The rise of embedded insurance

As embedded insurance becomes a hot topic in the insurance industry, we look at its growth rate so far, what holds it back and its future potential

Though embedded insurance may not appear to consumers as a flashy new means of purchasing coverage, it’s not designed to be. In fact, the reason embedded insurance has become such a hot topic as a means of product distribution for insurers is due to its seamless integration with other associated insurance offerings, addressing both primary purchase and related insurance needs in one transaction. 

Enabling customers to have a more comprehensive and holistic solution, embedded insurance flips the traditional model of offering insurance products, which requires consumers to actively seek coverage for standalone products. Effectively, it eliminates the need for customers to go through additional steps or fill out complex forms to obtain insurance.

A covert operation of sorts, embedded insurance allows insurers to tap into new customer segments and leverage existing distribution channels of partner companies, all while gathering valuable data from customer transactions to create more personalised underwriting and pricing models. Although this paints a rosy picture for insurers, there are complex regulatory requirements to consider, giving some legacy institutions cold feet over offering packaged insurance products – and ensuring embedded products meet the licensing needs of all products in a single package is but one consideration. Add to that the need for complex compensation algorithms for each embedded offering, compliant advertisement licensing, rebate cognizance and intellectual property law adherence, and it becomes clear that completely remodelling legacy models may be a pricey risk for established insurers. 

This is where insurtechs have taken up the mantle, offering insurers integrated solutions that can make embedded insurance a part of their offering. But, do the benefits of embedded insurance outweigh the risks for insurers? We look at use cases of embedded insurance and ask: will it become a ‘must’ for insurers in the future?

Is embedded insurance the answer?

For Dan Bratshpis, CEO and Co-Founder of INSHUR, “embedding insurance solutions is the answer to building efficient insurance products and personalised relationships with both the platforms and their customers”. While partnering with insurtechs may prove costly, Bratshpis feels the extensive budgets insurers spend on advertising “to assert their presence in key areas of everyday life – such as car, life, travel, personal and professional liability insurance”, doesn’t help them “deliver the right product for these workers when relying on standard customer data such as gender and location in the underwriting process”.

He adds: “With embedded insurance, there are many mutual benefits for workers, insurers and platforms, but it’s the symbiosis of these three where we see the magic in creating a superior customer experience coupled with real underwriting advantages to develop customised products, while at the same time driving down acquisition costs. The proliferation of the on-demand workforce means that the symbiotic relationship between platforms, insurtechs and customers has become evermore paramount, especially as insurtechs have the ability to underwrite policies more accurately.” 

However, the CTO at Swan Mathieu Breton notes that despite nurturing a strong relationship between insurtechs, insurers and customers, the proliferation of embedded insurance will further highlight the issue of “the ‘russian doll’ effect. This is where an insurtech company “embeds finance and then goes on to offer its own embedded insurance offering”. As such, they explain that this “is where the lines blur – particularly for regulation – and this is where risk education for both the companies and end consumers becomes important”.

The fintech relationship status

Although complex regulatory requirements may slow the growth of embedded insurance products hitting the market en masse, it has done little to deter insurtechs and insurers from striving to achieve proliferation in the long run. In fact, a report by InsTech London found that the embedded insurance market could grow to $722bn in Gross Written Premiums by 2030, around 600% more than the size that it is today. 

Embedded insurance providers continue to onboard fintech solutions before going on to offer their own platforms to insurers and consumers. But, according to Mariana Henriques, Product Marketing Director, Insurance at FintechOS, legacy insurers are lagging in their relationship with fintechs and deployment of financial technology. 

She notes: “While some financial services have seen flash-in-the-pan innovations and have found success in consumer trends, insurance hasn’t capitalised on financial technology in the same way. One of the main challenges for insurers has been the complexity of their business models, which adds to the complexities of deploying and using the technologies themselves.” 

While complex business models may slow the uptake of fintech usage among legacy insurers, Henriques believes companies will eventually “diversify the types of insurance products they offer through embedded insurance, as awareness of the benefits of embedded insurance continues to grow among consumers”.

Insurance diversification

According to Henriques, the growing awareness of consumer pet insurance has already led to an insurer response, with embedded pet insurance becoming one of the largest segments in the sector. Breton explains how “many pet insurance tools are now providing cards, with their own brand, letting pet parents pay for emergency operations up-front, removing the added stress of putting cash down and waiting to be reimbursed – this service is only possible with embedded finance.”

Embedded pet insurance is not the only segment of embedded insurance high on the growth chart, as the Executive Director of Toyota Insurance Services Europe, John Laing explains: “One of the most exciting innovations in embedded insurance is insurance sold as part of a vehicle rental or purchase – whether physically at a dealership, for example, or online.”

Liang feels that embedded motor insurance is set to grow for many reasons. “As customers move from ‘ownership’ to ‘usership’, their expectations are starting to change – with an increasing focus on ‘ease of use’ and ‘value’ that make embedded insurance products very appealing.

“There is also a shift from selling, financing and insuring a single car to providing a combined service based around an insured, funded vehicle, instead. In addition, passenger vehicles that are designed at the outset to have insurance integrated become very appealing when supported by deeper and more varied data streams.”

The future of embedded insurance

With pet and motor-embedded insurances firmly on the rise, the proliferation of embedded insurance services across all industries, and at more insurance firms, look set to follow suit. As Henriques notes: “Technology will play a key role in demystifying some of the complexity around underwriting through AI and chatbots, improving the overall retail experience. The market is predominantly focused on consumer goods, but in the future, embedded insurance offerings could even extend to business processes, such as logistics and warehousing.”

Co-Founder and CEO of INZMO Meeri Savolainen echoes Henriques’ belief in similar embedded insurance offerings being used across an increasing variety of industries: “In the future, we will see more industries adopting embedded insurance models as consumers become increasingly accustomed to personalised and on-demand services. This, in turn, will create opportunities for insurtechs to partner with traditional insurance providers and to further disrupt the market by offering innovative, tailored insurance solutions.”

So, although embedded insurance’s growth may be stunted by regulations, these roadblocks will only serve to slow embedded insurance down as it continues to penetrate new industries, offering an integrated, user-friendly approach to providing insurance products in an increasing number of industries.

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