Why Embedded Insurance is The Way Forward for Insurance Distribution

Recently, InsTech London reported that the embedded insurance market is predicted to reach $722bn by the year 2030 in gross written premiums (GWP). That’s a big market which insurers shouldn’t—and can’t afford to—ignore. 

How can insurers and insurance businesses position themselves to take a healthy slice of this big pie? In this article, we give our expert opinions and market insights on how insurers can get into the opportunities created by embedded insurance.

What is Embedded Insurance?

Embedded insurance is a type of insurance that’s integrated as a product or service within an offer by a third party, whereby the third party’s core offering may not necessarily be in insurance.

Some examples of embedded insurance is an e-hailing company offering short-distance travel insurance as an add-on for an additional small percentage of the fare. Another example is a hotel that offers health insurance coverage during a person’s stay as an add-on service. 

What this means is that, unlike traditional insurance, embedded insurance allows consumers to only pay for a specific insurance when they need it.

What are the Benefits of Embedded Insurance?

The very nature of embedded insurance gives consumers a better user experience. And we all know that a better customer experience often leads to returning customers and business growth—clearly a win-win situation for all parties.

How does embedded insurance make customers happier in the first place? Let’s dive into an example to understand.

Imagine a consumer is interested in health insurance. This consumer also likes to travel quite often, so it’s important for their policy to have the option of adding health coverage for travel. Traditionally, this consumer would most likely sign up for an annual health insurance package that includes extra premiums for health coverage when traveling. 

Travel plans, however, can change. As COVID-19 proved, it can change rather quickly and drastically beyond the consumer’s control.

Now, the customer has not been able to travel for the entire year. The result? They end up feeling like they overpaid for their insurance. This dissatisfaction makes them less likely to renew their insurance, costing the insurance business the loss of a customer.

Let’s now imagine that the insurance business had instead partnered up with a hotel to offer embedded health insurance with every hotel booking. In this situation, the customer gets the exact insurance they need at the exact point in time they need it—which is when they are checking into a hotel.

By paying for what they want, when they need it, customers won’t feel like they’re overpaying. In turn, they’ll more likely become returning customers and are also more likely to recommend the package to others. Even the hotel benefits, because they are offering a value-added service for their customers.

In essence, embedded insurance offers a level of personalized insurance that is more relevant to consumers, cheaper for them, and meets them where they are.

Our head of sales UK, Alex Astengo, affirms the importance of meeting customers where they are: 

“Insurance is being pushed to purchase at point of need, and embedded insurance makes this possible by minimizing friction in the purchase and enrollment.”

Transforming the Future of Insurance Distribution

By pushing consumers to purchase insurance at the point of need, embedded insurance has made a significant contribution towards transforming the future of insurance distribution

Traditionally, insurance has been distributed through insurance intermediaries, such as agents and brokers, and insurance companies that sell directly to consumers. Now, with embedded insurance, ancillary insurance intermediaries whose core business isn’t insurance are able to distribute insurance as a value-add service to their primary offer.

This shift in insurance distribution, thanks to embedded insurance, directly affects the availability and affordability of insurance. This can give insurers with the right ancillary insurance intermediaries as partners a massive competitive advantage.

Why is Embedded Insurance Trending Now?

While embedded insurance is not something brand new in the industry, its popularity is now exploding due to a number of market factors. 

The first factor is the fact that millennials are now the largest buying market in the insurance industry. These digital natives are accustomed to companies utilizing technology meeting their needs seamlessly through embedded touch points during the consumer journey. Thus, millennials also expect the same level of personalization and digitization from their insurance. 

The second factor is the rise of investments in insurtech. Insurtech Digital recently reported that investment in insurtech reached a record of $10.5bn of investments during the first three quarters of 2021. Compare this to 10 years prior, when total global insurtech investments was only $140 million for the entire year of 2011 (McKinsey & Company).

With large scale investments pouring into insurtech, many innovative startups and forward-thinking insurers have had the funds to leverage cloud computing for a competitive advantage and spearhead a shift in the insurance industry. 

Given these two factors, the conditions were already ripe for embedded insurance to explode into the mainstream market. It just needed a little nudge to get it over the tipping point.

That little nudge came in the form of the pandemic which, as the third market factor, pushed embedded insurance into mainstream popularity. When COVID-19 hit, personalized insurance delivered digitally at the point the customer needed were no longer just the wishes of the millennials. It has now become a necessity for all insurance consumers. 

Insurance businesses that found the right partnerships to make their embedded insurance easily accessible through digital platforms were the ones that gained the biggest competitive advantage during these challenging times.

The Importance of Creating Smart Partnerships

A central feature of embedded insurance is having the right partnerships. This is where out-of-the-box thinking can give insurers an edge over the competition. 

Mariia Shvets, our head of marketing, says the right partnerships can expand insurers and InsurTechs customer base and distribution. 

“More and more insurers are teaming up with P2P platforms to provide cover for assets or services,” explains Shvets. “Through such partnerships, insurance providers gain access to new target groups and business lines as digital platforms are well positioned to connect insurers with customers. This is enabling insurers to distribute their products through marketplace platforms, reassuring sharers that the policies they take out are relevant to the cover they need.”

Supporting Shvets, Astengo adds that in most embedded offerings, “the non-insurers will not want to take on regulatory and compliance requirements of insurers, so partnerships could benefit them in this way also.” 

“Collaboration is typical in insurance and embedded offerings have been provided before,” Astengo elaborates. “What's different now is the ability of the partners to use data to offer more personalized and appropriate options to customers.”

3 Ways Insurers Can Prepare for Embedded Insurance

Given the market forces and consumer demands, it’s clear that embedded insurance is not just a flash in the pan. It will be the way forward for insurance distribution, and anyone who’s not on board will be left behind. 

Insurers can best prepare for this change by focusing on customer-centricity, investing in digital transformation, and being transparent with consumers.

1. Focus on customer-centricity

The insurance industry is a tough industry to be in. The competition is fierce and changing at an alarming rate. Insurers should focus on customer-centricity to stay ahead of the curve and provide a better customer experience. 

We can’t emphasize enough the importance of putting customer experience as the top priority whenever designing embedded insurance offers.

The core reason why embedded insurance is becoming so popular is because of how it meets a customer’s personal needs. Therefore, failing to make an embedded insurance package customer-centric could spell doom and a massive loss of investment for insurance businesses and their partners.

2. Invest in digital transformation


Insurers should invest in digital transformation in order to gain the insights needed to create personalized, embedded insurance packages.

Digital transformation opens the door to leverage insurtech trends such as artificial intelligence (AI) and blockchain, both of which can support a successful roll-out of embedded insurance packages.

AI, for example, can rapidly analyze customer data from sources like social media and other cloud-based industries to produce insights for personalized, embedded insurance offers. While blockchain can allow for transparency between insurers and their embedded insurance partner. 

3. Be transparent with consumers


Consumers don’t want to have to read long pages of terms and conditions. Since embedded insurance is offered during a point of need of a consumer journey, it needs to be straight to the point and transparent.

Astengo stresses this need for transparency because it’s important for the consumer to understand the product they are purchasing.

“The main issue I foresee is the reputation risk to the consumer brand if claims are not handled in an appropriate manner,” he explains. “This may be linked to the level of coverage perceived by clients not being the reality, so messaging needs to be very clear.”

Start Thinking Out of the Box

In summary, embedded insurance is going to be one of the primary channels of insurance distribution. To make sure they don’t miss out on this trend, insurers need to put on their creative thinking caps and create innovative partnerships to offer personalized insurance through embedded insurance packages. 

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