Embedded Insurance -The Game Is On!

Welcome a New King

The agent-based distribution model has been a king in the insurance industry for over three hundred years, however its splendour is starting to fade. Traditional sales channels still work but the market environment has changed dramatically over the past few years, and insurance distribution is also changing. Digital consumption accelerated by the pandemic, new generations of Millennials and Z clients gaining purchasing power, digital platforms integrating more and more economic activities, insurtech challengers emerging - all those trends bring a new energy and innovative approach to the sluggish industry.

Today the crown is put on a head of a new king – Customer - who demands personalisation, simplicity, transparency, and fair value for money, provided in the right place, at the right time, and in the most convenient way - a digital way! Traditionally, insurance policies were sold through agents, brokers, banks, and affinity partners, with the use of a phone, face to face interactions, and piles of paper documents. Today insurance represents tremendous opportunities for growth – but only for those players who are ready to embed it into our digital lives.

One-Click Insurance Worth 3 trillion USD

The hottest word which made its way into the everyday vocabulary of insurance professionals across the world is “Embedded Insurance”. It offers protection and added value relevant to customers at the point of sale when risk is a top priority. Embedded Insurance is becoming the part of a smooth digital process where insurance is bought, not sold, contextually linked to the main purchase of a product or service. We may say it is a shift from "one-stop" shopping to "one-click" shopping. Advanced technologies, mainly APIs, enable any third-party product or service provider in any sector to seamlessly integrate innovative insurance solutions into their customers’ journeys. Embedded Insurance is estimated at 3 trillion USD by 2030, more than 50% of the worldwide gross written premium today.

Win - Win - Win and…Win

All insurance players – insurers, distributors like banks, retailers, product manufacturers, service providers, digital platforms - should look carefully at this fast-emerging opportunity and define strategies of where to play and how to play. Insurers are experts at managing risk, but they are lacking rich, real-time data to be able to create affordable and personalised products that keep pace with market demands, new trends and new risks emerging. Embedded Insurance helps to solve many issues with traditional insurance products which are complicated, inflexible, expensive, difficult to buy, and their benefits are uncertain. Embedded Insurance creates a ”win-win-win-win” situation for the distributor, the insurer, the customer, and the society. The insurance industry is challenged to rethink its business model and deliver greater value to the market, for the benefit of all its stakeholders. Embedded Insurance provides the answer.

• ‘Win’ for Customers – Embedded Insurance gives customers a better, more digital experience, simplifies a buying process and ideally matches protection to the time of need. Customers can buy the right coverage at the right time at the touch of a button, and they know that the potential claims will be handled in the same easy way.
• ‘Win’ for Distributors – Embedded Insurance can significantly enhance the value propositions for any digital distributor. It helps to attract new customers, increases retention, and creates new revenue streams.
• ‘Win’ for Insurers - Embedded Insurance gives a high margin access to new addressable market segments that were too risky or not commercially viable in the past. Plugging insurance products directly into the partners’ digital platforms represents an efficient way of acquiring new business, it gives the access to more clients and data that can be used for creation of innovative and personalised offers, and also leads to better risk selection and underwriting.
• ‘Win’ for Society -  Embedded Insurance helps to close the protection gap which is a difference between the amount of coverage that is economically and socially needed for society and the amount in place. According to the Swiss Re Institute, this gap has doubled from 2002 to 2020, driven by global trends in digitisation, urbanisation, climate change, and lack of innovation in insurance. Embedded Insurance provides more relevant and personalised products, easier to buy and offered when needed. It matches supply and demand efficiently and represents a good way to close the protection gap.

Why Has It Started?

Embedded insurance is the result of following broader market trends.

• Embedded Finance  - Open Banking initiative was a catalyst for developing FinTech, BaaS (Banking-as-a-Service) and neo banks that offered a fully digital customer experience and enabled sophisticated forms of embedded finance.
• Digitisation - has enabled new digital ecosystems as alternatives to traditional marketplaces. McKinsey estimates that 30% of global economic activity, 60 trillion USD, will be mediated within these ecosystems by 2025. Platforms run by Google, Amazon, Facebook, and other orchestrators of digital ecosystems generate massive datasets and insights in real time about the activities and interests of their users, creating ideal markets for embedding financial services for clients.
• Data -  is the oil of the digital age. The world has become more connected thanks to Internet of Things, smart solutions, such as cars, goods, machines, and even humans armed with intelligent, telematic devices. This connectivity, combined with Artificial Intelligence, generates new levels of data that can be analysed to enable insurance to be more accurately personalised and embedded.
• New breed of customers - in our digital age, customers are shopping online, banking online, even seeing a doctor online, and they also want to get insurance online. Young generations of Millennials and Z clients, just like digitally rejuvenated older generations want to buy things and services (including insurance) with just a few clicks.

Insurance Science ‘Dethronized’ by Technology

Insurance sceptics will say it’s too naive to be true – offering customers exactly the insurance they need, at the time they need it, in a way that makes it easy to understand – it is not how insurance works. Insurance is like science!  It requires scientists - actuaries, brokers, and agents who will explain it. Yet, data and new technologies, like Cloud Computing, Blockchain, Internet of Things, Telematics, and queen of queens Artificial Intelligence - have proved that what was impossible is within reach. There are multiple examples of companies that have pivoted their business models, reimagined their product offerings, and embedded insurance into their clients’ journeys.

Big & Bold Pioneers in Embedded Insurance

Technology players are well positioned to embed insurance into their digital platforms because they are fronting the relationship with the customer and controlling its critical pieces such as customer journey, data, and trust in their brands. The orchestrators of digital ecosystems that bring together services, marketplaces and devices into one trusted experience, are most successful in embedding insurance into their user experiences.

Let’s look at few examples:

• Tesla offers pay-how-you-drive motor insurance at online points-of-sale and Tesla showrooms. Other automotive OEMs (Original Equipment Manufacturers), e.g., Ford and General Motors are following suit and offer their own insurance policies bundled with cars.
• Amazon has baked smart home insurance together with French insurer Wakam and offers it contextually while customers are making a home-related purchase online.
• Revolut, one of the brightest neo banks on the European scene, has embedded several insurance coverages into its account packages for clients. The Belgian Insurtech Qover has made this insurance possible thanks to the integration of its platform with the bank's system.
• PingAn, a leading Chinese insurer, is an orchestrator of multiple digital ecosystems created around domains such as Health, Wealth, Real Estate, and others.
• Uber, a flagship model of gig economy, prides itself on the simplicity of its user experience, offering flexible "pay-as-you-drive" car insurance. It automatically monitors when an Uber driver is ”in service” and when not and adjusts premiums accordingly.

Those companies have been mentioned for a reason. A successful launch and maintenance of Embedded Insurance requires the right mix of companies with large customer databases, digital distribution, relevant products, and technology to make the magic happen.

How Can This Magic Be Turned Into Reality?

In terms of how to win Embedded Insurance opportunity, all players in the market need to consider whether to build things internally or collaborate with others. There are pros and cons of each, depending on levels of ambition and capabilities. However, as Embedded Insurance is a “win-win-win” game, cooperation brings much more value than competition.

So far, digital platforms have not taken full advantage of the data they hold about their customers. They sold standardised, "one-size-fits-all" insurance because such offers were provided by traditional insurers. Insurtechs can help to provide personalized Embedded Insurance which can be, like puzzle, reconfigured in creative and fast ways. Instead of months of designing, testing and launching a new insurance product, insurtechs can do it in days or even hours. Insurtechs  play a key role because they can bridge the gap between a long tail of underserved digital platforms, and the insurers who cannot reach them directly because of their technology shortages and legacy issues. Insurtechs armed with APIs, AI, and data from digital platforms guarantee a successful transition of insurance from the analogue "one-size-fits-all" model of yesterday to the digital and customer-oriented model of tomorrow.