In the last few years, embedded insurance has emerged from the wider embedded finance movement to become the industry’s hottest topic. Incumbents have woken up to the opportunity – estimated at $700 billion in gross written premiums by 2030 in Property and Casualty alone – and numerous well-funded insurtech startups have emerged to power the next generation of embedded insurance experiences.
But what really is embedded insurance and how can incumbents get a piece of the pie?
Embedded insurance – the basics
At its core, embedded insurance is the seamless integration of insurance into non-insurance products, platforms or services. When done well, it leverages technology to provide great value, more personalised protection when and where customers need it most.
It makes life easier for customers, who no longer need to search out the right insurance, for risks they may not even realise they have. It gives insurers new and more cost-effective distribution channels for their products, which can be tailored to a specific customer based on data and insights from partner platforms. It generates new revenue streams for distribution partners and helps them better protect their customers to grow deeper, more valuable long-term relationships.
Today, embedded insurance is considered a key driver of growth in the insurance industry and incumbents, insurtechs and investors are investing heavily to unlock its value.
Embedded insurance 1.0
Embedded insurance first emerged as an evolution of the traditional affinity model. It allowed insurers to offer policies to customers through a technology-enabled non-insurance partner, such as an e-commerce platform.
In this first-generation experience, customers are presented with an offer to add on insurance during another transaction during their day-to-day life. This makes insurance more accessible and convenient for customers, as they can purchase coverage while they are already engaged with the platform or product. Some examples include:
These experiences undoubtedly offer a more convenient way for customers to purchase insurance and work well for simple products. However, the customer experience can sometimes be disjointed, product innovation limited and lack personalisation. Customers often need to actively choose the coverage they want – a problem for the many customers who do not understand their own needs.
These issues can mean relatively low conversion rates, which when coupled with traditional commission share agreements, result in digital distribution partners struggling to hit the revenue targets they set for their embedded insurance offering. Disappointing early results can lead to a reduced focus on insurance and less marketing spend, further exacerbating the problem.
To counteract these effects, and create a win-win-win for insurers, distribution partners and policyholders, a new approach to embedded insurance is necessary.
Embedded insurance 2.0
In his excellent guide for incumbents, Simon Torrance explains
“Embedded Insurance 2.0 is a new way of collaborating and innovating with third-party brands, of all types and sizes, to help them grow their businesses, create compelling new protection solutions for end customers and, ultimately, close protection gaps. It exploits digital technology and data in new ways to create better underwriting models that improve customer experiences, marketing effectiveness, risk selection, pricing and unit economics.”
This second generation of embedded insurance has improved on its predecessor by leveraging new technologies to deliver more affordable, personalised and relevant protection to customers. It goes beyond simply distributing traditional products via new digital channels to focus on using data and a deep understanding of the customer to co-create innovative new products for newly emerging needs – such as the gig economy. Improved underwriting models based on real-time customer or third-party data can allow for more affordable protection, while reduced product creation and distribution costs ensure they remain profitable for insurers.
Incumbents have followed the example set by insurtech pioneers, like Cover Genius and Qover, and are now setting up their own embedded insurance businesses to expand on their existing affinity offerings. Chubb Studio and Swiss Re’s IptiQ are the most well-known examples, but many others are following suit. But the technology infrastructure required to build and deliver a successfully embedded insurance proposition is beyond the core capabilities of most insurers’ legacy systems. That’s why at Kanopi, we believe effective partnerships between incumbents, digital platforms and insurtech enablers are the key to unlocking the benefits for all parties – including policyholders.
But what makes a great embedded insurance experience?
The embedded experience
Customers are not (and shouldn’t need to be) insurance experts, so every insurance experience should aim to help customers get the cover that’s right for them, quickly and easily. At Kanopi, we believe the best embedded insurance offerings do this by providing cover that is smart, simple and contextual.
- The next generation of “smart” insurance policies should offer customers the best protection for their needs, at the best possible price.
- This can be achieved by leveraging real-time data (at quote and throughout the policy term) and advanced analytics to gain a deeper understanding of customers’ needs and behaviours. This insight can power truly personalised products, fully customised to an individual’s needs.
- Real-time data can power improved underwriting and risk selection, enabling insurers to offer more intelligent pricing to maximise conversion rates and commercial success. This can extend beyond purchase through to claims too, with more accurate, even instant claim payouts in the event of a covered event.
- At the same time as being “smart”, insurance should be “simple”. Policies should be free of insurance jargon and contain helpful, easy-to-understand summaries to help customers know exactly what they are getting and make informed decisions about their coverage. This is especially important in embedded experiences, where insurance is not the primary concern of the customer.
- Once a policy has been purchased via an embedded experience, insurers and distribution partners should make it easy for customers to update, cancel, renew or claim on their policies. This could happen within the distribution partner’s platform, or within an insurer portal, but should always support customer self-service. No one wants to buy a policy via a slick embedded experience, only to sit on hold for 30 minutes to make a simple policy endorsement.
- Policies should be designed with simplicity and flexibility in mind, with no cancellation fees or hidden terms.
- The last piece of the puzzle is making sure you deliver the right product, to the right person, at the right time. This is absolutely critical to get right if customers are to trust embedded experiences. For simple products, the insurance offer can even be invisible, with protection built into the partner product or service. For more complex products, where this is not possible, highly personalised experiences should become standard.
- Insurers and digital distribution partners (and any tech enablers) must work closely together to understand their target customers, build suitable products and either fully embed them into their product or identify the relevant trigger point at which to offer the optional insurance.
The embedded insurance movement is being driven by changing customer expectations, macroeconomic pressures on insurers’ bottom lines and the proliferation of the platform economy. This next generation of experiences is being enabled by new technologies, from analytics and artificial intelligence, to APIs and cloud infrastructure.
Kanopi’s full-stack embedded insurance platform enables our clients – including some of the biggest insurers in the world – to build, launch and manage new embedded insurance propositions. By leveraging our technology, insurers can fast track their digital transformation and launch an embedded product in only a matter of weeks.
The key to incumbents unlocking smart, simple and contextual embedded insurance experiences is based on the ability to:
Leverage next-generation tech stacks
Insurers’ legacy systems just aren’t designed for today’s ultra-connected, data-driven world. The leading insurtechs have all built their own proprietary insurance platforms and pioneering incumbents have stood up separate business units and technology stacks for their embedded insurance activities.
Most modern insurance platforms are cloud-native and use a microservice architecture to create flexible and scalable systems. They can be easily integrated into insurer or partner platforms via open APIs, to deliver seamless, customisable experiences for customers.
Access, store and use data from multiple sources
Compared to the ringfenced core insurance systems of the past, modern platforms leverage APIs to enable extensive use of data. This data can come from multiple sources, such as distribution partner platforms or third-party services, and even be accessed in real-time.
The best platforms will do all of this while enabling insurers to maintain a single view of their customers. This is particularly important for insurers launching new ventures alongside existing propositions, where customers could end up purchasing policies across multiple systems. This challenge is nothing new, with many incumbents feeling this pain from multiple core systems they currently run on.
Experiment with modular, customisable products
At Kanopi, we’re big believers in the build-measure-learn loop popularised in Eric Ries’s book ‘The Lean Startup’. The speed at which you can get a new product into the hands of real customers, get their feedback, learn and improve, is mission-critical in today’s fast-changing world. Unfortunately, with incumbents often taking 12-18 months to build and launch a new product, this approach historically hasn’t been possible.
Many modern insurtech platforms have been built with this experimentation-led approach in mind and can configure and launch products in a matter of weeks, even days. They use flexible product models to support modular products that can be easily reused and customised to specific use cases. The best allow non-technical staff at insurers or distribution partners to customise products to their specific audience – Wakam’s self-service portal provides an excellent example to other incumbents.
Today’s customers expect intuitive, even delightful, digital experiences from every company they interact with. Modern insurance platforms must deliver this, whether through simple, product-agnostic APIs that allow distribution partners to build their own engaging experiences or through their own intuitive user interfaces. These range from easy-to-embed widgets to fully-fledged policy management portals and are often themable to align with an insurer or distribution partner platform brand.
An intuitive app interface is only one small part of delivering an amazing experience, so platforms must enable seamless omni-channel experiences. Incumbents must consider how third-party platforms fit into their wider technology stacks and target operating models, to ensure they can deliver a seamless experience to their customers across all channels.
This unlocks huge value and can be used to improve risk selection and underwriting, intelligent pricing, and fully personalised customer experiences. These benefits can be seen throughout the full policy lifecycle – from instant quotes based on accurate data, to intelligent policy updates triggered by changes in live customer data, to seamless renewals and claims submissions.
The ultimate ambition for everyone involved in insurance should be to better protect customers and in doing so deliver sustainable business growth.
In a rapidly changing world, new risks are emerging all the time and the protection gap is widening – fuelled by everything from the digitalisation of the world economy and the emergence of new industries and ways of working, to the increasingly obvious impacts of climate change and global geopolitical crises.
Embedded insurance of course isn’t the answer to all these problems, but it does present an opportunity for insurers and their partners to work together to make a difference. By leveraging the latest technologies to build smart, simple and contextual embedded insurance offers, companies can better protect their customers in an increasingly risky world.
Kanopi is one of the top 50 companies globally, championing embedded insurance and helping insurers every day. We do this by enabling them to overcome the hurdles of legacy infrastructure, integrate with multiple third-party platforms and build seamless user journeys for customers.
Building a strong digital strategy is the first step to success in a highly competitive insurance landscape. Get started with your digital transformation journey, download Kanopi’s FREE guide to building an insurance platform of the future.