Embedded insurance refers to the seamless integration of insurance products and services into non-insurance platforms or businesses, providing customers with added protection and peace of mind.
This innovative approach can be seen in various scenarios. For example, when purchasing goods on an e-commerce platform, customers are offered the option to acquire insurance coverage against potential damage, theft, or malfunction. Similarly, online booking platforms extend the offer of travel insurance during the itinerary confirmation process, safeguarding travelers against trip cancellations, lost baggage, or unforeseen medical emergencies.
The concept of embedded insurance has gained substantial interest due to its ability to expand distribution channels for insurance providers. Research indicates that the embedded insurance industry in the Asia Pacific region alone is projected to experience a remarkable year-on-year growth rate of 32.3%, reaching a staggering distribution value exceeding US$50 million by 2025. But what are the reasons for its popularity? In this article, we explore five benefits of embedded insurance to both the insurance providers and the customers.
1. Knowing thy customer (better)
Embedded insurance effectively tackles one of the primary challenges faced by insurance companies—customer acquisition. With these products, insurers gain access to additional customer touchpoints, expanding their arsenal of valuable customer data.
This wealth of data, coupled with advanced technology tools like generative AI and real-time assessments, empowers insurers to develop a deeper understanding of their target consumers, leading to more efficient lead generation. Leveraging these timely data insights, insurers can offer more personalized and contextually relevant insurance product recommendations to enhance the customer experience.
2. Stronger conversion rates
Despite the widespread recognition of the importance of insurance, many consumers delay purchasing coverage due to the complexity of the process and required paperwork.
According to research from LIMRA, nearly half of the consumers in the US have admitted to procrastinating when it comes to buying insurance products. However, the same study also shared that 48% of American consumers have indicated that there is a greater likelihood of them buying insurance if the process is made simpler.
Embedded insurance, which typically involves minimal to no underwriting, presents an opportunity for the insurance industry to break through this barrier. By streamlining the underwriting process, embedded insurance has the potential for higher conversion rates compared to insurance products distributed through traditional channels.
3. Bridging the protection gap
Despite efforts to make insurance products as comprehensive as possible, there is often a discrepancy between the amount of insurance that individuals or businesses should have and the amount they actually purchase, resulting in a protection gap. This gap is particularly prevalent in areas such as healthcare, natural disasters, business insurance, and mortality.
The protection gap is significant, with research from Swiss Re Institute showing that it is currently valued at $1.2 trillion and has more than doubled in the last two decades. This gap is especially prevalent among small business owners, with research only 21% carry crucial policies such as professional liability insurance, 17% workers comp, and 6% business interruption insurance.
However, this protection gap also presents a huge opportunity for more technology-savvy insurers who are adept at utilizing technology to identify where these gaps exist and working with ecosystem partners or insurtechs to embed insurance products within them. By doing so, these insurers can make insurance products more easily discoverable to consumers, ultimately reducing the identified protection gaps.
4. More distribution channels
The advancement of technology, such as open APIs and cloud computing, is creating new opportunities for insurance companies to integrate with ecosystem players and insurtech platforms. By leveraging these technologies, insurers can develop stronger tech capabilities and seamlessly roll out embedded insurance offerings for marketing and distribution across a wider number of consumer touchpoints. This can result in increased revenue and a broader customer base for insurers.
For example, accounting and financial SaaS provider QuickBooks recently partnered with insurance providers to launch an embedded insurance product for small and medium-sized businesses. The AI-powered integration allows the QuickBooks software to utilize customer data to identify and recommend the best insurance policy for QuickBooks’ customers, thereby expediting the application process. After the policy purchase, the customer can then view the details of the insurance policy directly via their QuickBooks account.
This model is a mutually beneficial one to both QuickBooks and its partner insurers as it allows the SaaS platform to have more robust offerings, whilst offering insurance companies access to new customer pools that originate from such non-conventional distribution channels.
The development of digital capabilities and deeper integrations between insurers and platform partners is allowing for more robust embedded insurance products to be developed for end customers. This enables insurers to move beyond a one-size-fits-all product approach and better contextualize their offerings to cater to the specific needs of customers.
5. Building in preparation for Generation Z
As the largest adult generation segment today, Millennials have already surpassed the Baby Boomer generation. This generation, also known as Generation Y, has diverse insurance product needs, driven by life transitions such as buying their first car, starting a family, or purchasing a house.
Insurers must recognize that Millennials are steadily becoming the dominant buyers in the market and are bringing with them a new set of expectations about what the insurance industry should provide.
Among the expectations for these “digital natives” is an online and often self-serve buying experience. A seamless customer experience is critical within a purchase journey and a poor customer experience can easily result in lost business opportunities for insurers.
According to a survey, 41% of millennial policyholders switched insurance providers in a period of six to 12 months, and 76% changed providers within the past five years, with 22% leaving in search of a better customer experience, expanded digital insurer offerings, and even something as basic as payment options.
Millennials tend to have less familiarity and brand loyalty when it comes to insurance companies compared to retail or lifestyle brands they encounter more regularly. This highlights the opportunity for trusted retail brands to function as insurance intermediaries through embedded insurance solutions, providing add-on coverages to their customers. For instance, e-commerce giant Shopify offers shipping insurance directly on their digital platform at the point of checkout, leveraging their strong customer relationships to provide value-added services.
The rise of embedded insurance models provides insurers with a better understanding of the rapidly evolving consumer needs and preferences. By partnering with ecosystem players and gaining access to large customer databases and new verticals, insurers have the potential to capitalize on new opportunities for growth. However, to fully leverage these partnerships, insurers must possess the appropriate technological capabilities that these new-age partners require. As digital natives become an increasingly large proportion of the market, insurers who are digitally ready and engaged will be better positioned for long-term relevance within the insurance industry and beyond.