Embedded insurance, through which insurance products are distributed by non-insurance brands, could make significant inroads into both personal lines and small commercial insurance business, exceeding $70 billion in premium by 2030, according to a new report by Conning.
Unlocking the future: A deep dive into embedded insurance across key sectors
Embedded insurance has been widely hailed as a transformative trend in insurance distribution, making insurance far easier to understand and purchase while reducing the coverage gaps that currently leave consumers and small businesses underinsured in the face of many risks. Conning's report, "The Promise and Perils of Embedded Insurance," concludes that the benefits of this approach to insurance distribution have sometimes been exaggerated, but its impact could still be significant.
The report finds that multibillion-dollar investments in technology companies seeking to facilitate embedded insurance solutions have yet to result in a major shift of business towards embedded distribution, with the partial exception of extended warranty type products and some travel insurance. But there is major growth potential across the personal lines market and for standardized small business insurance coverage. The $179 billion personal auto insurance market could be ripe for disruption if manufacturers were to bring insurance in-house, as Tesla has been doing.
Conning explores two main scenarios for the future growth of the embedded insurance market. In the first, and most likely scenario, insurers and their non-insurance partners would continue to focus on maximizing the convenience of insurance purchases. The price of insurance would not materially change. It is this scenario that Conning sees as having the potential to support a $70 billion market by 2030. This would still be a noticeable slice of the total U.S. personal lines market, which was worth $362 billion in 2021.
In the second scenario, which Conning views as less likely, one or more non-insurance brands would leverage the expense savings that are possible through embedded distribution to grow the insurance market through aggressive price competition. If this succeeded the disruptive impact could be far greater, presenting major challenges for insurers employing more traditional distribution approaches.
The Conning report, "The Promise and Perils of Embedded Insurance," explores the implications of the further development of embedded insurance distribution for insurers, reinsurers, and brokers. It positions embedded insurance as a latecomer in the broader embedded finance revolution that has already shifted many of the functions historically performed by banks to non-financial platforms. The complexity of most insurance products has made a similar shift challenging in the insurance market, but significant talent and investment is now being devoted to the task.
