Noam Shapira is a serial entrepreneur, co-founder and President of fast-growing global InsurTech MGA, Pattern, and in this article he takes a look at why 2022 is the year of embedded insurance.
As a concept, embedded insurance is not a new one. However, following several years of hovering on the edges of the insurance industry, 2022 is set to be the year we see it take off. In fact, recent figures predict that the embedded insurance market could be worth $722 billion by 2030, as new industry disruptors leverage digital transformation to transform the customer journey.
What do we mean by embedded insurance? Put simply, it is a flexible model where insurance covers are offered alongside an e-commerce product or service purchase. This means consumers don’t have to go looking for insurance, which saves them hassle, but also provides upselling opportunities as they might not be aware they need the cover until they’re offered the chance to buy. Many people feel conflicted about insurance – they know it’s required, as without it they would be unable to pay for significant car or property repairs, or cover lost costs from a canceled trip. Even so, it’s often viewed as a necessary evil, purchased begrudgingly as an afterthought. Presenting the coverage to the consumer directly at the point of sale, using the information they have already entered as part of their buying journey, is one way the embedded insurance model is helping insurers reposition coverage as an essential companion to purchases.
While embedded insurance can be used effectively in many different sectors, the travel industry is one that is perfectly suited to its flexible, highly personalized model. Even before the covid-19 pandemic changed the face of travel protection, there were many risks that could affect a trip – from delayed flights, to lost luggage, medical emergencies or canceled holidays – but despite this, only 23% of travelers purchase travel insurance to protect their bookings. This is perhaps unsurprising when you consider that many brokers and underwriters offer a limited set of rigid, outdated policies which require customers to file claims via manual, offline processes. These are in stark contrast to the digital, streamlined experience which today’s consumers not only prefer, but expect.
Flight delay insurance is a commonplace example of embedded insurance in action. Often offered alongside online flight bookings, consumers are presented with it as an optional add-on to their trip. However, it’s not just airlines that can benefit from upselling such policies; the personalized nature of embedded insurance means it can be used to insure a host of niche risks, adding protection against inconveniences or dangers which previously travelers would have had to either put up with or lose money on. A good example of this is cover for poor sea conditions when on a cruise, or bad ski conditions at the ski resort resulting in more time spent in the chalet than on the slopes.
PARAMETRIC SETTLEMENT IS PART OF THE EQUATION
Parametric insurance policies take this concept even further still. These covers offer a guaranteed payout, triggered by a specific set of events. This unlocks more upselling opportunities for providers, as policies are even more tailored to circumstance. Alongside this, consumers are able to protect themselves against loss for specific kinds of trips For example, we’ve developed parametric insurance which protects against bad weather, specifically designed for companies who sell camping trips. The policy benefits customers, by providing peace of mind that they won’t be out of pocket if their trip is a washout, and consequently provides upselling opportunities for the travel company.
For the insurance industry to address the existing gaps and frustrations people feel when purchasing protection, it needs to look at how best to increase customer convenience. When considering the travel industry, that means using data to create products that meet the direct needs of the customer. This is where embedded insurance has the potential to truly transform the insurance landscape. Utilizing the information a consumer has already entered ensures the cover provided is accurate, relevant and only one click away. The claims process is considerably simpler too; there’s no need for proof of purchase as there is an existing digital record showing what was bought and when, creating a hassle-free, closed loop insurance process.
The travel industry is ready to be disrupted. Having suffered immensely over the past two years, people are ready to get back out and explore the world again. However, with changing customer expectations and demands for genuine protections that adapt to these unpredictable times we live in, it’s vital that travel providers act now to make sure they don’t get left behind.