It is estimated that embedded insurance could be a Multi-Trillion Dollar market segment, are you ready to take advantage of the opportunity?

Embedded insurance is the bundling of insurance coverage or protection into the process of purchasing a product or service. In this scenario, the insurance is not sold separately as an add-on but included within the transaction. An example could be when you book an Uber ride, pick up an electric bike for a short journey, or even when you purchase your new pair of Nike trainers, you would have an insurance element already included as an intrinsic part of the transaction. 

Covid has proven that customers are comfortable making purchasing decisions online, even for large transactions such as cars removing the need to visit in-person showrooms. Typically, embedded insurance propositions are likely to be more like micro-insurance products where the volumes will be very high, but the individual premiums could be just a few pence. In that scenario, the cost of sale must be virtually zero and that means the transaction has to be automated and seamless. For instance, Flight delay cover may be embedded into the cost of a flight, the purchase of a bag of seeds for a farmer in a developing country may include crop failure cover due to drought or heavy rainfall. The number of bags they purchase would determine the likely coverage limits.

Because the products are likely to be simplified, you are not going to be able to ask the prospect any questions – underwriters will need to rely on 3^rd party data sources to determine the risk and set the pricing. If the data tells you that the Ryanair flight from Luton to Krakow regularly runs 30 minutes late you may want to trigger the claims process only if the delay is over an hour. Equally, rather than pay compensation would it be better to trigger an e-voucher on the passengers’ phone for a free coffee and sandwich, and if the delay is over 2 hours trigger a free pass into a VIP lounge? 

Equally, for smartphone damage incidents, the claims service could just as easily automatically send out an electronic voucher code that the policyholder could take to the nearest Timpsons to have their smartphone screen replaced. 

Embedded insurance is therefore going to be heavily reliant on an insurer’s ability to integrate technologies such as AI to augment underwriting, process automation tools to automate the ingesting of third-party data sets and rules engines that will determine under which conditions claims should be settled and at what levels. In most cases, claims settlement decisions will typically be made instantly without the policyholder even being aware they may have a pending claim. 

The opportunities for these new eco-systems based embedded insurance propositions is vast. From invoice insurance providing cover against a specific invoice being delayed or not being paid as soon as a new invoice is created on your Quickbooks or Xero accounting system, to journey-by-journey insurance being incorporated into subscription-based mobility offerings from the car manufacturers. 

Ant Group in China now offers over 2,000 customised and affordable life and non-life products from partnerships with 90+ insurance providers. The business is now the largest online insurer in China with over 500 million policyholders.

The consumer-facing brand will become less important. The consumer will not be comparing insurance products with other offerings, in the same way that no one compares the cost of the £250 policy excess cover that you get free for using Confused.com when purchasing your motor policy. The ability for an insurer to be able to handle claims seamlessly and ultra-efficiently without, in an ideal situation, speaking to the consumer, will be absolutely essential to be able to secure these types of partnership deals with product/service providers. They are going to be looking for ways to enhance their offerings and develop new revenue streams. 

According to some industry analysts embedded insurance in the P&C market alone could account for over $700 Billion in GWP by 2030, the majority of this will be won by insurers that have ‘digital at core’ operations and propositions.

How to prepare yourself for the embedded insurance opportunity:

1. Ensure you have a policy management platform that enables you to create simple, micro insurance type propositions
2. Make sure that the technical architecture is suitable for ingesting real-time, dynamically generated data from numerous sources
3. The claims process is likely to be instigated by a data driven trigger so ensure that your business automation rules engine is powerful and easily configurable by the business community to drive the claims settlement process
4. Your policy management and claims settlement platforms will need to be tightly integrated or ideally be the one and same platform
5. Products are likely to be driven by ‘product pilots’ who will be monitoring the product on dashboards fed by real-time data feeds and able to make minor corrective adjustments
6. Introduction of new mindsets – whilst the team will require input from experienced colleagues in the business, you are probably going to need to bring in people from other industries that better understand the market dynamics from their side – i.e., people from the motor, airline, or retail industries for example
7. Just as most insurer innovation functions have seen limited success because they are led by people from within the insurers business, these new propositions should be led by people with a different mind-set