Embedded insurance is a concept that seamlessly integrates insurance products or coverage options into non-insurance services or products. Imagine renting a car and being offered liability protection right at the counter or securing a loan and having the option of credit protection insurance presented to you. Even when purchasing a new mobile device or home appliance, there's often an opportunity to extend the warranty. There’s also the option of getting travel insurance for peace of mind during your next vacation. This integration means that risk protection is offered right at the point of sale, eliminating the need for consumers to make a separate trip to an insurer. It's all about convenience and immediacy.
While the idea of embedded insurance isn't novel, its prominence has surged in recent years due to technological advancements, changing consumer expectations, and the pursuit of more innovative business models.
In this blog post, we'll delve deeper into the factors driving this renewed interest and the potential implications for both businesses and consumers.
Partnerships between insurance companies and businesses from different industries, such as retail, technology, and automotive, are becoming increasingly common. This trend is gaining momentum as embedding risk coverage not only provides additional revenue streams but also allows companies to offer more comprehensive products or services, which can increase customer loyalty. For example, Amazon offers protection insurance, while Tesla provides behavior-based vehicle insurance. On the insurers' side, the motivation is evident as it provides access to new markets and more efficient insurance distribution channels, among other benefits. We have discussed topics such as the role of digital ecosystems within the insurance landscape and Tesla insurance in previous blogs.
For customers, embedded insurance offers a convenient way to get insurance coverage at the point of sale or while using a product or service. It eliminates the need for separate insurance purchases and makes the process more seamless and efficient. With the help of available data and technology, insurance can also be personalized to meet each customer’s unique needs.
Advances in technology, data analytics and AI, have made it easier for insurers to integrate customized coverage into their offerings just as APIs and open access to insurers' products made it simpler to integrate and underwrite these coverages.
Insurtech companies also play a prominent role in the rise of embedded insurance. For example, they are developing innovative insurance offerings that can be seamlessly integrated into other platforms or services and even other insurers.
We currently see only a part of what embedded insurance has to offer. There is much more to it than meets the eye.
Embedded insurance has evolved to become much more than just adding and selling insurance policies at the point of sale. The aim is to integrate insurance as a natural part of the transaction and provide personalized coverage when and where needed. The ultimate goal of embedded insurance would be to fully integrate it into the product to such an extent that it would not make sense for consumers to buy insurance separately. Achieving this goal may require a different business model or a complete product redesign.
Technology also plays a key role here as it enables full digitization of risk coverages and API-based integration with partners. This makes it more accessible and even more convenient for consumers as it can be integrated seamlessly into the customer journey and other products and services.
According to Simon Torrance, a Senior Partner at ARK: “We are still very much in the early stages of a market opportunity which has very significant potential but which is still very poorly understood, not only by non-insurance companies but also by insurance incumbents themselves.”
Well, if we are at the beginning, there may be more obstacles to overcome at the industry level, on the technology front, and elsewhere, in addition to product redesign.
Despite the growing buzz, the adoption rate of embedded insurance remains relatively low, signaling a vast untapped opportunity. The Embedded Insurance 2.0 report by the Embedded Insurance Institute there is an estimated potential for non-insurance brands to distribute insurance worth 5 trillion dollars in the next decade.
Such non-insurance channels could evolve into significant sales avenues, potentially attracting more customers at reduced costs and boasting higher conversion rates. This shift might also spur product innovation and personalization, as non-insurers integrate insurance features to enhance their offerings. To illustrate, a McKinsey study highlighted a Spanish department store where insurance contributions formed 12 percent of the group's EBITDA.
The horizon looks promising, not just for the insurance industry and companies, but for a broader spectrum of industries. In the realm of embedded insurance, it's conceivable that some non-insurers might even opt to shoulder the full spectrum of insurance responsibilities.
The aftermath of a recent natural disaster in my country highlighted a pressing concern: the insurance protection gap, which is the difference between the amount of insurance that is economically and socially beneficial or necessary and the amount of coverage actually purchased by individuals, businesses, or governments. The gap is a global issue estimated at 1.2 trillion dollars. Source.
Embedded insurance emerges as a promising contender to address parts of this gap. Integrating insurance into everyday products and services enhances accessibility, especially in regions where traditional insurance is limited. This integration not only simplifies the process but also educates consumers on the value of insurance within familiar contexts.
Furthermore, the data-driven approach of embedded insurance allows for tailored coverage, making it more relevant to individual needs. By being offered at the point of transaction, it offers inherent convenience that can encourage wider adoption. Additionally, due to its streamlined operations, embedded insurance can sometimes be more cost-effective than its traditional counterparts.
While it may not be the sole solution to the insurance protection gap, embedded insurance certainly offers a forward-thinking approach, paving the way towards a more insured and resilient global community.
What insurers must consider in the embedded space revolves around three pillars: ecosystems (insurance and non-insurance ecosystems), focus, and personalization. Diving into the current landscape, the Asia Pacific market emerges as a frontrunner in embedded insurance adoption. A recent article by McKinsey delves into the rise of embedded insurance in the Asian insurance market, spotlighting the potential advantages for insurers.
To thrive in this evolving space, McKinsey outlines several pivotal capabilities for insurers:
In the digital age, insurers need robust digital technology to integrate their value chain with partners. Enter AdInsure, our modern digital insurance platform equipped with powerful APIs, designed to embed insurance into diverse customer journeys of different insurance partners.
These capabilities aren't just features; they are embedded into our product development and strategic vision. Consider this: AdInsure can empower a white-label insurance company to offer fully compliant, unbranded coverage. This coverage can then be adopted by insurance partners under their unique brands, encompassing elements like purchase journey and customer portals. With AdInsure's user-friendly REST APIs, partners can tailor and implement their insurance products with ease.
Our goal is to make insurance functionalities effortlessly embeddable and facilitate seamless integrations with platforms boasting vast customer bases. This approach expands the reach of insurers beyond traditional limits. For a detailed breakdown of how AdInsure reinforces the essential capabilities for embedded insurance, refer to the tables below.
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Embedded insurance model (plus an example) |
Required technical capabilities |
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Bundling with products/services A laptop purchase comes with bundled theft and damage insurance. |
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On-demand insurance A car-sharing app includes insurance coverage only for the duration the car is being used. |
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Dynamic pricing Car-sharing app offers insurance premium adjustments based on driving behavior. |
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White-label solutions Insurer offers innovative coverage from an InsurTech (Risk Carrier) and a tech platform offers device insurance under its brand. |
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Cross-selling through platforms Homeowner liability protection and guest travel protection insurance offered on Airbnb point of sale. |
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Subscription models A user subscribes to a monthly car rental service that includes insurance. |
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Contextual insurance Short-term injury insurance tailored for high-risk activities offered during adventure sports activity. |
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Embedded in products offered by financial institutions Credit cards with complimentary travel insurance, personal loans with built-in loan protection, and mortgage products with life insurance. |
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Table 1 - Technical requirements for different types of embedded insurance models
| Key capability | AdInsure |
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API integration Seamless integration of insurance functionalities into third-party platforms |
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Digital platforms and core systems Support for bundling and insurance processes. |
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Partner onboarding and management: |
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Data analytics and machine learning Inside, predictions, personification. |
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Product design Fast configuration of embedded insurance products. |
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Automation and process optimization Improving user experience and lowering operational costs. |
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Table 2 - How AdInsure fits the technical requirements for different embedded models
Embedded insurance, though not a novel concept, is enjoying a resurgence, propelled by technological innovations like the growing adoption of APIs in core insurance technologies.
This tech-driven shift has expanded the avenues to weave applicable insurance coverage seamlessly into various stages of the consumer journey across non-insurance industries.
However, this burgeoning opportunity isn't without its challenges. For insurers, it's not just about tapping into new customer segments but also about reimagining their business approach. This entails a deeper immersion into ecosystems, fostering collaborations with manufacturers or retailers and other financial services providers, and, crucially, embracing a more decentralized insurance sales process. As the landscape evolves, insurers that adapt and innovate will be best positioned to thrive in the era of embedded insurance.