This latest piece is by Graham Gordon, Product & Strategy Director – P&C – Sapiens, and it takes a look at the
Embedded insurance – where insurance products are bundled alongside the purchase of an item from a non-insurance entity, often over digital channels, continues to capture our imagination.
In this strategy, insurance companies partner with retail brands to offer insurance at the point of sale, effectively integrating offers directly into the customer journey of non-insurance products or services.
Consider some of the major life events that typically lead to insurance decision-making: childbirth, buying or renting homes and properties, car purchases, international travel, weddings, and pet adoption, to name a few. These life events provide a relevant context for third-party platforms to offer embedded insurance at the right place at the right time – rather than expecting consumers to take that lifechanging step and then seek out the proper insurance on their own.
More importantly, however, this inspires a shift in the consumer’s mindset – think about the purchase of an extended warranty for a white goods product with a signature at the end of four or five pages of terms and conditions vs a single-click insurance purchase.
EMBEDDED COVER NEEDS TO FIT LIFESTYLES
Instead of feeling shortchanged for paying extra for a warranty they believe they won’t use, a consumer can feel satisfied spending more for the insurance they can understand and relate to. Therefore, incorporating embedded insurance into mainstream outlets is as much a win for consumers (the product is protected) as it is for insurers (ease of use), and retailers (a service enhancement, and often a differentiated service).
A 2020 study from PYMNTS.com found that over 60% of consumers would buy specialized insurance along with their e-commerce purchases if vendors and institutions – banks, online travel agencies, realtors, auto retailers, and jewelry stores, etc. – offered it at checkout. It’s a strategy that positions the insurance buying process in an entirely new context. Some estimate the market for such embedded offers will reach up to $722 billion by 2030. I can’t vouch for how this number is constructed, but that’s close to 45% of the global P&C market.
Say this analyst is 50% correct in their forecast, this is still a market-changing swing that reflects the way that embedded insurance offerings cater to customers’ evolving online preferences.
PURCHASE HISTORY OFFERS
The Embedded Insurance Bridge In a 2021 survey, researchers asked Americans banking with either conventional or digital-only banks if they would consider buying insurance products offered by their bank. 44% of traditional bank customers said they would be “highly interested” in receiving bank-embedded insurance offers based on their purchase history, as would 70% of digital banking users. Nearly half of all banking customers cited convenience as the predominant reason for their interest in embedded insurance offers.
Financial institutions, therefore, can serve as a key and trusted bridge, conveniently connecting embedded offerings to consumers. The same concept can be applied to myriad other industries: i.e, travel agencies offering embedded travel insurance, auto retailers offering embedded vehicle insurance, and so on.
When relevant products are paired with appropriate third-party bridges, retailers can serve as an ideal insurance distribution point on behalf of insurers.
Embedding Into the Future
At its core, insurance coverage is a contextual experience. Whether it’s placing a down payment on a home, purchasing a vehicle, or opening a new bank account, these milestone events, in turn, shed light on the risks that can detract from or outright ruin the value of these significant investments, regardless of their likelihood. Assuming the worst from the start, in this case, will evoke the necessary measures to futureproof what’s most important.
When insurance offers are embedded into customer purchases, with policies tailored to the purchase in question, obtaining insurance is no longer an afterthought. Instead, they function as yet another step into a more complete, holistic customer journey.
Embedded: The growth of an enabling ecosystem
Embedded insurance by nature requires integration with a much a broader eco-system and a broader number of services. For example, Sapiens IDITSuite customer Anadulo Segorta increased open integrations by 46% to transform product distribution and “be where the customer is”.
The open platform approach enabled the delivery of embedded products transforming the traditional insurance experience. For example, to sell embedded travel insurance at point of travel ticket purchase: This is sold through a national carrier (integration point 1); a global partner provides real-time service of flight delay and cancellation data (point 2) and a claim payment services (point 3); and for flight delay lounge service company to provide customer access (point 4). These behind the scenes components all work in harmony together with the Sapiens insurance software so that if a flight is delayed by two hours or more – all the consumer experiences is an automatic compensation payment, a pass for lounge access.
Embedded: Requires an Open-Mind
For many of the insurance companies we deal with – embedded is also a conundrum. A hundred-year-old insurance brand is often, when embedded into a retailer’s product, that brand becomes a footnote in the terms and conditions. But here is the trade-off. What do the retailers know about me? They know where I live, they know how much I spend, they know what I spent it on, in some cases they know what I watch, and now they know that I have a propensity to buy insurance online. As an insurer, thinking about embedded do I want to participate in this knowledge share, do I want to use these new data points to configure personalized products? Or do I hope that this all just goes away?