Inflation remains stubbornly high, causing cost per claim to climb. In turn, premiums are forced to rise. Customers struggle to afford coverage, and insurers struggle to turn a profit. Forecasts for commercial auto suggest underwriting losses for 2022 through 2024 due to inflation. Something has to change, and it’s at times like these that innovation and technology come to the fore.
One innovation saving money and putting relevant insurance directly in front of customers is embedded insurance. With increased adoption of APIs (application programming interfaces), insurance products can seamlessly integrate into third-party buying processes.
Traditionally, insurers spent a significant portion of their budget on marketing. Embedded insurance removes that need as insurance is available for purchase at the exact moment a customer needs it. For example, Jetty offers insurance to renters at the time of lease through property management platforms. Customers are reminded to protect themselves and given an immediate opportunity to do so. Transactional proximity is convenient. It ensures the offering is relevant and ultimately increases uptake.
Nudging customers toward protection
Amid premium inflation and customers going without protection, embedded insurance reminds consumers to insure themselves. They are most aware of the value of an item (and the cost to lose it) at the purchase, so it is the opportune time to offer insurance.
For instance, the majority of travel insurance is purchased when travelers buy their airline ticket. In 2022, 73% of surveyed airlines offered embedded travel insurance. Giving customers an option to reduce risk with minimal effort reduces financial loss in the long term.
Traditionally, insurance applications contained a multitude of questions. However, insurers have found that minimizing questions and reducing friction increases their submission rates. Partnerships between insurers and consumer brands simplify the quoting process to just a few clicks. Information sharing between the insurer and third-party brands also makes it easier for each to improve customer experience. Insights into products bought, price point and customer behavior help insurers refine the purchasing journey, tailor coverages and ultimately reduce protection gaps.
When embedded insurance reaches maturity, it’s predicted to become a $3 trillion market. The insurance industry still has a way to go. Many products still lack embedded insurance offerings. There are huge opportunities for innovative insurers to grow market share, raising the question: How do insurers break into the embedded space?
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Where to start?
Unfortunately, there is no one-size-fits-all formula for new embedded insurance offerings. Bringing point-of-sale car insurance to the market will be vastly different than introducing point-of-sale home insurance. The strength of embedded insurance lies in its flexibility and personalization, making understanding customer needs vital.
Insurers first need to do their homework around price points, companies selling product or services that need protection and gaps in the market that embedded distribution can fill. With market research and self-examination, insurers can pinpoint market opportunities.
Once a gap in the market has been identified, insurers need to find a partner that services that segment. Suppose they’ve identified a lack of coverage for jewelry. The insurer might reach out to a jeweler like Signet or Tiffany to discuss integrating an insurance offering into the brand’s shopping journey.
Once the terms of a partnership are settled, the technical work of executing the integration begins. The insurers currently dominating embedded insurance are agile and fast-moving, often due to no-code insurance platforms tailor-made for the latest innovations.
Many major carriers still use legacy systems lacking agility and API integration points. These systems generally incur technical debt with every update. With a digital insurance platform, bringing embedded insurance products to market is rapid, and flexible data models mean that all data can be captured, analyzed and leveraged.
Bundling insurance with the product it protects makes sense for both customers and carriers. Insurers can enter new markets with more efficient distribution. Customers are reminded of risk to their purchase at the most important moment so the protection gap is closed. With the right digital architecture, embedded insurance can bring the next big bang to the industry, making it easier to bring insurance exactly where customers need it.