Why Embedded Insurance is a Game Changer for Insurers and their Customers

Sibylle Fischer
January 6, 2020
Strategy, Products, Startups, Innovation
This maxim about insurance sales (familiar to anyone who’s worked in the industry and probably to more than a few who haven’t) may have been true of the 20th century insurance model, but today’s insurers are operating in an entirely different distribution paradigm, one where data science, artificial intelligence, and real-time communication systems are all counted as part of their formidable 21st century financial services arsenal. As economies, technologies, and market dynamics continue to evolve, an incredible opportunity has emerged for insurers – one that promises to turn that old maxim forever on its ear and revolutionize the way insurance is bought and sold. Enter embedded insurance.

Insurance is sold, not bought.

What is Embedded Insurance?

The embedded insurance model bundles coverage or protections within the purchase of a product, service, or platform. That means the insurance product is not sold to the customer ad hoc, but is instead provided as a native feature. So your car share membership comes with mobility insurance included, your new camera is covered for theft and damage right out of the box, and the platform you use to run your small business is bundled with professional liability coverage. Embedded insurance is transforming the insurance distribution model, providing insurers and their customers with a seemingly limitless number of unique and niche value propositions offered in real-time or at point of sale.

Closing the Protection Gap for Customers and their Things

For many customers, the idea of purchasing a one-off plan to protect a new product can feel burdensome, overly complicated, and even unnecessary. By contrast, insurance products that are natively embedded allow customers to protect themselves and their possessions against uninsured losses with unprecedented low (or even no) involvement, giving them increased peace of mind and helping to narrow the protection gap.

End-to-end, Frictionless, and Contextually-relevant Customer Experience

Insurers can be in the right place at the right time by embedding in products or platforms with large customer bases, serving them relevant insurance products at point of sale or at other appropriate times in the customer life cycle. With the ability to access relevant data, perform real time risk assessments, and set prices accordingly, insurers can embed their products virtually anywhere there is risk.

As one example, insurance technology platform innovator, Trov, partnered with self-driving tech company Waymo to implement an on-demand insurance engine to automatically insure all passengers of the company’s autonomous fleet. In this instance, Trov’s on-demand insurance engine provides access, tracking, forecasting and analysis of all relevant data, Waymo supplies the driverless fleet, the underwriter insures all of Waymo’s passengers, and all of the above takes place in a way that is largely invisible to the end customer.

A Constellation of Newer, Better Opportunities for Differentiation and Growth

Embedded insurance promises to deliver highly differentiated services or maintenance propositions for its customers. And since the embedded model thrives in the B2B2C environment (with lower acquisition costs and particularly high engagement around prevention), that means insurers should be prepared to develop a deep understanding of both the manufacturer, the supply chain, and its customers. But whether insurers are innovating with in-house teams, OEMs, or startups, embedded insurance provides a myriad of ways insurers can work collaboratively on platforms and services to differentiate, scale, and expand their offerings into new and emerging ecosystems.

Embedded insurance shifts the outdated, rigid model (customers are sold coverage for themselves and their things) to a more modern, flexible approach (customers purchase products or use services with coverage already provided). For insurers, this paradigm promises an abundance of new opportunities to develop, enter, and target insurance segments they’ve never been in before.

Stay tuned for Part 2 of this post, where we take a closer look at how embedded insurance is already transforming the customer experience across sectors, from mobility to wellness to retail and beyond.