The demand for embedded financial services has been seen across the industry, with the insurance sector being no exception. Embedded insurance has the potential to remove the hassle from a purchase, create tailored products, allow the insurer total control of what they want to sell, and help close the ‘protection gap’.
Noam Shapira is a successful entrepreneur, co-founder and President of fast-growing global insurtech MGA, Pattern. Drawing on more than 20 years of experience in the development and execution of market, technology and product strategies at companies including Sizer, Comverse and Pontis, Shapira also successfully co-founded TravelerMate and is a graduate of the Kellogg-Recanati International Executive MBA program.
Speaking to The Fintech Times, Shapira analysed the four main ways in which embedded insurance can impact the insurance industry in 2022:
Embedded insurance is the hottest topic in the insurance industry right now. With advancements in technology, changing consumer behaviour and the accelerating e-commerce boom, the days of calling up an insurance broker or visiting a dedicated insurance site to buy or claim on a policy is set to become a thing of the past. In fact, a recent report by InsTech London estimated that the embedded insurance market could be worth $722billion by 2030, as the insurtech space leverages digital transformation to reinvent the customer journey.
Embedded insurance, where insurance is bundled into the purchase of a third-party product or service, is about getting the cover people need, at an affordable price, at a time they need it the most. Utilising emerging technologies to automate processes provides a much more seamless, streamlined experience which today’s consumers not only prefer, but expect. Embedded insurance has been around for a while, but has mostly been about taking insurance products and selling them online. In order to realise the benefits from embedded insurance, it requires a different way of selling, innovative new products and a closer relationship with the business providing the insurance. This is how we expect embedded insurance to evolve in 2022 and beyond.
Removing the hassle from purchase
Insurance has long been considered a hassle. From the buying process and the need to enter endless details into lengthy application forms, to the claims process and having to jump through hoops in order to be able to make a claim. Moving to embedded is about making everything much more simple. Insurance is offered when the customer has already entered most of their details, ensuring the cover provided will be accurate, relevant and only one click away. The claims process is similarly streamlined; there’s no need for proof of purchase, as there is an existing data record showing what was bought and when. It creates a hassle-free, closed-loop insurance process.
Rather than needing lengthy phone calls and excessive application forms, as with traditional insurers or brokers, embedded products are offered to consumers when they feel they need them the most. For example, flight delay insurance is offered when booking a flight. The convenience, timing and clear added value will reinvent the customer experience, raising awareness of additional coverage options and providing protection when people need it the most.
One-size-fits-all no longer works
No two consumers are the same. When a consumer buys something online, a vast amount of data is collected that can tell us a lot about the individual and their specific needs. Alongside this, risks are constantly evolving. Traditional insurance companies are slow to react, due to complex and lengthy processes. They also tend to be working on older IT systems which are unable to cope with the need to adjust in real-time to the type of product that is needed according to the consumer’s needs.
New technologies and next generation MGAs oriented to embedded insurance will put an end to the traditional one-size-fits-all approach, as customers are able to build clearly defined packages. Bundling the protections that are actually needed provides highly relevant cover, not only increasing customer satisfaction but also the market opportunity to upsell additional covers.
Ability to control what the insurer wants to sell
Insurers who sell through embedded insurance platforms will have the ability to sell a more balanced risk portfolio. This is because they can control the products they offer in real-time which in turn enables them to plan their exposure levels on different types of products, allowing them to constantly control what is being sold.
This goes one step further though; the ability to easily and immediately change information in the customer journey allows insurers to adjust their prices to reflect the most up-to-date changes and understanding of risk.
Personalised insurance is closing the ‘protection gap’
The ‘protection gap’ – the split between the amount of insurance that is both socially and economically beneficial and the amount of coverage that is actually purchased – is widening all the time. In fact, research from the Swiss Re Institute discovered that from 2000 to 2020, the protection gap doubled, due to global trends in urbanisation, digitalisation, climate change and a poor understanding of new risks. Swiss Re estimates the shortfall globally for weather-related risks alone is around $180billion, a huge deficit leaving the consumer unprotected and out of pocket.
Embedded insurance is helping to close this gap. By utilising data, insurtechs can provide highly personalised cover, delivered in real-time at the point of sale. Customers instantly find immediate value added to their purchases, and the resulting increased cover helps reduce risk, thus making for a safer and better-protected society.
Embedded insurance is not a new concept, but it is going to undergo a major change and has the potential to transform the industry significantly in the coming years. Customers benefit from the convenience of purchasing protection in seconds, without needing to reshare their data. Partners gain additional income when selling risk protection alongside their product or service and see improved customer experience and cost savings through APIs that utilise the latest technologies. Finally, the embedded insurance business model is especially attractive to tech-savvy insurers, providing low cost distribution to an unlimited number of customers in real-time and at scale.
With embedded insurance, the industry has been presented with an opportunity to innovate like never before but we need to make sure we get it right. To do so, there is a need for companies that can provide SaaS platforms that can deal with the needs of e-commerce players and their consumers.