This latest Opinion piece is by Marat Nevretdinov, Managing Director at HDI Embedded, and it looks at the opportunities provided by online retailing of bolt-on cover products. Protecting assets, services and experiences – it’s all there if you sell it right.
In a mature insurance industry, introducing something new means it has to be a breath of fresh air and set itself apart. Enter embedded insurance, where noninsurers – companies who are not natural providers of insurance services – can add insurance to their product offering with the help of third parties.
Embedded insurance has been available for a while. In its simplest form, companies can offer insurance at the point of sale of a product to help protect the consumer in case their circumstances change. Over recent years, however, there has been an increasing appetite for more seamless and sophisticated integrations of that solution, which are now being provided, like health insurance being included when a holiday has been booked with a travel provider, for example.
The current digital transformation is pushing the industry to evolve into a new reality. Today’s consumers expect contextual, bespoke, and easily purchasable insurance at the point of sale. This is creating new opportunities in the embedded insurance market, which is estimated to be valued at $722bn in Gross Written Premium (GWP) by 2030 (Instech).
Who is driving this revolution?
Leading this revolution was digitally native insurtechs. The vision was that the harmony between insurance and technology would make tailored insurance mainstream and more responsive to the needs of buyers and sellers. Combining customisable product offerings with accessible distribution would mean creating a wider stream of audiences – which was a reasonable goal for the revolution.
Insurtechs were seen to be best placed to drive embedded insurance forward because of the software capabilities at their disposal. The key foundation of this service is an application programming interface (API). APIs combine software components from multiple parties for these to interact and exchange information. They also allow solutions to be created by integrating the systems between an insurer and third parties seamlessly and securely. Products that are agile, composable, and intelligent, can be assembled, enabling specialised offerings to be rolled out. Moreover, these sophisticated tech stacks make insurtechs better suited to distributing embedded insurance as they have access to more customer data and are better positioned to control the customer journey.
But has this revolution taken off in the manner we expected it to do so? Despite the predictions for the future size of the market, most consumers are unaware of what embedded insurance is and which providers offer it.
While it’s true that the new digital players that help sell insurance together with other products and services have enjoyed some success, they still face challenges when they seek to innovate and embed insurance into products, making it difficult to pull it off.
Partly to blame is inflexible underwriting and the complex regulatory landscape. In European markets most insurtechs do not have the flexibility to underwrite their own products. This is because insurtechs don’t own the insurance products they manage. To access international licences can be a laborious, complex process too. Instead, insurtechs partner with third-party underwriters to bring in the product, impacting flexibility, personalisation and time to market of these products.
Where do the incumbents fit in?
If insurtechs are facing limitations in truly delivering embedded insurance, then surely it’s a home run for the incumbents to drive this revolution forward? Not exactly.
Yes, traditional providers have the brand trust, infrastructure and robustness to navigate and adapt to new regulatory demands that are introduced, however, they often face technology roadblocks. Legacy-built systems do not allow for the implementation of user-friendly applications and seamless integration into digital ecosystems. For instance, not being able to utilise APIs for distribution, claims and other functions would be a disadvantage in the new world of embedded insurance. In addition to this, traditional insurers have often lacked flexibility due to internal processes often in place, giving them the reputation of being slow to move to new market needs.
So…what approach is needed to drive embedded insurance forward?
Cooperation over competition – what’s required is a best-of-both-worlds approach. Embedded insurance will be at its most valuable when the technology capabilities of insurtechs are partnered with insurance know-how and resources of established players. Fusing together incumbents exhaustive compliance and underwriting experience with modern tech capabilities and flexibility to build truly tailored embedded solutions.
The mindset should be shifted. It should no longer be an ‘us vs them’ scenario when it comes to insurtechs and insurers, instead, it should be framed as an ‘us and them’ situation. Much like the relationship that has evolved between banks and fintechs to help deliver optimal financial products.
In a world where there’s potential to integrate the mindset of insurtechs and foresight of insurers, there could be an unstoppable revolution brewing to realise the next phase of embedded insurance. A phase where any insurance product can be delivered in an embedded format, anywhere, anytime depending on what the needs of the customers are.