Many in the insurance industry are excited about the potential for embedded insurance, and it’s easy to see why. A recent InsTech London report forecasts that the market could be $722 billion in gross written premium globally by 2030.
While embedded insurance is already established in the consumer space, the industry has only begun to scratch the surface of its potential. At MAPFRE, we believe it is inevitable that this market will continue to grow. Customers love the ease of it, and it offers significant opportunities for insurers to launch products, attract customers and save on distribution costs.
What is embedded insurance?
We’re all familiar with embedded insurance in practice. Concert venues offer us cancellation insurance, and airlines offer us travel insurance when we buy tickets. Amazon even offers insurance on higher-value products when we check out.
Selling add-on insurance at the point of sale is just one piece of this puzzle, however. InsTech London defines embedded insurance as “abstracting insurance functionality into technology in a way that enables any third-party distributor (usually product or service providers in other sectors) to seamlessly integrate insurance products and solutions into their own customer propositions and journeys.”
Looking at the bigger picture, at MAPFRE we see embedded insurance as part of a broader evolution toward offering policies that leverage data to offer real-time pricing in line with the needs of today’s customers – and that includes business customers in the commercial lines space.
Why is it growing so fast?
Today, consumers demand convenience. For certain products, they expect to buy the right protection for specific needs with a couple of clicks on their smartphone.
Embedded insurance is the natural evolution of other trends that we have been observing in the sector for years, such as micro, on-demand, pay-as-you-drive, pay-how-you-drive and so on. Many clients no longer perceive value in traditional long-term policies, where the price stays fixed regardless of when or how they use it. For customers like these, embedded insurance seems much fairer because it is targeting the customization they are looking for.
See also: Embedded Insurance — Both Old and New
For distributors such as banks, retailers, landlords and car manufacturers, offering insurance as part of a transaction generates extra revenue and increases the perceived value or convenience of their services. With digital ecosystems fast becoming the norm, it is natural for distributors to build on existing insurance partnerships – or seek new ones – to expand the range of insurance products they can offer.
For insurers, embedded insurance has the potential to reduce distribution costs by integrating products directly into sellers’ platforms. It also offers the chance to win new customers with more flexible, easy-to-buy policies suited to modern lifestyles.
Smartphones, wearables, IoT sensors, vehicles and countless other sources now generate new sources of data – much of it available in real time – to enable the industry to embed new products. At the same time, cloud-based digital platforms that are mobile and API-enabled make it possible to configure products and services around customer journeys, so firms can offer the right products to customers at the right times.
The impact of this can be seen in the plethora of insurtechs now offering variations on the theme of embedded insurance. RentSpree is a tenant verification platform that just announced a partnership with Sure to offer renters insurance, for example.
Insurance distribution opportunities
One way embedded insurance is gaining traction is by offering the opportunity for more companies to become insurance distributors.
In the home insurance space, the insurance comparison website Young Alfred allows mortgage providers, real estate firms and asset managers to partner with them to sell embedded insurance as part of their propositions.
When it comes to fleet insurance, U.K.-based MGA and SaaS platform Flock recently announced a partnership with Jaguar’s rental service, THE OUT, to provide usage-based policies for its fleet. In the U.S., Turo has partnered with Liberty Mutual to provide its own insurance product, Rivian has announced embedded products for their recreational vehicles and Outdoorsy works with Assurant to insure its RV rentals.
This shows the market opportunity for such start-ups that enable embedded insurance, as well as for the incumbent insurers that partner with them.
Yet we see even more potential in the commercial insurance space for insurers and start-ups that are willing to make the leap. According to Swiss Re, the protection gap between the amount of insurance deemed socially and economically beneficial for households and businesses has doubled between 2000 and 2020. As an example, only 0.2% of U.K. SMEs bought business protection insurance in 2019 and 2020.
According to Swiss Re, this gap has been driven by global trends in digitization, urbanization, climate change and a lack of effective innovation. Another factor for SMEs is that they find existing insurance products hard to understand and time-consuming to buy. Embedding appropriate policies would make the buying process easier and more convenient, helping to bridge this gap, while massively increasing revenues for insurers.
In the commercial lines space, we at MAPFRE see a particular opportunity with cyber insurance, where risks to firms are increasing rapidly but existing policies remain inflexible, hard to understand and potentially incorrectly priced.
In the wake of COVID, commercial buildings cover is likely to be another area of opportunity. With the rise of hybrid working, many businesses may no longer want to insure their premises in the same way, preferring to insure specific key assets instead.
See also: Designing a Digital Insurance Ecosystem
The potential rewards are great
In short, the potential to leverage businesses as distributors while also offering more bespoke insurance products could unlock huge untapped potential. Where changing consumer needs are driving rapid adoption of embedded insurance in the B2C space, we see the potential for this to happen in the B2B space, too, albeit early days for this.
The more we become used to embedded insurance as consumers, the more business owners and business leaders will come to expect the same convenience and flexibility for their firms. The rewards for those insurers that take the leap will be immense, and, from our perspective, it is not a question of “if” this will happen, but “when.”