The Future of Insurance: How Embedded Insurance Drives Growth

embedded insurance

Insurance has a rich history spanning many years, and traditionally, the sales model for insurance has relied on independent agents/brokers or captive agents. However, in the past decade, we have seen a notable rise in technology adoption by insurers, enabling them to leverage apps and other digital tools to connect with a broader range of customers. Moreover, a recent trend in the insurance industry involves introducing embedded insurance products. This innovation allows insurance carriers to broaden their offerings and cater to a more diverse and specific customer base.

Embedded insurance products require a partnership between an insurance company and some other industry or platform where insurers can potentially take advantage of rapid growth and long-term customer loyalty. Here we will review many of the pros and cons of embedded insurance products for insurers and consumers.

Positive Aspects of Embedded Insurance Products for Insurance Carriers

Increased revenue

One of the most significant advantages of embedded insurance products is that they immediately increase revenue streams once implemented. When an insurance carrier can collaborate with a business or a platform in various sectors, it allows them to tap into new markets by customers who are already sold on a product and have not even considered the insurance implications before their purchase. When embedded insurance is presented, it is a “no-brainer” for most consumers simply because of the convenience of the transaction. 

Customer retention

Because the customer is already sold on a product, they are loyal to the product, and the insurance associated with it is likely to increase. This is because once customers find a comprehensive solution that addresses their needs in one place, they are more likely to stay with that provider. Additionally, they may not even consider alternative insurance products if the embedded insurance product is designed to mesh indistinguishably with the underlying product.

Enhanced market reach

What insurance companies partner with other businesses inevitably opens doors to previously untapped markets. Embedded insurance products will cater to a laser-focused segment of insurance consumers. Moreover, the product will not only be presented to this consumer as an option but as an option. This will allow insurers to reach people they may not ordinarily be able to get in a standard distribution system of independent or captive agents.

Streamlined embedded insurance distribution.

Traditionally if someone were to buy a car, they would have to contact their agent and procure a policy that would meet all the statutory requirements and the individual’s risk requirements in terms of liability limits and coverage addendums. With an embedded insurance product, sticking with the automobile example, the consumer would purchase the vehicle and the insurance in one transaction. The tailored package would be presented to the consumer with two or three levels to choose from that would all provide them with adequate insurance at the stroke of a pen or the click of a button.

Risk mitigation 

Embedded insurance products create a relationship between an insurer and the maker of the effect. The insurer will have access to risk information that would not otherwise be readily available to an average insurer. Working closely with the main product will put the insurer in touch with all the research, development, and expertise that the maker of that product has. This will allow the insurer to tailor the product to maintain a profitable portfolio. 

Negative Aspects of Embedded Insurance Products for Insurance Carriers

Now that we have covered a list of positive attributes of embedded insurance products, it is time to look at some of the negative aspects of this product that might affect the insurance industry.

Increased complexity

Everything said in this post about collaboration with external partners who offer some product or service means that insurance carriers must now collaborate with external partners who provide some product or service! Who has time for that? Insurance companies must develop a new way to relate to these entities and foster a working relationship that works for the end user. It will mean increased complexity overall.

Dependency on partners

Working with partners means that everybody must carry their weight. If insurance carriers put in the effort to deal with the increased complexity of building a relationship with a partner, the partner had better deliver on their promises. Their failure to do so is a risk that the insurance companies must consider in the embedded insurance scheme.

Regulatory compliance

Each state has its insurance regulations, and insurance carriers must be cognizant of any regulations they may stumble into if they partner with a business that operates in states where the insurance company does not. Furthermore, the insurance carrier may be unaware of industries with specific legal requirements. This presents an additional layer of risk that insurance carriers must consider. 

Security and privacy concerns with embedded insurance

Insurance carriers, particularly New York State, are heavily bound by cybersecurity rules and regulations. Suppose they partner with a business that provides products or services to the end user. In that case, it will be imperative for these carriers to ensure that the partner is exercising the same level of concern and care for cybersecurity issues. Otherwise, this creates an additional risk for the insurance carrier that they must consider before entering such a relationship.

Brand dilution

For insurers who have a significant presence and stature in the industry, partnering with a manufacturer or provider of services who does not want the brand of the insurance carrier to be the quote big story quote of the product means that the insurer will have to take a back seat to the product being offered to the end user. This could create channel conflict, especially for carriers used to marketing directly to the public. This is another risk that insurers must consider before entering such an agreement.

We have discussed some pros and cons of embedded insurance products for insurance carriers. Now we will examine whether embedded Insurance products are positive or negative for consumers.

Pros and Cons for Consumers with Embedded Insurance Products

Seamless experience

The positive aspect of invented insurance is that the consumer will have a seamless experience and will not have to be troubled with having to go out and find an insurance product to address the new purchase they have just made. Instead, the process has been streamlined into the buying experience, and no further work is required.

Tailored coverage

Sometimes, insurance coverage must be tailored to the consumer’s needs for specialty products. Often this means that the agent or broker will have to clearly understand what the product is being insured and the ramifications if it is not guaranteed correctly. In an embedded insurance scenario, coverage is tailored to the item purchased long before the consumer enters the picture.

Cost savings

Economies of scale will significantly affect embedded insurance products, but you are for products that reach a broad audience of consumers. Insurance carriers can offer discounts to consumers, potentially preventing them from looking elsewhere for their insurance needs.

Enhanced accessibility

Embedded insurance products provide access to coverage that the consumer would not have previously considered. From a consumer standpoint, risk management is often limited to the coaching or advice from a trusted independent insurance agent. With embedded insurance products, consumers can learn more about the risks they are taking with a particular purchase of a product or service, and embedded insurance can add a layer of education and risk management that the consumer may not have already considered.

Well-embedded insurance products have benefits but also some significant drawbacks for consumers.

An embedded insurance product may result in a lack of customizable options for insurance products that a consumer may wish to explore. When embedded coverage is designed as a bundled product, it can restrict consumers from selecting specific coverage options or tailoring policies to their needs. 

In addition to limiting your options as a consumer, consumers mail so find that there is a lack of transparency. When policies are bundled together and sold with a product or service, sometimes the details of the coverages that are available are treated like fine print, which is often not read or discussed in detail with the product seller, who is likely not an insurance expert who could provide them with tailored advice regarding risk and insurance matters. 

Finally, embedded insurance products are designed to rely on a dependency between an insurer and the seller of a product or service. If that relationship were to break down at any time, the consumer could suffer from this breakdown. It could mean that coverage could lapse, or they have paid for an insurance product they no longer need.

Embedded Insurance Considerations for the Next Decade

As technology improves both in the physical and digital realm, insurers must embrace this ongoing innovation and seek more opportunities to collaborate with industries and platforms to expand embedded insurance offerings. Integrating seamlessly into the sales process will effectively increase sales and customer retention. While insurers and consumers should be aware of several negative aspects, these appear to be problems that can be solved with time and experience as consumers become more familiar with the concept of embedded insurance products. 

One surefire way to accomplish this is to ensure that insurance carriers create embedded products that maintain the ability to personalize the product. Flexibility must be an embedded insurance product component to be the most effective. 

While embedded insurance products offer both advantages and disadvantages for insurers and consumers alike, they are potentially one of the breakout products in the insurance industry over the next ten years. 

If insurers can successfully address consumer concerns over the upcoming decade, better insurance products may become the norm versus the exception.

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