Embedded insurance: Brands and consumer demand is behind the next shift in insurance
Embedded insurance introduction
The insurance industry is on the precipice of a major transition. Today’s end customers want ease and convenience and a user experience that matches the likes of buying a phone or car. Brands want to be able to offer specialist insurance to their customers and they hold the customer data to make it possible. In 2021, 5 percent of all insurtech investments went into the embedded insurance model, according to the 2022 Embedded Insurance Peer Group Report. For insurers, now is the time to pivot to an embedded insurance model.
What is Embedded Insurance?
Crucially, this insurance is embedded and integrated at the point of sale of a good or service. Travel insurance can be sold next to holidays, driving insurance next to cars, and so on. Embedded insurance not only offers convenience and choice for customers, but it also provides rich and valuable data for insurers and partners.
Embedded insurance is complementary to, but different from, current affinity and partnership programs in a number of ways:
What is Embedded Insurance?
Purpose: The focus of embedded insurance is on enabling brands and their customers to access a broader set of diverse and customised solutions to problems, rather than on distributing existing risk transfer products from a single supplier.
Technology: Embedded insurance exploits a new type of infrastructure - ‘Operating Systems’ that can aggregate demand and orchestrate supply from multiple parties.
Skills: To be successful, it requires new capabilities in digital sales and marketing, data science, open platform development, as well as digital underwriting.
Monetisation: Embedded insurance combines Software-as-a-Service fees with recurring GWP and AuM revenue share.
Embedded insurance in action
First, let’s take a look at embedded insurance in action. Goboony, a peer-to-peer rental platform for motorhomes was seeking a solution. They knew their customers wanted to rent out their vehicles to offset the costs of owning a motorhome. They also knew most motorhomes were unused for 48 weeks a year.
But to make it possible, pay-by-the-day insurance was essential. Yet it didn’t exist, causing Goboony to search for two years to find a solution. As the platform was the first-of-its-kind, no historic data existed for underwriters. The insurance also had to be a seamless part of its end-to-end customer experience. It had to be cheap, easy to access, with no separate payment streams and no paper documents. And it required simple, fair and transparent claims, for multiple stakeholders.
At iptiQ our B2B2C business model built entirely around partnerships and we found a way to close the rental protection gap for this Goboony. We provided a full stack ‘white labelled’ embedded insurance service to the mobility platform. Insurance is now available immediately through the platform as part of a friction-free customer experience. It has also resulted in 100-200% annual revenue growth for itself and immediately raised the average order value for the platform by 20%.
Discover more about how we have enabled Goboony´s customers to purchase a pay-by-the-day car insurance when renting a motorhome.
The trends driving the emergence of Embedded Insurance
This is not an isolated example. End customers continue to demand better customer experiences and brands are looking at innovative ways to plug protection gaps. The technology is there to do it too.
Customer needs
There are several factors driving interest and demand from customers.
Consumers consider point of sale protection, when they know the items they buy are protected immediately after the purchase.
Consumers are increasingly looking at holistic bubbles requiring dynamic coverage for different areas of their lives such as auto, homes, health, travel and more.
Budget-conscious consumers
People are also more aware of the value of their personal data and expect more in return for sharing it.
Budget-conscious consumers require simple, understandable policies that are affordable and available via intuitive digital experiences.
In many industries there are ever widening protection gaps between what individuals and businesses have, and the need for financial wellness and resilience. This is being exacerbated by changes in demographics, working patterns, climate and other new and more severe risks facing individuals.
Brands
Brands themselves are already digitising their existing business models and are seeing the potential to use digital financial services to improve the value to their customers and also their own profitability.
At iptiQ, we have helped one of Europe's biggest car dealers, Emil Frey, to create a digital insurance solution that is fully integrated into its digital sales and mobility platform. It can is offered to customers in Switzerland in a flexible and simple manner when purchasing and servicing cars.
Similarly, we created a home insurance offering for IKEA which provides easily accessible protection at an affordable price. It can be purchased online via the IKEA website in a matter of minutes, extending home insurance to more people and increasing their financial resilience.
Technology
The technology to create embedded insurance solutions is there too. Financial service capabilities and components can now be modularised and abstracted into software formats, so they can be accessed and creatively re-configured by third-party developers and non-financial product managers, quickly and cost-effectively.
As every sector becomes tech enabled, those insurers who learn to efficiently respond to the need of brands and their customers in these environments will be best placed to generate new growth and value.
Creating digital trust in the ecosystem
A crucial advantage of embedded insurance is that it can help drive digital trust in a wider ecosystem. For example, a data sharing package of services can potentially increase consumer trust and willingness to share their data. Take the example of a holistic health package including gym membership, heath care services, health insurance and life insurance. Consumers will be able to see the value in sharing their data and what it can mean in terms of a tailored package that is suited to their needs. Similar packages could also be extended in the realm of driving and property insurance too.
Creating trust in the ecosystem
The challenge of making this work is that various components of the ecosystem have been developed with heavily segregated data channels that may not talk to each other. Effective collaboration between insurers and brands on their embedded insurance offering can be the first step to creating these trusted customer-first ecosystems.
Download Embedded Insurance Peer Group Report
To discover more about embedded insurance and the opportunity in the industry, download the Embedded Insurance Peer Group Report: How and why insurers should increase investment in Embedded Insurance 2.0.