Embedded Insurance Ecosystems
Embedded insurance refers to the seamless integration of insurance coverage into the purchase of a product or service, providing protection automatically at the point of sale. This approach simplifies the acquisition of insurance by bundling it with the primary product, eliminating the need for separate insurance transactions. By embedding insurance into the buying process, companies can enhance customer experience, offering convenience and immediate protection without additional steps.
This model is particularly beneficial in various industries, such as automotive, travel, electronics, and real estate. For instance, when purchasing a new smartphone, embedded insurance might cover damage or theft from the moment of purchase. Similarly, buying a car could automatically include coverage for accidents or repairs, streamlining the overall buying process.
The Necessity of Collaboration
The success of embedded insurance hinges on collaboration between modern insurtechs and traditional insurance incumbents. Marat Nevretdinov, Managing Director of HDI Embedded, states: “Insurance was slower to undergo digital transformation than many other industries due to strict regulatory constraints, the complexity of its processes, and quite simply because there wasn’t the competition to drive it.”
The insurtech industry has experienced rapid growth in recent years, driven by customers' increasing demand for simplified, digitised, and personalised services. “Embedded insurance is a big part of this - enabling seamless, convenient and diverse insurance options to be made available to the consumer much more quickly than before, as well as boosting revenues for the brand by integrating these insurance options. So much so, embedded insurance is expected to create US$3 trillion in market value for industry players,” he continues.
However, neither traditional insurers nor insurtech companies can successfully navigate the embedded insurance market independently; they need each other to thrive.
“While insurtechs have created agile, intelligent software that is built on open banking APIs and can deliver customised product offerings, the challenges lie in integrating insurance. In European markets, most insurtechs still do not have the flexibility to underwrite their own products, because they don’t own the products that they manage. Many turn to third-party underwriters instead to avoid the complex process of gaining international licenses.” Incumbents, on the other hand, have brand confidence and customer trust after years of delivering policies. They also have the infrastructure and capabilities to navigate regulatory demands. Yet they fall down where insurtechs succeed: the technology. Many traditional insurers have legacy systems that struggle to integrate with digital ecosystems and APIs. Thus, combining an incumbent’s exhaustive compliance and underwriting experience with the modern tech capabilities and flexibility of an insurtech is critical to realising the potential of embedded insurance. This type of collaboration necessitates cross-functional efforts and engagement at all levels within both the insurtech and the brand. It’s akin to the partnership between banks and fintech firms to create top-tier financial products.
Meeri Savolainen, Founder and CEO of INZMO, believes that for insurtechs, partnering with established insurers provides regulatory and risk management expertise, brand reputation, and an existing distribution network, accelerating market penetration. “Collaborating with insurers allows them to adeptly manage, negotiate and implement insurance policies, guaranteeing the smooth integration of insurance services within various ecosystems,” she says.
The Role of Non-Insurance Organisations
Non-insurance organisations, including fintech, retail, and travel companies, are vital in the embedded insurance ecosystem. According to Marat: “The non-insurance organisations and the third-party brands that embed finance and insurance solutions are a vital part of this ecosystem. They are the ‘brands’ through which the end-customer can purchase insurance. The brand benefits are twofold: they are able to offer compelling and bespoke protection solutions as an add-on to their products and services, while the end-customer can protect these products or services quickly, simply, and through a brand they already know and trust.”
Companies are increasingly aware of the additional revenue they can gain from embedding financial services into their digital infrastructure. For instance, TikTok has evolved from a social media platform into a comprehensive eCommerce site with embedded financial services. This transformation allows users to view, browse, and make payments without leaving the app, providing a seamless shopping experience and increasing user engagement. “Embedded insurance expands insurers’ reach beyond their traditional distribution channels,” says Meeri Savolainen. “It taps into the needs of customers of non-insurance partners. They can acquire new customers more efficiently, with minimal legacy IT integration issues and costs, and reduced marketing spend,” she adds.
“It’s very similar for fintechs, retailers, and travel providers looking to embed insurance into their platforms. Fintechs, whether a neo-bank with an app or a Banking-as-a-Service platform, want to get as much time in front of their customers as possible,” says Marat. According to Cover Genius's 2024 report on Embedded Insurance, 70% of digital bank customers are interested in receiving insurance offers embedded within their banking services, compared to 44% of traditional bank customers. Digital bank customers show a higher interest in these offers than traditional bank customers. “This could mean including an option for insurance protection at the point of sale to ensure customers stay on their platform longer. In other words, it boosts the ‘platform stickiness’. At some point, these platforms will begin to offer ‘everything’, and embedded insurance will just be one component within many,” he continues.
“True embedded insurance solutions go even further. Rather than simply integrating a ‘tick box’ insurance option at the point of sale, it should also include automatic protection. For instance, when someone opens a bank account and takes out a card, they receive immediate protection for that account. This model furthers the level of trust an individual has for that brand and drives greater loyalty for future purchases,” Marat says.
Statistics from cover genius
Customer Interest: 70% of digital bank customers are interested in receiving embedded insurance offers, compared to 44% of traditional bank customers.
Event-driven Insurance: 64% of property owners who started receiving rent payments in the past year are interested in landlord insurance prompts.
Personal Electronics: 70% of those who obtained extended warranties on expensive electronics through traditional channels would be highly interested in bank coverage options.
Travel Insurance: 76% of consumers who obtained travel insurance through traditional means are highly interested in bank-embedded offers.
Homeowners Insurance: 28% of traditional bank customers and 41% of digital bank customers would be highly interested in bank-embedded homeowners insurance offers.
Auto Insurance: 27% of traditional bank customers and 44% of digital bank customers would be highly interested in embedded auto insurance offers.
Convenience: 49% of consumers cite convenience as the top reason for interest in embedded insurance offers.
Trust in Banks: 46% of digital bank customers trust their banks to protect their data, a key factor for embedded insurance.
Cost Savings: 34% of consumers see cost savings as an important factor for considering embedded insurance offers.
Recent Purchases: 53% of those who recently purchased a home would be highly interested in bank coverage offers.
The Impact of AI on Embedded Insurance
Artificial Intelligence (AI) is increasingly becoming a pivotal force within the insurtech world. “AI is a growing force within the insurtech world," says Marat. "The benefits span everything from fraud detection to improving the overall customer experience. We’re already seeing an increase in chatbots that provide 24/7 support to customers, and they will likely begin to include even more personalised guidance as AI evolves, utilising customer data and previous interactions to create a more seamless, customer-centric experience.”
AI enhances insurance operations by automating tasks, improving efficiency, and reducing costs. “For instance, AI in the initial claims assessment phase can determine a claim’s validity or prioritise urgent cases, fast-tracking them for quicker resolutions,” Marat adds. The capability of AI to process vast amounts of data is crucial for achieving hyper-personalisation. Embedded insurance already allows for real-time dynamic pricing, but moving forward, AI will process more data to price policies more accurately. “Ideally, this means insurers will be able to offer customers far more tailored products at a fair price, with the right coverage to meet their specific needs.”
Moreover, AI will enable insurtechs to keep up with rapidly evolving consumer technology preferences, ensuring convenient and seamless experiences. It will become pivotal for industry resilience, helping to mitigate evolving risks and reduce issues such as identity theft, false claims, and staged accidents. However, Marat cautions: “All successful AI use cases within insurance rely on training data, and it’s crucial the technology isn’t fed data with underlying biases that could harm customers. Tackling this issue head-on requires a greater focus on social responsibility and ensuring AI models are trained for fairness by continuously evaluating and scrutinising their performance.”
Enhancing Customer Experience
Customer expectations have transformed the insurance market, with leading technology brands setting the standard for personalised and intuitive experiences. “This is now expected in the insurance space too, meaning incumbents have needed to step up when it comes to digital transformation,” says Marat.
As Meeri Savolainen adds, a better customer experience means non-insurance companies can potentially increase customer loyalty and generate additional revenue streams through commissions or referral fees. “Insurance offered at the exact time it's needed is a compelling proposition for customers, keeping them within a 'walled garden' provided by the company with the most convenient and comprehensive package.”
This shift is significant. With advanced technologies like AI, automation, and blockchain powering customer journeys, traditional insurers require a complete overhaul of operations to enable faster and more efficient processes. “Robust cybersecurity measures to protect customer data and maintain their trust are a big part of this,” Marat continues. “So too is gaining a better understanding of customers' individual needs and offering more personalised services that can build both loyalty and trust.”
Embedded insurance arises from these new expectations and the need to improve customer experience. “It aims to make insurance products more robust by consolidating multiple types of coverage into a single policy, offering cost savings and customisations to fit the specific needs of each customer. Yet all the consumer sees is a simple and easy add-on that removes hassle and does all the hard work for them.... It’s this seamless customer-centricity that makes embedded insurance so competitive,” says Marat. “For customisation and more bespoke policies, data is key. We owe access to this information to open banking, which enables third parties to access a user’s financial data (with consent) and make embedded services like insurance far more personalised and relevant. For example, customers can apply for a loan or check their credit score within an e-commerce application, making the customer journey smoother and enhancing the user experience,” Marat concludes.
Leveraging Significant Life Events
Significant life events or major purchases often increase consumer interest in embedded insurance offers. Russell Corbould-Warren, VP of Insurance at Cover Genius, explains: “For most consumers insurance is still a ‘grudge purchase’. The last thing they want to spend time on is searching through the products and prices of hundreds of insurers and brokers for something they (hopefully!) will never need to use.” However, he notes that significant purchases and life events often provide a moment of clarity about the risks they face, such as needing to cancel their “holiday of a lifetime” or finding protection plans for high-value items.
“Cover Genius’ embedded insurance technology recognises the importance of these events. At the moment of sale, consumers are presented with relevant insurance and other protection options that are tailored to their specific purchase, experience, or service from the brands they already trust. Brands enjoy a new opportunity to add value to their customer’s purchasing experience and help grow trust among their customer base, setting the stage for repeat purchases. Consumers, who are often underinsured, enjoy security and peace of mind that comes from good insurance protections. It’s a win-win scenario for consumers and brands alike,” Russell states.
Bridging Coverage Gaps
Traditional insurers often struggle to meet the demand for certain types of coverage due to legacy system limitations and complex risk models. Russell explains, “Traditional insurance models are deliberately designed for long-term stability and consistency of products, risks, and distribution channels. However, from well-known legacy system limitations to complex risk models that require significant historical data sets, this approach gives them a structural disadvantage with consumers and markets with rapidly changing coverage needs - and those who demand a modern, digital-user experience.”
Embedded insurance helps bridge these gaps by creating a customer-centric global experience that brings multiple underwriters to the table. “The protection needs for customers in the US will differ greatly from those in the UK, and embedded insurance is able to constantly evolve with those customer needs through A/B testing, data analysis, and slight modifications so brands can provide customers with the right protection, in the right place, and at the right price,” adds Russell.
To read the full story in the magazine click HERE
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