The State of Embedded Insurance 2022
Embedded insurance provides coverage at the point of sale for items that require coverage. From warranties on consumer electronics to full-fledged auto policies, embedded insurance is rapidly becoming commonplace.
Here’s where embedded insurance stands in 2022 and what to expect in the coming years.
The Origins of Embedded Insurance
Traditionally, an insurance purchase was a separate transaction from a house, vehicle or other purchase. A customer would buy a new home, a car or another item, and only afterward would search for coverage for their new purchase. Even when the insurance purchase was a condition of the original transaction, it was carried out separately.
The rise of digital purchasing made it possible to bring these two transactions together. Today, embedded insurance integrates the purchase of coverage with the purchase of the item to be covered.
For example, an online computer store might include an extended warranty as part of the purchase price of an item or as an add-on available at checkout. A customer might buy a new car with the option to buy an auto insurance policy at the same time. Or a ride-share app might include contractor insurance coverage as part of the terms of signup.
Sharing business is not a new concept for insurers. Many have partnered with one another to give customers necessary coverage while ensuring that underwriting of each risk is done by an insurer who specializes in that risk. Embedded insurance uses technology to go one step further, offering insurance through retailers, car companies and other non-insurance or non-finance businesses, writes Melbourne O’Banion, cofounder and CEO at digital life insurance platform Bestow.
Through the use of technology, “embedded insurance enables any third-party provider/developer to integrate innovative insurance products into its customers’ purchase journeys seamlessly, rapidly and at a low cost,” writes Gabriel Lazaro, senior vice president and head of digital for Chubb Overseas General.
The ability to access insurance coverage at the point of sale makes insurance frictionless for customers, boosting their satisfaction as well as protecting them from risk. It increases insurers’ ability to connect with customers, and helps to close the gap between the coverage customers need and the coverage they have.
Adoption of Embedded Insurance in 2022
The COVID-19 pandemic continues to drive customer interest in health, safety and protection. As customers become more engaged with their own safety, they are also becoming more interested in insurance.
“Following the COVID-19 pandemic, global markets were severely altered, and customer concerns of unprotected risks grew even bigger,” says Noam Shapira, is cofounder and president at Pattern Insurance Services who provide embedded insurance.
Today, embedded insurance comes in various forms, writes Denise Garth, chief strategy officer at Majesco, a software partner to P&C and L&A insurance markets. These include:
- Soft embedded insurance, where the customer opts in to the coverage during the purchase, by agreeing, for instance, to buy an extended warranty to cover an appliance.
- Hard embedded insurance, which is opt-out coverage. An example is when a ride-share driver decides not to be covered by the company’s umbrella policy.
- Invisible embedded insurance, included automatically in the purchase price and integrated with the item, such as an auto policy that is part of buying a new vehicle.
Each of these forms of embedded insurance can be tailored for use in specific settings. All three offer the benefits of embedded insurance generally. These include the ability to deliver personalized policies in a frictionless way and to gather data that helps insurers better understand customer risk and behavior, writes Barbara Peterfi at SaaS company Innoveo.
Embedded insurance provides benefits for insurers, business partners and customers. “Embedded insurance offers insurance when the risk is top of mind for the buyer. And it brings insurers closer to the underlying risks,” writes Jessica Bartos, an investor at Salesforce Ventures. Business partners benefit from improved customer relations and their connections with insurers, as well as increased quality of the customer journey and customer regard.
Yet embedded insurance also comes with challenges, particularly in an era of rapid digital disruption.
Insurers who embrace embedded insurance need to commit to continuous development of the digital architecture used in embedding insurance, like API integration and mediation. “The technology must be able to scale internationally in regard to performance, reliability and compliance,” writes Martin Thormahlen, lead architect, digital business models at Munich Re.
Many insurers and business partners seem excited to embrace these challenges. “Everybody wants to embed insurance into whatever customer journeys that might exist,” says Vikram Sidhu, a partner at law firm Clyde & Co.
Both insurance companies and non-insurance businesses like retailers and automakers are interested in the opportunities that embedded insurance provides. As a result, embedded insurance is likely to continue gaining momentum in the coming years.
Imagining the Future of Embedded Insurance
One of the biggest promises embedded insurance offers is the ability to address a growing insurance coverage gap.
The insurance protection gap — the difference between the coverage customers need and the coverage customers actually have — doubled between 2000 and 2020, writes Simon Torrance, founder of Embedded Finance & Super App Strategies.
The gap is particularly concerning in emerging economies, where fewer than 10 percent of risks are insured, says Thomas Holzheu, chief economist Americas at the Swiss Re Institute. Embedded insurance reduces a number of difficulties in distributing insurance in a wide range of economic circumstances.
As technology continues to improve, embedded insurance also promises to become more seamless not only in distribution, but also in claims handling. ZhongAn embedded phone insurance, for example, uses the phone’s internal sensors to spot issues. “Before you pick up your dropped phone with a cracked screen, the embedded policy will have been triggered by internal sensors and a new phone will be on its way. No messy claims or repair estimates needed,” writes Cathay Innovation partner Alex Lazarow.
Embedded insurance even has the power to change how customers feel about insurance generally, predicts Noorjit Sidhu, principal at investment and technology transformation firm SaxeCap. As coverage becomes a natural part of purchasing houses, cars and other items, customers will begin to feel its loss when it is not included. Part of recognizing that loss is recognizing the value that insurance coverage adds. Instead of becoming an obligation, insurance becomes a value.
“Many clients no longer perceive value in traditional long-term policies, where the price stays fixed regardless of when or how they use it. For customers like these, embedded insurance seems much fairer because it is targeting the customization they are looking for,” writes Joan Cusco, global head of transformation at MAPFRE Insurance. Customers see embedded insurance as related to other forms of coverage they find more fair, like pay-as-you-drive coverage for vehicles. Its association with these tailored forms of coverage gives embedded insurance a boost in customer regard, which is likely to further its growth in coming years.
Embedded insurance provides convenience for customers. It gives insurers the chance to build a customer relationship at the precise moment the customer needs an insurer’s help. Its frictionless approach heralds a world where customers have the coverage they need and insurers build stronger, longer-lasting customer relationships. As a result, embedded insurance is likely to continue growing in the coming years.
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