Embedded Insurance – New insurance arms race for digital land

Back in the day, an empire’s success was largely measured by how much land that they conquered. When it comes to embedded insurance, it’s largely the same, only digital.

First off, what is embedded insurance? A larger explanation is available here, however in general it’s insurance that is offered as part of another transaction in the moment of need, according to Insurance Thought Leadership (do you want fries with that?). Some examples include being offered event insurance as part of the venue rental agreement process or health benefits being offered as part of the an onboarding process for ride share drivers.

So what does embedded insurance have to do with past empires? Well the unfair advantage that embedded insurance offers the insurer is that once the insurer is included into the purchase path or product/service of another organization, it’s very hard to delink the two; especially once the end customer gets used to having it there. So the faster that an insurer can get its products embedded into third parties, the more ‘digital land’ it conquers giving it a huge advantage – End customers always see the embedded insurance offering first before being able to consider other insurance options.

When it comes to making embedded insurance a success there are four general requirements described below in order of importance:

• The insurance product must be digitized (quote, bind and issue)
• The insurance product must be short term or subscription based
• The price for coverage must be a fraction of the main product/service
• The target channel partners should be specific and grouped
• The insurance coverage should be mandatory in order to purchase the product/service

The Insurance Product Must Be Digitized (Quote, Bind and Issue)
In order to make embedded insurance work, the insurance product, at a minimum, must already be digitized. This includes the premium quoting process, the binding process of the coverage, and the issuance of the policy documents and certificates. If all three are not possible in real time, there will be a large drop off between those interested in the coverage and actually getting it. Of course, any risks outside of a company’s appetite can be prevented from being offered insurance all together (another reason digitizing is important).

The Insurance Product Must Be Short Term or Subscription Based
Because embedded insurance is an add on to another product or service, the policy premium that is presented must be palatable to the consumer. If an annual policy is the only option, the premium will likely be too high for a consumer to buy it on an impulse. By making it either short term or subscription based (that can be cancelled anytime), it allows the insurer to show a more palatable price, while giving the consumer assurances that they can back out anytime if they want. The key here is, get the customer up front and make them do the work of finding a better option (most never bother).

The price for coverage must be a fraction of the main product/service
Just like a soda is a fraction of the price of a hamburger, an embedded coverage option should be a fraction of the cost of the main product/service (10% or less) in order to be successful. It should feel like an impulse buy and the goal is to acquire the customer before they can go and price shop other products. For certain products this also relieves the user from additional work for something that already requires a high amount of time and commitment; car purchase, home purchase, moving, weddings, etc.

The Target Channel Partners Should Be Specific and Grouped
As the battle for ‘digital land’ heats up, it is important to properly define the channel targets. A spray and pray approach will resulted in wasted effort and costs. In general, the most ‘fruitful land’ should be targeted first. This includes established players with a high user base (i.e. Expedia and travel insurance). This will result in an immediate ROI. Alongside this, the targets should be grouped for commonalities (e.g. Expedia, Priceline, Orbitz, etc.) as the marginal effort to bring on the next partner will be minimal since the heavy lifting will be done with the first. This in turn makes conquering similar ‘land’ a lot more efficient.

The Insurance Coverage Should Be Mandatory In Order To Purchase The Product/Service
By targeting products/services that require insurance, it not only increases the success rate, but also solves a real pain point for both the consumer and the vendor. There is nothing more annoying than having to go get insurance after you are ready to commit to a product/service. By embedding insurance into the purchase process, not only can the consumer get coverage at the same time, it reduces the drop off rate for the vendor as well.

As insurance products become more technologically enabled, it also enables more embedded opportunities. Many insurers are starting to realize this, which has triggered the next arms race in the insurance industry; the arms race for ‘digital land’.

Interested in learning more about on demand insurance?

Or maybe how insurance for snow removal contractors works?

Some Facts About Embedded Insurance

According to Cover Genius, 45% of US customers are interested in bank-embedded insurance offers. Strikingly, globally the average is even higher, reaching 70%.

According to Momentive.ai, over two-thirds (67%) of Canadian digital bank customers reported being highly interested in receiving embedded insurance offers based on their transaction data, as would 57% of traditional bank customers.

Embedded insurance products enjoy a distribution advantage because they can be purchased where customers are, and with brands they trust. They can become features of a product rather than something that is separately bought.

According to Majesco, forty percent of insurance is going to be embedded over the next 10 to 20 years.

There are three different ways to embed insurance.
1. Soft embed – Users opt-in as part of a larger service or purchase process
2. Hard embed – Where insurance is included automatically as part of a product or service
3. Behind the scenes – Insurance that is automatically triggered by data or an event, like a phone being dropped or a car engine starting

According to InsTech London, the embedded insurance market is forecast to grow to $722bn in GWP by 2030 – more than six times its current size. This growth will largely be driven by China and North America, which together will account for over two-thirds of the global market by 2030.