7 September 2022

Embedded Insurance Beyond 2022: Where Do We Stand? Where Are We Headed?

In June 2021, InsTech London reported a number that turned heads in our industry: $722 billion.

That’s the projected value of the global embedded insurance market by the end of this decade, roughly a six-fold increase over where we are now. That’s enormous growth for a market, both objectively and relatively.

But outside of certain insurance industry circles, few people are talking about this opportunity. Embedded insurance still lacks the coverage it deserves.

That’s likely because most people have yet to grasp its potential. Embedded insurance is still viewed through a narrow lens, as a simple product like travel insurance, for example. And, yes, that’s absolutely a use case, but that isn’t what’s driving hundreds of billions of dollars in growth through 2030.

Embedded insurance is going to be a driver of financial inclusion for billions of people around the world. It’s going to facilitate layers of new connections between customers and insurers. That’s how we get to $722 billion.

Below is a sketch of the roadmap.

Where Embedded Insurance Stands Today

The promise of embedded insurance is that it will bring the right coverage to the right person at the right time. Achieving this means creating many new connections across a complicated ecosystem of insurers, distribution partners and customers.

A Capgemini report from March 2022 notes how some insurers are using mergers and acquisitions to strengthen those connections. Others are focused on building relationships with insurtechs and non-insurance partners through the use of APIs and digital platforms.

“Embedded insurance is still in its early stages and we’re all primarily working in unchartered territory, but the good news is we don’t have to do it alone,” bolttech Group CEO Rob Schimek tells David Schapiro at Planck. “Working with industry players and even bringing in distributors from outside the industry, collaborative partnerships can create new distribution models for an old industry.”

That promise has captured the attention of non-insurance businesses as well as insurers. “For banks, vehicle manufacturers and other partners, adding insurance products to their ecosystems can increase revenue and improve value propositions, resulting in a win-win for insurers and distributors,” writes Martin Spit at EY.

Step by step, insurers, other businesses and their customers are beginning to realize the benefits that embedded insurance can offer them. As more and more people experience these “aha!” moments, more and more connections will get made.

Then, the real growth will kick in.

The Drivers of Growth in Embedded Insurance

Noam Shapira, cofounder and president of Pattern Insurance, writes that the embedded insurance model will compel certain changes. “It requires a different way of selling, innovative new products and a closer relationship with the business providing the insurance,” Shapira says.

In line with Shapira’s predictions, we see three patterns emerging that will shape the growth of embedded insurance:

Seamless customer experiences. Customers who have to buy insurance separately from the item to be insured often find the experience cumbersome. By integrating the insurance purchase into the larger purchasing journey, businesses smooth over a step that previously caused their customers frustration.
Individual-level personalization. Insurance has long tailored its products to groups, based on shared characteristics and risk levels. That’s changing as individual customers get more choice in their coverage options. What’s more, as networks of smart sensors and services grow, so will opportunities for personalization. Think about connected home technologies and how they can monitor what devices people use and when. This capability lays the groundwork for smart parametric insurance and outcome-focused policies that can be tailored to individual households.
Better balance in risk portfolios. Insurers can control the coverage they offer in real time via embedded insurance platforms. As a result, insurers can better plan their exposure levels and adjust prices, coverage and information accordingly.

Opportunities for Scale and Financial Inclusion

Ultimately, embedded insurance will help close protection gaps for billions of customers.

For example, first-time home buyers and first-time car buyers all over the world typically have some kind of way to insure their purchases. But they have to go somewhere else to buy that insurance product — another website, another office, somewhere else. That insurance offer isn’t there at the point of need.

Further, many other people simply lack access to insurance coverage. Senior catastrophe data analyst Lucia Bevere and fellow researchers at Swiss Re found that in 2020 the global insurance protection gap for “health, mortality and natural catastrophe risk” increased 6.3 percent, leaving $1.4 trillion in risk unnecessarily exposed.

Of these, natural catastrophes posed the biggest threat. Only 24 percent of natural catastrophe risk was covered by insurance in 2020, “indicating that 76 percent of all associated protection needs across the world are uninsured,” according to the Swiss Re team.

Embedded insurance is about to extend coverage options to new customers around the world. It is bringing together new distribution partners, many of whom are newly connected thanks to rapid advancements in digital inclusion since the pandemic, to provide new distribution models and reach to people who have for too long been unnecessarily exposed to risk.

Where Are We Headed?

Realizing a future for embedded insurance poses challenges. Insurers currently face competition for customers, and competitive pressures are increasing, write Arun Arora, et al. at McKinsey.

“Embedded insurance means abstracting insurance functionality into technology to enable any third-party product or service provider or developer in any sector to seamlessly integrate innovative insurance solutions into their customer propositions and experiences,” notes Simon Torrance. Customers who encounter embedded coverage may associate that coverage with the manufacturer or distributor of their purchased item, not the insurer.

To keep customers’ attention, insurers may need to do more than merely build ecosystem relationships and provide embedded coverage. They may also need to refocus their marketing and communications efforts toward ensuring that customers know who is providing their convenient, personalized insurance experience.

Fortunately, communicating involvement in the process doesn’t need to disrupt customers’ expectations or cause dissatisfaction. “Consumers expect a seamless, digitally enhanced experience across multiple access points and channels,” write Simon Kaesler, Michael Krause and Johannes-Tobias Lorenz at McKinsey. They also expect transparency. When these two factors are integrated, knowing their insurer may make customers more willing to engage with embedded coverage rather than less.

The Road Ahead

To get the right coverage to the right person at the right time — and in a way that is seamless and convenient — the global insurance sector needs to connect and align billions of moving parts. It’s no small task.

The way forward is through deeper data insights, greater personalization and partnerships to accelerate the industry’s ability to respond. The more insurers can know about their customers, the better the options available to those customers. This is true no matter where in the world that person is, and no matter how financially excluded that person was in the past.

Insurers have the tools they need to understand the needs of their customers and the challenges their distribution partners face.

Now, they must imagine how those collaborative relationships can come together to expand insurance distribution and ensure more people around the world get access to the protection they need.

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