The Embedded Insurance Trajectory

As discussed in our last article, What's Behind the Embedded Insurance Shift, the embedded insurance market is rapidly expanding – and this is only the beginning. It’s only a matter of time until new applications and niches emerge. Let’s explore what the future of embedded insurance could hold.

The History of Embedded Insurance

Accenture defines embedded insurance as any insurance product you can purchase within the commercial transaction of another product or service.

An early example, according to Accenture¹, was the capability to buy life insurance at the airport before a flight. Other early examples include car salespeople also selling car insurance, the purchase of car rental insurance available along with a rental car, and extended warranties offered with the purchase of appliances.

Since then, embedded insurance has evolved. Technology has played a big role in this evolution. Thanks to the rise of online commerce, Accenture says we now have web-enabled embedded insurance.

This is a critical shift in the nature of embedded insurance. It’s creating new opportunities for innovative, data-driven embedded options.

Embedded Insurance 2.0

Get ready for Embedded Insurance 2.0 – that’s the term a 2022 Embedded Insurance Peer Group Report² used to describe “a new way of collaborating and innovating with third party brands, of all types and sizes, to help them grow their businesses, create compelling new protection solutions for end customers and, ultimately, close protection gaps.”

The special Peer Group consisted of leading international insurance companies looking into Embedded Insurance from October 2021 to May 2022. Those participating included senior executives from Allianz, American Family, AXA, Ergo, Google, IAG, Liberty Mutual, Marsh, Munich Re, Swiss Re, and Travelers.

According to the report, Embedded Insurance 2.0 leverages new operating systems that can aggregate demand and facilitate supply from multiple parties. It could be worth $1.5 trillion in gross written premium by 2032. Overall, Embedded Insurance 2.0 could account for around 16% of all insurance distribution and, in some markets, could account for 30% of distribution.

What Is the Future of Embedded Insurance?

Embedded insurance is a critical part of the current digital disruption that’s forcing the insurance industry to adapt.

There are five ways embedded insurance could continue to evolve in the future.

1. Giving Consumers the Options They Want

EY³ explains that, for decades, insurers have used partnerships to sell their policies, but these distribution arrangements have often suffered from undifferentiated features, high costs, and fragmented customer experiences, which has contributed to low adoption rates. Digitization is changing this by allowing non-insurers to build stronger value propositions.

One size doesn’t always fit all. New embedded insurance options may give customers the options they need to customize coverage. In fact, it’s already happening. For example, Bubble⁴ has launched an Embedded Insurance-in-a-Box platform that lets real estate and mortgage companies embed homeowners and life insurance into real estate transactions. With this system, buyers can receive custom-tailored quotes, personalize their coverage, and have their policies approved in minutes.

2. Making Coverage Invisible

Majesco⁵ divides embedded insurance into three categories:

• Soft embedded insurance means coverage is offered but customers must opt in if they want it.
• Hard embedded insurance means coverage is provided and customers must opt out if they don’t want it.
• Invisible embedded coverage means coverage is provided automatically and customers cannot opt out.

Over time, embedded insurance may evolve to become invisible. For example, Majesco says embedded travel insurance has been around for a while, and this is why it has gravitated toward the invisible model.

Building embedded insurance into an essential element of the product design may be the key to creating truly seamless experiences. Currently, embedded insurance is often offered as an extra at the point of sale, and this strategy may be leaving untapped opportunities. According to an article published in Insurance Thought Leadership⁶, to seize these opportunities, insurers need to build embedded insurance into the point-of-design, creating insurance and non-insurance products that offer a single value proposition. 

3. Becoming a Critical Part of Business Ecosystems

Insurers have been embracing ecosystems as a way to provide streamlined customer experiences. Embedded insurance will be a critical part of this. According to Accenture⁷, 51% of insurance executives say their companies have already noticed disruption from competitors that are partnering with companies in other industries.

These ecosystems can pave the way for major changes in how consumers access insurance. In an interview with Digital Insurance⁸, Andrew Palmer (the CIO of global retail markets at Liberty Mutual) said his company is using technology to embed insurance into different ecosystems. He described a scenario in which people could buy car insurance through their car’s dashboard and pay for it using their existing account. This, according to Palmer, is the next level of disruption.

4. Shifting to Prevention and Risk Management

In a recent article on embedded insurance, we discussed how the insurance industry is leveraging AI to shift from reactive coverage to preventative risk management.

When embedded insurance is combined with telematics and other data-driven technologies, it can also become part of proactive risk management. For example, Palmer’s vision of insurance embedded into car dashboards includes the use of driver behavior.

If the insurance is embedded directly into a connected car system, using driver data in the underwriting process is a logical step. Insurance programs that track driver behavior to determine rates typically provide feedback for drivers to improve. According to a study from the Insurance Research Council⁹, around 80% of people who participate in telematics programs say doing so helps them change the way they drive.

5. Creating Real Competition for Traditional Carriers

In an interview with McKinsey, Pia Schlüter (a partner in the Düsseldorf office) said embedded insurance is both a threat and an opportunity for insurers. If insurers are successful, they can secure a significant sales channel. If they’re unsuccessful, their role in insurance processes may be reduced.

EY³ says non-insurers won’t just act as minor distribution channels: they want to control the product and experience. If insurers want to thrive in this new reality, they need to address several key issues, including higher costs, a lack of automation, and undifferentiated products.

Delivering More

Embedded insurance may be the future of insurance distribution; the future of insurance payments is digital. With the One Inc/Hi Marley integration, insurance claim payments are initiated directly within the 2-way text conversation between adjuster and insured.  After the claims process is complete, insureds receive a secure link that enables them to choose their preferred payment method. Once payment has been issued, they receive a payment confirmation text in the same texting thread.  That’s delivering more!

One Inc provides fast and secure digital claim payments and premium pay options. Learn more.

Sources:

1. Accenture - https://insuranceblog.accenture.com/embedded-insurance-brief-overview
2. Swiss Re - https://www.swissre.com/dam/jcr:0a92d176-548a-4b2a-9b27-6f83548987b9/Embedded%20Insurance%202.0%20-%20Incumbent%20Strategy%20-%20International%20Peer%20Group%20Report%20-%20June%202022.pdf
3. EY - https://www.ey.com/en_us/insurance/how-insurers-and-new-entrants-can-take-advantage-of-embedded-ins
4. Bubble - https://www.prnewswire.com/news-releases/bubble-launches-online-embedded-insurance-for-housing-industry-in-the-wake-of-1-75m-in-funding-301459733.html
5. Majesco - https://www.majesco.com/white-papers/expanding-channels-for-insurance-a-spectrum-from-traditional-to-affinity-and-embedded/
6. Insurance Thought Leadership - https://www.insurancethoughtleadership.com/ecosystems/new-approach-embedded-insurance
7. Accenture - https://www.accenture.com/_acnmedia/PDF-164/Accenture-Strategy-Insurers-Go-All-In-Ecosystems-POV.pdf
8. Digital Insurance - https://www.dig-in.com/list/liberty-mutual-thinks-digitally-for-customers-claims-reporting
9. Insurance Research Council - https://www.prnewswire.com/news-releases/driver-telematics-programs-face-privacy-concerns-irc-study-finds-301690408.html