Eight key moves to unlock the potential of embedded insurance
The rise of embedded insurance offers insurers plenty of opportunities to drive up revenues but it also threatens to overturn many traditional distribution channels. Insurers need to embrace eight important trends to capitalise on this critical shift in the insurance sector.
The rise of embedded insurance offers insurers plenty of opportunities to drive up revenues but it also threatens to overturn many traditional distribution channels. Insurers need to embrace eight important trends to capitalize on this critical shift in the insurance sector.
The digital revolution that’s sweeping the globe is opening a myriad of opportunities for insurers to boost revenues by delivering innovative services to their customers.
Embedded insurance is at the forefront of those opportunities. Revenues from insurance offerings embedded in third-party digital products could reach as much as US$3 trillion by 2030, according to Forrester Research. Embedded sales of property and casualty (P&C) insurance alone could total US$700 billion by then, adds Deloitte.
Embedded insurance is both an opportunity and a threat for industry incumbents. It offers them a welcome stream of fresh revenues to offset tepid growth in their traditional markets. But it will also overturn many of their established distribution channels. Deloitte estimates that as much as US$50 billion in premiums could shift away from such channels if just 20% of US personal auto market cover switches to embedded insurance by 2030.
For insurtech start-ups, big tech platforms and other newcomers, embedded insurance provides an ideal vehicle to edge their way into the insurance sector. But it’s a vehicle that’s likely to attract considerable attention from regulators and competitors. Furthermore, Forrester Research warns that half the providers of embedded insurance will likely struggle to convert consumer interest into sales.
How then can companies in the insurance industry best capitalize on the rise of embedded insurance?
Leaders from across the insurance industry identified eight trends that companies should embrace to ensure they seize the potential of embedded insurance. The industry leaders were speaking at an online event hosted by Qorus’ new Embedded Insurance Community and Allianz Partners.
1. Satisfy changing customer needs
Many buyers of insurance are no longer content with traditional cover. They’re looking for more security but also greater flexibility in their products. Embedded insurance meets these needs.
“The Covid pandemic had a huge impact on clients,” says Jean-Marc Pailhol, Chief Officer Global Strategic Partnerships at Allianz. People didn’t know if their travel or hotel bookings would be suddenly cancelled. Now they want more reassurance that they can get their money back if an event or service is cancelled, he says.
Pailhol points out that the conversion rate for travel insurance has doubled in the past six years. The ticketing industry too has seen an increase in the demand for insurance.
Consumers are also attracted to the convenience and simplicity of embedded insurance, says Markus Collet, partner at consulting firm Corporate Value Associates (CVA). A specialist in automobility, Collet points out that embedded insurance offers consumers greater choice and flexibility while also providing insurers with a broader range of channels to deliver their products.
2. Anticipate the shift to usage
Accelerating demand for embedded insurance is the shift among vendors in many industries from their traditional practice of selling products to instead selling the rights to use products for a specific time or purpose. This megatrend, which promotes usage rather than ownership, has already begun to disrupt the automotive industry as well as the leisure and travel sectors. Its influence will increase in the next five to 10 years.
Embedded insurance allows insurers to capitalise on the rise of usage-based services and provide flexible subscription services that offer customers simplicity, convenience and inclusive pricing.
“Embeddedness is good because it simplifies offerings for clients and also helps distributors build business models that are far more integrated,” says Collet.
3. Rethink the value chain
To capitalise on the growing demand for embedded insurance, providers will need to transform their value chains. Companies that try to tack embedded insurance offerings onto their current channels are unlikely to be successful. Insurers need to adapt their products, sales processes, pricing strategies and digital capabilities.
Amelia Bradley, associate partner at CVA, points out that the changing behaviour of asset values in the mobility sector has prompted a shift in how companies address their value chains.
“There’s an awful lot of value that customers get out of vehicles that goes beyond an OEM’s metal margin. But assets like EVs also behave differently. OEMs are adapting to these changes by trying to use EV assets longer, keeping them in fleets and controlling them during their second lifecycles,” she says.
4. Beef up digital resources
Digital platforms and ecosystems are essential for the rollout of successful embedded insurance strategies. Insurers will need to allocate resources to strengthen and adapt their technology infrastructures to support the launch of new embedded offerings.
The integration of embedded insurance products into digital platforms and ecosystems is often complex and challenging, warns Collet. And participants in the online event identified integration as the aspect of embedded insurance they wanted to learn about most.
5. Woo new partners
The rise of new and previously unlikely partnerships is a distinctive feature of the emergence of embedded insurance in the mobility sector. Examples include tie-ups between battery insurer Altelium and automotive products supplier GardX, insurtech Wrisk and Renault’s Bipi car subscription service, and Root Insurance and online vehicle retailer Carvana, notes Bradley.
Similar partnerships will be sealed in other industry sectors. Partnerships are an essential component of a successful embedded insurance strategy. They enable insurers to develop appealing products while also securing the skills and resources needed to deliver offerings across digital ecosystems.
6. Look beyond revenue
Successful embedded insurance offerings do more than simply increase revenues. They also help insurers establish closer relations with clients, deliver compelling customer experience and create opportunities to promote further services, says Toby Taupitz, CEO and co-founder of Laka. The UK-Netherlands insurtech provides embedded insurance to bicycle and ebike owners through retailers such as Decathlon, Riese & Müller and Sigma Sports.
“We are moving away from an income play for our partners to a service play where they can offer customers peace of mind,” says Taupitz.
Vikas Chhariya, CEO and founder of B2B insurance start-up Indeez, adds that providers of platform services should view spending on embedded insurance as a strategic investment rather than an operational cost.
Embedded benefits enhance the “trust currency” for users of such platforms and increase their value, says Chhariya.
Indeez delivers insurance cover to more than 500 000 users of platforms such as Malt and Mediflash.
7. Find an edge
Powerful digital technology resources and skills are not enough to deliver successful embedded insurance offerings. Companies also need an edge, a market niche, they can defend and grow by adding further services and partnerships to enhance the customer experience and create additional value, says Taupitz. This approach is especially important for start-ups in the insurance sector that don’t have the resources available to established providers.
Indeez, for example, targets three vertical markets which it believes offer the most potential for impact and growth - green mobility, financial services and the future of work. This focus allows Indeez to tailor its embedded insurance products to the specific needs of the platforms it serves and to provide value not only to its B2B clients but also to the people who use its insurance products,
8. Beware of the regulators
Regulatory challenges were identified by participants in the online event as the biggest barrier to the widespread adoption of embedded insurance. Regulatory requirements are not only complex but also vary across countries and regions. These constraints limit the development and marketing of embedded insurance products. Regulators will likely increase their influence on the emerging embedded insurance sector, says Allianz’s Pailhol.
Insurers will need to tread carefully to understand and comply with the often-changing regulatory requirements that not only affect embedded insurance products but also the platforms and partners through which they are delivered.
Embedded insurance undoubtedly holds great potential for insurers and their customers. But to unlock this potential, insurers will need to set a strategy that enables them to both seize new opportunities but also overcome many obstacles.
The Qorus Embedded Insurance Community, together with its partner Allianz, is hosting several in-person and online events to encourage the sharing of ideas and information about this fast-growing sector of the insurance industry.
Next on its agenda: 16 May “Cybersecurity – the role of the banks and insurance.”
For further information contact Jana Hola: jana.hola@qorusglobal.com
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