiation, often sold to a generally indifferent consumer. To make matters worse, insurance didn’t meet Amazon’s own expectations. In other words, even Amazon is indifferent to insurance.
Their indifference is the industry’s relief.
Last week, Bilt Rewards, a platform for rent payments, disclosed a $200 million investment, which surged its valuation to $3.1 billion. Key highlights from these announcements include: The funding round was spearheaded by General Catalyst (GC), marking their inaugural investment in the firm. Ken Chenault, the chairman and managing director of the venture capital firm, has been appointed as the new chairman of Bilt. Bilt revealed its intention to expand into offering rewards for mortgage payments.
The situation can progress in several ways.
GC holds investments in several key insurtech companies such as Ethos, Nirvana, Shift Technology, Resilience, and Lemonade. Notably, Lemonade’s market focus aligns well with the target demographic of Bilt, which frequently includes individuals who are renting for the first time. So much for a market fit. Now, GC needs a motive. In the summer of 2023, Lemonade announced its ‘synthetic agents’ initiative, a financing program that began on July 1, 2023, and sees GC finance up to 80% of all Lemonade’s CAC in return for a synthetic ‘commission’ of up to 16% of the stream of premiums they helped finance. Consequently, it is within the realm of possibility that GC orchestrates a scenario where Bilt Rewards ultimately rewards Lemonade.
It is also possible that Kairos, the creator of Bilt and Rhino, distributors of an alternative to deposit insurance (from several insurers) and renters insurance (from Markel), will advocate for a closer collaboration between these ‘sister companies’ except that one is more along the lines of the wicked sister. Yet, as the saying goes, blood is thicker than water.
It’s worth noting that Bilt cards, issued in partnership with Wells Fargo, include a range of protection products such as phone, purchase, auto rental, and trip protection – all provided by Assurant. In this scenario, Assurant stands as the sole insurance winner benefiting from this collaboration. Also, when you compare Lemonade’s journey to Bilt’s rapid rise, Lemonade’s trajectory is distinctly different. Lemonade took four years, starting from its initial seed round and culminating in a $300 million Series D round, to achieve a billion-plus–dollar valuation. In stark contrast, Bilt accomplished the same feat in just two years.
Shifting gears… Ken Chenault is known for his tenure at American Express having served as the CEO of the company from 2001 to 2018. He navigated several challenges, including the aftermath of September 11, the 2008 financial crisis, and the 2016 break-up with Costco after a 16-year-old exclusive partnership after which Costco switched to Visa/Citigroup. At the time, 10% of the 112,000,000 American Express cards in circulation had been co-branded with Costco.
To tie this up, this post is about Embedded Insurance (not synthetic agents). Embedded is an important element but not a panacea. In April 2023, we introduced the Coverager Framework for Embedded Insurance. It boils down to:
- Recognition: Assess the visibility and credibility of the distributor’s brand primarily, followed by the insurance partner’s brand.
- Reach: Gauge the distributor’s audience size, interaction frequency, and whether the audience comprises users or customers—with users often being more advantageous for insurers (the Bilt Mastercard must be used at least five times each statement period to earn points).
- Relevancy: Evaluate the necessity of the insurance product, considering price, purchase urgency, and policy term length, keeping in mind that non-essential insurances are usually marketed rather than spontaneously bought, as the saying goes, insurance is sold.
Lastly, we wrote “Be Realistic.” Amazon was realistic about its insurance income. Now, it’s up to Lemonade and Assurant (thinking of Cover360 here) to establish their own reality, with the single motive of finding their Costco.
