We are big fans of embedded insurance here at IE, because it offers consumers the chance to insure a specific risk at the point of sale. Basically you get to choose how much value that experience, item or event has in your life and then cover it. Tech allows insurance brands to tailor products to lifestyles, plus share and store data, so repeat biz or cross-selling opportunities then arise. It’s win-win.
In this piece, Meitav Harpaz, CEO and co-founder of Palo Alto headquartered insurtech startup Pattern, which is reinventing personalized insurance for travel business looks at the growth of embedded cover.
Before founding Pattern, Meitav was the founder and CEO of multiple startups in the financial industry, including Eccella Corporation (sold to NGDATA), which provided data engineering solutions and data strategy planning to large corporations in Financial Services.
What is Embedded?
Embedded insurance is not a new concept, but it has grown in prevalence in the industry over recent years. There are several different definitions of embedded insurance, but, put simply, it’s where insurance covers are bundled in with existing online purchases. Embedded insurance is all about getting the cover people need, at a reasonable price and at the time they need it the most. Harnessing emerging technologies to automate processes provides a much more streamlined experience for the consumer, making the days of calling up a broker or visiting a specific insurance website a thing of the past. A recent report from InsTech London estimates that the embedded insurance market could be worth $722 billion by 2030 providing the industry takes advantage of the insurtech disruptors who are leveraging digital transformation to reinvent the customer journey.
When embedded is done right, the benefits to companies are high attach rates, increased conversion rates and happier, more loyal customers. It’s also what today’s consumers want; a recent study found that over 60% of online shoppers reported they were more likely to make a purchase when insurance options are offered at checkout. Chances are you’ve encountered embedded insurance many times already when buying online; common examples include flight delay insurance offered at checkout when booking flights, cancellation cover offered alongside vacation reservations or device insurance when buying some new technology, but the product range is growing all the time.
Why now is a great time for embedded insurance
People feel conflicted about insurance – they know it’s required, as without it they would likely be unable to pay for serious car or property repairs, or cover lost costs from a canceled trip. Despite being an essential, it’s often bought as an afterthought, viewed as a ‘grudge purchase’ rather than a happy one. However, by utilizing the information the consumer has already entered as part of their buying journey and presenting coverage options to them directly at the point of purchase, the embedded insurance model is helping insurers reposition coverage as an essential accompaniment to purchases and tackle the three key challenges facing the industry:
● One-size-fits-all insurance isn’t fit for purpose – the events of recent years have led to the creation of a whole host of new risks which traditional insurance policies aren’t suitable for. However, the flexible, highly adaptable nature of embedded insurance covers makes them ideally suited to meet these new risks. There is much more scope to adapt policies, for example at Pattern, we work with our customers using their business knowledge to co-create covers tailored specifically for their clients. This means the end-consumer receives insurance which actually works for them.
● Consumers have high expectations – today’s consumers expect quick, clear and hassle-free digital experiences where they can get what they need in one place. Embedded insurance helps meet these expectations by using the data the consumer has already entered earlier in the buying journey to provide personalized, relevant insurance covers, in real time at the point of purchase – a completely streamlined experience for the modern consumer.
● It’s an effective way to close the protection gap – The ‘protection gap’ is widening all the time. In fact, research from the Swiss Re Institute found that from 2000 to 2020, the protection gap doubled. This was largely down to global trends in urbanization, digitalisation, climate change and a poor understanding of new risks. Embedded insurance helps close this gap by providing highly personalized cover, delivered at the point of sale. With this model, consumers find immediate value added to their purchases, and the subsequent increase in cover helps reduce risk, making for a safer and more widely protected society.
Which industries is embedded insurance best suited for?
While embedded insurance can be used with great success in many different sectors, its highly flexible, personalized model is perfectly suited to the travel industry. Even before the Covid-19 pandemic completely transformed the face of travel protection, there were multiple risks that could affect travel plans, ranging from delayed flights, to lost luggage, medical emergencies or canceled bookings. Despite this, only 23% of travelers report purchasing travel insurance to protect their plans.
This is maybe unsurprising when you consider that many existing insurance policies on offer are limited and outdated, not providing adequate cover and requiring customers to file claims via difficult manual processes. These go against the digital, streamlined experience which today’s consumers not only prefer, but expect. When combined with the news that 45% of travelers would prefer to book their whole trip through one single website, there is a strong case for embedding insurance into travel bookings.
What’s next for embedded insurance
A key area of development alongside embedded insurance is parametric protections. These are insurance covers which are triggered by an objective event. This objective event is measured by a third-party data source which measures something quantitative, and the insurance is automatically triggered if the quantity crosses a predefined threshold. They are increasingly popular with consumers as the need to file claims is completely removed as compensation is delivered automatically. While parametric products have been used in the reinsurance sector for many years, we are only at the start of being able to realize the applications for parametric products in the wider insurance industry.
As detailed data and technology solutions become more accessible, the scope and innovation of covers available is always increasing. Common parametric products include delay insurance or weather guarantee cover, but as product availability grows it’s likely parametric insurance will no longer be viewed as the latest innovation, but instead become something that consumers seek out. With that consumer demand will come much more widespread adoption for a host of different insurances, from personal lines to commercial covers and beyond.
Embedded insurance has the potential to completely transform the industry in coming years. The benefits are undeniable; customers enjoy the convenience of purchasing protection in seconds, without needing to reshare their information, while partners can access additional income streams when selling risk protection alongside their product or service.
Alongside this, they see improved customer experience, and therefore loyalty, as well as enjoying cost savings via APIs that utilize the latest technologies. Finally, the embedded insurance business model is particularly attractive to tech-savvy insurers, as it provides low cost distribution to an unlimited number of customers at scale and in real-time. The insurance industry has long been ready for disruption, now embedded insurance is here to change the face of protections forever.
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