The Rise of Embedded Insurance – A Game Changer for the Insurance Industry

Embedded insurance is becoming a significant sales channel for insurers, and it gives them access to a greater number of customers. According to a report by the fastest growing insurtech community, the embedded insurance market is forecast to grow to ~$700 bn in gross written premiums (GWP) by 2030, more than six times its current size. Findings from leading insurtech research showed that almost 42% of US customers are interested in bank-embedded insurance offers. Strikingly, globally the average is even higher, reaching almost 70% of the customers. This blog explores the current trends in embedded insurance, what is embedded insurance, how it is spreading the wings, what is in it for insurers and how insurers can start the journey of embedded insurance.

What is Embedded Insurance and Why is it Popular?

Embedded insurance is bundling of insurance with a product or service. That means one need not buy an insurance coverage explicitly. When you are buying a product or service it comes with an option to buy insurance at a very low cost. This low cost and quick availability become a very attractive proposition for the customers.

This option has become popular because lot of areas are not easily covered under insurance policies. For example, if you buy a railway ticket or a bus ticket, there is an option available for insurance at very miniscule price which is very tempting to purchase. Another popular example is Walmart’s protection plan which you purchase along with electronic goods.

How is Embedded Insurance Spreading its Wings?

Most of the non-insurance players are partnering with insurance companies or Insuretechs to expand their offerings and to provide embedded insurance. They are scaling up the business across multiple countries. A few examples that provide a sneak peek into this mechanism are stated below:

• Airbnb has partnered with Europe Assistance, Generali, and AON to introduce travel insurance. The insurance covers trip cancellation, travel delay, medical and baggage
• Swedish car manufacturer’s model – XC40 recharge pure electric now comes with 3-year insurance from Allianz
• An American ski resorts pass provider offers Spot's innovative insurance coverage options designed specifically for skiers and riders
• American electric vehicle company sells embedded insurance as a value proposition to sell more cars

So, on one hand embedded insurance works as a value proposition and on the other hand it opens new revenue stream.

What is in it for Insurers?

According to a leading consulting firm “As more non insurers recognize insurance as a valuable profit pool and differentiator for their customer’s, embedded insurance has emerged as a strategic priority for insurance companies.”

So, let’s have a look at what are the benefits for insurers by offering embedded insurance.

1. Large customer base: Insurers can expand their customer base by partnering with trading companies, travel companies, aggregator service providers etc. who deal with a massive customer base and which in turn can increase insurers customer base exponentially.

2. Integrated services reducing distribution cost: In most cases the insurance offer is by default integrated with a product/ service and included in the overall price. So, customers need not explicitly purchase insurance and customers find it as a value-added service. This also saves significant distribution costs for the insurer.

3. Better customer engagement and brand equity: Customers feel comfortable buying insurance through a familiar brand of product or service provider. So even if the customer does not have a prior relationship with insurer, they show stickiness and loyalty.

4. Differentiator: Personalized embedded insurance woven into online experiences can make a valued difference in customers’ lives — and differentiate your business in the marketplace.

Despite above benefits there are two main challenges:

1. Challenge of regulatory compliance when data moves across geographies.

2. Claims processing systems in line with exponential sales growth need to be smoother with optimal use of customer 360-degree view, AI/ML, and analytics.

How Can Insurers Start their Embedded Insurance Journey?

1. Identify non-insurance partner: Insurers need to carefully choose industries, sectors, or types of noninsurance players for partnership such as car rental, hotel booking, ecommerce, and more.

2. Identify differentiated products: Once the partner is selected insurer needs to build products with compelling value proposition at low pricing and which will bring more scale to business. For e.g., insurance with train ticket with <5% of ticket cost

3. Branding: Insurers can either go for joint branding with partner or may accept to issue policies under partner’s brand

4. Integration with non-insurance sales process: Insurers have to integrate policy issuance process with partner’s sales process.

5. Design seamless claims experience: Claims intake, assessment and payout needs robust platforms and processes. The use of data and analytics with AI/ML technologies will help insurers to stay ahead of the curve.

IT Imperatives for Insurers:

1. Realign PAS for fast product launch: Insurers should have robust PAS to create new products and launch those quickly. Current PAS may not be dynamic enough to incorporate new product changes. However technology partnership with IT vendor can help in customizing PAS for faster time to market.

2. Simplified rating engine: Embedded insurance calls for simplified policies with lesser terms and conditions. Hence rating engine supported by minimum business rules can help for quick policy issuance.

3. Align branding: For joint branding white labelling of the front end portal or systems will be essential. White labelling can be done as per target region and languages supported.

4. Integration with partner systems: Loosely coupled architecture and microservices based APIs can help insurers to integrate with parter’s system. The seamless integration is required for quick issuance of policies and for policy related communication.

5. Claims systems: Claims systems should be modified to process the embedded insurance claims. The adjudication process may not call for complexities and approvals. Automation of claims processing is suitable for embedded insurance claims with low value. For claims intake lightweight platforms can be used as these claims may not need lot of evidence. Claims payout in multiple currencies may be needed. With predictive analytics insurers can make effective claims projections to assign the corresponding reserves.

Gearing Up for New Ways of Insuring

All in all from technology perspective embeded insurance calls for light weight robust systems with loosely coupled architecture. Insurers have a huge opportunity for business expansion and revenue growth through embedded insurance. They should embark on this journey to stay ahead of competition.