Payset prespective
March 22, 2024

What Is Embedded Insurance?

Embedded insurance refers to insurance that is bundled into the purchase of a product or service. For example, including the option to purchase travel insurance as part of the sale of a plane ticket.

How does embedded insurance differ from traditional insurance distribution?

Unlike traditional insurance models, where consumers purchase insurance policies separately, embedded insurance is a digital insurance solution and expands insurance distribution by bundling insurance directly into the products or services. It eliminates the need to shop for insurance separately after a purchase.

What are the benefits of embedded insurance for businesses and customers?

For Businesses:

Revenue Growth: Including embedded insurance increases revenue in several ways. First, it increases the value proposition of the product or service, making it more attractive to customers. This can increase sales even if customers don’t opt into the insurance option. Embedded insurance also diversifies revenue streams: when customers do include insurance with their purchase the insurance company shares that revenue with the business that made the sale.

Customer Retention: Embedded insurance enhances the overall optics of a product or service. A customer’s loyalty is more likely when they perceive the added benefits of having coverage integrated into the product or service they are buying.

Cross-Selling Opportunities: There are many opportunities for a business offering embedded insurance to cross-sell. Once a customer has engaged with the primary product or service, the business can promote additional insurance products or enhancements. For example, a car dealership with embedded auto insurance can cross-sell extended warranty plans, roadside assistance, or gap insurance.

Data and Analytics: Customer data can be viewed through embedded insurance policies, which can provide valuable insights and analytics. This can help businesses better understand customers’ needs and preferences. A business can refine its marketing strategies and product offerings by analyzing this data. These insights can also help anticipate customer needs.

Market Differentiation: Offering insurance with a sale can help a business stand out by adding value and uniqueness to its products or services. Embedded insurance allows a company to distinguish itself from competitors and create customer loyalty.

For Customers:

Convenience: When insurance is included in a purchase, a client does not have to seek out a policy somewhere else, saving them time and effort. The integration of insurance within the primary transaction streamlines the process, providing coverage without the need for extensive research or additional purchases.

Improved Coverage: Through embedded insurance, a consumer can access coverage that may not be possible with a traditional policy. This is because the coverage they receive with embedded insurance is created specifically for use with the primary product or service. The specificity of the plan ensures that consumers receive comprehensive coverage that aligns with their requirements, reducing the risk of gaps in coverage.

Cost Savings: The policies offered with embedded insurance are routinely the most affordable option compared to separate policies, resulting in quality coverage for the customer while also saving money.

Peace of Mind: The option to include insurance with a purchase can be attractive to a consumer because of the peace of mind it affords them. With their purchase, the consumer knows they have protection if something unexpected happens, providing a sense of security. This is especially true for consumers who would not typically buy a separate policy or might not be able to afford one.

Personalization: Embedded insurance is a digital insurance solution, which means that the coverage is offered in a space where vendors can respond to changing market demands quickly and provide policy options with ease, making it possible for the consumer to choose what coverage is best for them. In addition, the data and analytics available in the digital landscape allow insurance offerings unique to the characteristics and needs of a specific consumer, allowing them to fully leverage the benefits and value of the coverage.

Technology and Implementation

Insurance-as-a-Service (IaaS) is a cloud-based platform that provides insurance services as a software model. It leverages various technologies to make the integration of insurance solutions with other products or services possible. The most common examples are Application Programming Interfaces (APIs). Cloud solutions, AI, and Machine Learning are also utilized. These technologies are used to blend into a consumer’s digital journey, seamlessly adding coverage options to a web- or app-based purchase pathway. APIs are used to communicate with insurance companies to find coverage for a customer, while AI is used for immediate data analysis that can provide a risk assessment and customizable options for the customer.  This analysis can be accessed through cloud technology where companies can store massive amounts of data.

There are a variety of considerations when integrating embedded insurance into business models:

Market Research and Analysis: A company must identify its target market and understand its customer’s insurance needs.  Competitor offerings must also be analyzed to assess market opportunities.

Identify Suitable Insurance Partners: Research and partner with insurance companies that offer relevant insurance products aligned with your business model and client needs.

Product Integration Planning: Determine which products or services can be enhanced by embedded insurance and assess how insurance can add value and improve the customer experience.

Technology Integration: Invest in the necessary technological infrastructure to seamlessly blend insurance offerings into your business model. This involves API integrations into the business platform and web or app platform enhancements.

Regulatory Compliance: Ensure compliance with insurance regulations and licensing in relevant jurisdictions.

Monitor and Optimize: Continuously monitor the performance of embedded insurance and use data analytics to identify areas for improvement to optimize insurance products and processes.

Market Potential and Growth

The market potential of embedded insurance is significant and its value is expected to increase substantially in the near future. In just two years, its value has increased from 63.1 billion in 2022 to 156.06 billion in 2024 and it is expected to grow to 703.44 billion by 2029. Some analysts estimate that in the next 4 years, more than 30% of all insurance transactions will be processed through embedded insurance.

The synthesis of insurance with the shift to a digital ecosystem has meant that more people have been able to purchase coverage, helping to close the insurance protection gap. In general consumer expectations and needs have become more associated with the digital realm. Younger generations are digital natives and naturally turn to online platforms when considering purchases, which exposes them to the concept and possibility of being insured.  Older generations too are doing more online, increasing the chance that they will encounter embedded insurance in the purchasing process. People in the past, who would not have chosen to seek out insurance or were unaware of its benefits are now able to engage with an insurance option as it is presented to them where they spend their time online. Due to its convenience and integration into popular products and platforms, awareness of the benefits of embedded insurance has expanded, as has engagement by those who are already insured but are interested in new insurance solutions.

Challenges and Considerations:

The advent of embedded insurance brings opportunities for both businesses and consumers but there are also challenges in selling embedded insurance that have to do with regulations and compliance. Every region has different regulations so compliance will differ depending on where the insurance is being sold. However, all regions must grapple with the same kinds of issues: licensing and authorization, product approval, disclosure requirements, data privacy, and security. A company that wants to offer embedded insurance on its platform must obtain a distribution licence. However, there are questions about what it means to “distribute” insurance. 

In Europe, “insurance distribution is any activity around advising proposing, or preparing an insurance policy”. Through consultation and assessment, a business can decide if their activity fits that definition or not. 

There are also disclosure and transparency regulations with embedded insurance. A company has to provide clear and transparent disclosures about coverage details, terms and conditions, pricing, and any potential conflicts of interest.

Data and analytics are strong tools for embedded insurance providers. Collecting relevant data allows a provider to offer the best possible policy to a consumer. But, collecting and using this data must be done in compliance with data protection regulations such as the General Data Protection Regulation (GDPR). Businesses must ensure data privacy and security measures are in place to protect customer information.

To ensure compliance, it is important for strategic partnerships between insurers and businesses. Insurers are well-versed in the regulations of the industry and can help a business navigate compliance requirements.  Insurers are also vital in helping create policies that can be linked to a product or service. They bring specialized expertise in underwriting, risk assessment, and claims management, ensuring the quality and reliability of embedded insurance products. Collaborating with insurers enables businesses to develop customized insurance solutions tailored to their products or services. Additionally, insurers help mitigate risks associated with offering insurance, providing financial protection and risk management strategies. Overall, strategic partnerships between insurers and businesses are essential for optimizing the effectiveness and success of embedded insurance initiatives.

What Types of Insurance Can Be Offered Through Embedded Insurance:

Many types of insurance can be offered through embedded insurance. These include extended warranty, travel insurance, device protection plans, auto insurance, home warranty, pet insurance, credit insurance, event insurance, health insurance, and rental insurance.

One company that integrated insurance on their platform with great success is Revolut, a UK fintech whose app offers financial services to users. In 2017 Revolut partnered with Simplesurance to offer device insurance embedded in their banking app. 

The success of including this additional service led to Revolut expanding its insurance offerings. In 2020 the company partnered with Qover when it was redoing its subscription plans. The partnership allowed Revolut to provide insurance offerings for a variety of life events and products, including travel insurance, purchase protection, gadget insurance, pet insurance, home insurance, income protection, and more. 

Expanding its platform to include embedded insurance helped Revolut in several ways. It increased its revenue streams and enhanced customer value by allowing it to provide a more comprehensive financial service and meet various financial needs in one place, which led to a competitive advantage over fintech companies that do not offer such products.

Another company that successfully incorporated embedded insurance in its business model is JetBlue. By partnering with insurance company Allianz, JetBlue was able to offer on-demand travel insurance when a customer books a flight through their app. Policies could include coverage for trip cancellations, trip interruptions, baggage loss, and medical emergencies. 

This expanded service was beneficial for the company. The peace of mind that insurance brought customers led to higher customer satisfaction and loyalty. It also increased JetBlue’s revenue by offering insurance options during bookings. Having customers who were insured also helped mitigate the risks of travel disruptions.

The Future of Embedded Insurance

The future includes increased adoption of embedded insurance. It will become prevalent in various industries, including retail, healthcare, and transportation as partnerships between insurers and non-insurance companies continue. The market will also expand from its current attention on consumer goods to all industries, including business processes, such as logistics and warehousing. As it grows, personalization and customization will continue to get more specific. AI and Machine Learning technologies will progress and their analytic powers will advance personalized coverage and pricing. Knowledge of the importance of insurance will continue to grow as consumers become familiar with on-demand insurance. This will lead to the insurance protection gap continuing to shrink.

Conclusion

Embedded insurance is an exciting development in digital insurance solutions that benefits both businesses and customers. It has streamlined insurance distribution, making the possibility of including insurance with a purchase commonplace for consumers. The proliferation of easy-to-obtain on-demand insurance has expanded an understanding of the value of insurance to younger generations as well as helped with the problem of the underinsured. And those who have traditional coverage now have a new way to engage with new insurance solutions. 

Companies that choose to integrate insurance into their platforms can enjoy new ways to increase revenue streams through their insurance offerings and cross-selling opportunities as well as increase their chance of standing out in the market and encourage customer loyalty. The insurance industry now has a new and more efficient way to reach customers and provide them with highly personalized coverage, ensuring that consumers obtain the best possible policy for them at a competitive price. The possibilities insurers have to offer specific plans and reach more people will continue to grow as technology advances and embedded insurance expands into other industries.

Related Questions

What Is Embedded Insurance?

Embedded insurance is a progression in insurance distribution that was developed to reach people in the digital age. Integrating insurance onto digital platforms makes it possible to include insurance at the time of purchase, like when a protection plan is offered with a new phone. By utilizing new technologies such as AI, data can be analyzed, facilitating real-time risk assessments and consumer needs, making the plans offered in real-time personalized and specific to each particular customer.

 

How Does Embedded Insurance Work? 

Through the distribution model of embedded insurance, insurance products and services are integrated into non-insurance platforms, such as e-commerce, ridesharing, and travel booking.  These sites are where a consumer will encounter the insurance options that are offered. After purchasing coverage, the insurance company will handle underwriting, risk assessment, and claims processing, but both the original business and the insurance company provide customer support and assistance with policy questions or claims.

What Are the Benefits of Embedded Insurance for Consumers? 

The premiere benefit of embedded insurance for a consumer is convenience. Previously, the only way to obtain coverage was to seek it out separately which required time and dedication. Now, a consumer can include a personalized policy at the time of purchase. No additional research or shopping is necessary. As well, based on their individual circumstances and preferences, consumers can specify what they need and insurers can provide options that are tailored for each customer. On-demand flexible coverage options can be made available and consumers can choose from a range of add-ons, coverage levels, and deductibles to suit their budget and risk tolerance. These plans include personalized quoting based on their coverage selections, which are often the best prices available.

How Can Businesses Implement Embedded Insurance? 

1. Identify Target Customers and Insurance Needs:

Determine the specific customer segments and their insurance requirements.

Conduct market research and analyze industry trends.

2. Partner with an Insurance Carrier:

Establish a partnership with a reputable insurance carrier that specializes in embedded insurance. Negotiate terms, including coverage, pricing, and distribution channels.

3. Integrate Insurance into Products or Services:

Seamlessly integrate insurance into the existing customer journey.

Offer insurance as an optional add-on or bundled with the primary product or service.

4. Develop a Distribution Strategy:

Determine the most effective channels for distributing embedded insurance.

Consider online platforms, mobile apps, or point-of-sale integrations.

5. Set Up a Claims Management Process:

Establish a clear and efficient claims process. Provide customers with easy access to file and track claims.

6. Market and Promote Embedded Insurance:

Create marketing campaigns to educate customers about the benefits of embedded insurance. Highlight the convenience, value, and peace of mind it provides.

What Challenges Do Companies Face When Offering Embedded Insurance? 

Adding embedded insurance to a business can be beneficial but there are challenges to consider when providing insurance products. Insurance distribution has a variety of regulations that must be complied with, including licensing, solvency, and consumer protection requirements. Regulations demand that companies ensure customer data they collect is handled securely and that privacy is protected. 

As well, if a company is offering embedded insurance across multiple jurisdictions, it must navigate different regulatory frameworks and obtain the necessary licenses. It is up to the business to make sure they are taking the necessary steps to ensure they are offering insurance legally.  

Finding the right partners is an important step in helping a business navigate regulatory hurdles and ensure compliance. An insurance partner well-versed in the regulations and methods of compliance is key to offering insurance products. This partnership is also providing the coverage a business will offer on their platform so it is important to partner with a reputable insurer that aligns with the business’s goals and values. 

A partnership also requires negotiation of terms so that revenue sharing, risk location, and service level agreements are all understood with clear exceptions of roles and responsibilities.

There are also technological challenges to adding embedded insurance to a business. A company’s website and app must be overhauled so that embedded insurance solutions are seamlessly integrated with the business’s systems. In addition, a company needs significant data analytics capabilities and cybersecurity to protect the data that is collected. Again choosing the right partner is paramount to successfully meeting the technology challenges of offering embedded insurance.

What Are Some Real-World Examples of Embedded Insurance? 

There are many examples of companies successfully using embedded insurance to increase the value of their product and the customer experience.

Both Uber and Lyft have partnered with insurers providing coverage for drivers and passengers in case of accidents. In 2013 Uber partnered with AXA to offer ride-sharing insurance. The insurance covers drivers and passengers and helped Uber expand its services.

Amazon launched “Purchase Protection” insurance in 2016 through a partnership with AIG. The insurance covers items purchased on Amazon against damage, loss, and theft. This protection has increased customer satisfaction and trust in the company.

Airbnb introduced “Host Protection Insurance” in 2014 after partnering with Lloyd’s. The insurance covers costs for property damage and liability claims. This embedded insurance provides hosts with financial protection and peace of mind when renting out their properties.

How Will Embedded Insurance Evolve in the Future?

There are many possibilities for embedded insurance as the industry grows and technology evolves. Embedded insurance will extend beyond its current sectors covering more types of goods and services. As technology advances policies will become more and more personalized. This will lead to even more accurate pricing and coverage to meet specific needs. 

The proliferation of embedded insurance as an integral part of digital platforms will make purchasing insurance commonplace and will help close the insurance protection gap.

Embedded insurance is poised for significant growth and transformation in the future. It will revolutionize insurance distribution and continue enhancing customer experience, reducing cost and driving innovation. Tech companies will play a pivotal role in this evolution by enabling seamless integration, data sharing, and advanced analytics.

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