Chris Bassett is an insurance strategy and innovation specialist who partners with executives to drive profitable growth through new solution development and solving for complex business and operational challenges. He is currently a senior director with Capgemini U.S.
A couple of years ago, there was loads of enthusiasm about embedded insurance, but that seems to have lessened, at least in some quarters. To start us off, could you please tell us where you think we stand at the moment?
Embedded insurance isn’t particularly novel. There have long been forms of insurance that are made available at the point of sale. There’s bancassurance, for instance. You buy coverage when you’re hopping on a plane. There’s the whole warranty model.
You're capitalizing on the endorphins associated with making a purchase and the perception of the risk of losing that asset. What’s interesting is that a study found that consumers perceived the risk of loss of a particular item was around 7% while the actuarially calculated risk was 3% or 4%, so consumers may well be overestimating the potential for loss, which leads them to consider purchasing a warranty.
The challenge is: How can we make insurance a natural part of an overall transaction? We shouldn’t just say there’s a pull at the point of sale that we can capitalize on. Embedded insurance shouldn’t just be a bolt-on. The idea behind the “point of design” approach is to find a way to weave the insurance into a purchase and make a meaningful connection.
Where do you see opportunities to do that?
The first thing is to think about the design of the insurance product. Then we should also think about the long-term experience for the buyer.
We were looking at this with a large jewelry firm that sells through boutiques. They sell very, very high-end watches and jewelry. We explored completely redesigning the purchasing experience, including the idea that an insurance component was bundled in as part of the warranty and would tap into specific emotional triggers associated with the purchase.
You could actually take a step back and say, What if we redesign the entire product with insurance and potentially other financial services in mind? You want there to be such an obvious fit that it wouldn’t make sense to purchase the product and the insurance separately.
An example of this might be, say, Nike shoes that have health and wellbeing coverage built in. The design questions that you have around what makes a really appealing sort of sportswear are similar to the sorts of questions that underwriters can draw from in thinking about what this particular risk profile looks like. And there would be a natural affinity among people who bought the shoes, so you could build a community aspect around them.
You could also go beyond the point of sale. Let’s say you buy a car, and insurance is bundled in at the point of sale. There could also be an on-demand component. Maybe you later see the value of adding coverage, perhaps for long-term disability, and then take advantage of additional safety features in the vehicle. Maybe you tie home insurance together with risk prevention services and let people turn their coverage on or off, depending on whether they’re there.
So, from a “point of design” perspective, you can design a new sort of insurance product, you can weave an asset or service together with an insurance product in a way that aligns their value propositions or you can do a combination of the two and possibly include an on-demand component.
Let me ask about some of the objections I’ve seen raised about embedded insurance. I’ll start with agents and brokers. Don’t they get cut out? Won’t they block the trend or at least slow it greatly?
Yeah, absolutely, that’s an issue. But there is the potential to create enormous value for brokers and agents. We've looked at this in terms of vehicle telematics, more sophisticated home-related sensors and so on. The amount of information that agents and brokers now have access to about policyholders allows for a very different relationship.
To give you an example, we looked at small commercial truck fleets and saw that, beyond just helping policyholders improve their driving, brokers and agents could work with them to improve their general risk profile. Agents and brokers can become kind of a risk management coach and help clients reduce premiums. There's also the potential to gather a lot more personality-based information, about how people are living, how they’re behaving and so on. That provides an opportunity to look at different products that might interest customers.
Embedded products can create a continuing relationship that allows for data collection and engagement. That creates long-term opportunities even if there’s a short-term cost.
That’s an interesting way to look at the issue. What about the complexity? What happens when I go to a jeweler who wants to sell me insurance, but I already have a homeowner’s policy that covers my belongings?
You’d look to design complementary coverage. With the jeweler, for instance, we were dealing with rings that cost hundreds of thousands of dollars and that weren’t covered under homeowner’s policies, even though many buyers thought they were.
How about an objection that somebody raised in an article published with us recently? He wrote that, if the insurance becomes simple enough that I can just purchase it as I buy the ring or the plane ticket, then it becomes a commodity, and the airline or jewelry chain could easily swap out my insurance and swap you in. That would mean all the leverage in the relationship would go to the retail partner and make for a bad deal for the insurer.
We spent a lot of time looking at travel insurance, and, yes, there’s an enormous amount of control in the hands of the cruise lines and airlines as distributors. The key for insurers is to capture more information around clients’ personalities, around their risk preferences, and then reverse engineer to look at their value systems and build risk profiles.
You say, Okay, you bought travel insurance with us, and we know from the cruise line which events you chose to go on and sort of the nature of your movements on the ship, so that leads us to believe that you might be interested in these types of coverages or these types of services that we can offer.
This comes back to the difference between thinking about the point of sale and thinking about the point of design. Embedded insurance has got to be more than just the transaction.
Any final words?
Outside of automotive, where some initial partnerships and exploration are happening, I haven’t seen a lot of activity. But I think there's a compelling opportunity for insurers to start working with technology firms to look at emerging technologies and see how they might enable embedded insurance offerings.
I also think all organizations, including insurers, need to start building partnership muscles. The ability to identify the right kind of partners to work with and to build strong connections with them tends to be fairly weak. Companies need to work at better identifying partners and at codeveloping solutions.
People don't think of developing partnerships as a skill that has to be developed. But it is, and building strength takes time. I think your description of the need for partnership muscles is spot-on.