The confluence of societal trends, pervasive connectivity, and evolving consumer behavior has urged insurance providers to rethink their consumer engagement strategies. While traditional insurers have started focusing more on creating a strong digital foundation, non-insurers are aspiring to close their experience gap by offering innovative services. If there is one thing that tops the agenda of both traditional and non-traditional insurers, it is embedded insurance, where they are exploring ways to integrate insurance coverage seamlessly into other products and services. Within the next five years, over 30% of insurance transactions will happen through embedded channels. Embedded insurance has already significantly permeated across multiple industries, including travel, electronics, automotive, retail, and hospitality. It stands to reason why experts estimate that by 2030, embedded insurance will exceed $70 billion in premiums.
It will be interesting to see how collaboration of insurers with non-insurers, regulatory authorities, and customers, can enhance their value proposition. More importantly, at the end of the value chain, consumers stand to gain a lot from receiving insurance when and where it matters the most.
Understanding embedded insurance: The rise and recent trends
To understand the nuances of embedded insurance, let’s take the example of Chris, who while booking an airline trip, is presented with an option to purchase insurance coverage. This insurance covers trip cancellations, delays, and lost baggage. Impressed by the offer, he promptly books his ticket. Apart from driving customer-centric convergence between products and services, embedded insurance as seen in the above example, is emerging as a competitive imperative. Insurers and non-insurers can collaborate and leverage the right kind of strategy, technology implementations, and regulatory compliance while boosting their competitive advantages. Embedded insurance is rapidly growing and is expected to expand into other commercial lines including real estate, healthcare, telecom, agritech, and logistics in the coming years.
Currently, the insurance industry faces challenges in coverage and protection gaps, difficulties in technological integration, disconnect between business value and underwriting risks, and regulatory hurdles, among others. Even large conglomerates operating in developing markets often struggle with inadequate insurance coverage for different categories. Property and casualty insurers still need to modify their underwritings with the emergence of electric and self-driving vehicles. Traditionally, insurers have sold their products in collaboration with non-insurers, who act as distribution partners. The performance, however, has generally been suboptimal due to undifferentiated features, high costs, and fragmented customer experiences.
While embedded insurance is not a magic silver bullet in addressing these prevalent challenges, it is interesting how close collaboration of insurers with non-insurers, regulatory authorities, and customers, can solve some of these issues. Non-insurers face fewer legacy hassles, have a larger customer base, and enjoy higher trust levels. This can motivate them to build customer-centric ecosystems supported by higher value propositions and improved price accuracy. Insurers, on the other hand, can prioritize conscious design-choice and investments, leading to a better differentiation of value-added services and pricing based on industry types. Driving innovations is key to improving seamless technological integration, data exchange, and compliance to create enhanced embedded insurance models.
A new wave of opportunities for non-insurers
Some of the most common benefits of embedded insurance are higher consumer retention rates, achieved through insurers’ ability to offer personalized experiences with a human element in the entire transaction. It offers an advantageous position for non-insurers to enhance their value propositions, create additional revenue opportunities and boost conversion rates, both via online and offline sales. Insurers can address high insurance distribution costs by leveraging data-driven insights from consumer behavior and interaction with non-insurers. They can also drive enhanced product innovation and reduced underwriting costs. At the end of the value chain, consumers benefit from receiving insurance when and where it matters the most.
Embedded insurance: Pioneering the future of digital integration
Surging digitalization has given rise to the concept of a ‘platform mindset’ which keeps the customer at the center of every digital activity. This would mean a paradigm shift in value pools and the nature of risks for both non-insurers and insurers. By reinvigorating their digital strategies, enterprises can diversify their portfolio of offerings, while insurers can venture beyond their roles as risk aggregators. Through modernized platforms with pre-built capabilities insurance companies can drive massive expansion in embedded insurance through seamless integration, quick claims processing, and secure data exchange. The key to the future lies in collaboration and innovation, where insurance is not just a standalone product but an integral part of a broader, more seamless customer experience. By embracing design-thinking-led transformation, both insurers and non-insurers can future-proof their business models while exceeding customer experience and expectations.