Embedded insurance – the what, why and how

6 min read |

What is embedded insurance?

Embedded insurance is the bundling of insurance within a product or service at its point of sale. For example, getting your pair of shoes covered against accidental damage when you purchase footwear from your preferred brand. Embedded insurance therefore is about getting affordable, personalised, and relevant insurance solutions to customers when they can feel its need the most.

Insurtechs can do this by leveraging technology to enable third-party businesses to seamlessly incorporate the protection of insurance products into their customer journeys. In addition to being a value proposition for consumers, embedded insurance also acts as a revenue stream for third-party businesses. The advantages of embedded insurance have never been more apparent than today with the pandemic causing a paradigm shift in how the market functions.

How does embedded insurance work?

Embedded insurance moves from an outdated traditional insurance sales model to a modern more flexible approach. Insurtechs, that generally are insurance intermediaries offer insurance solutions to product and service providers to be embedded at any stage of the customer lifecycle. This B2B2C integration is powered by technology which makes bundling insurance solutions to existing purchase flows seamless.

To make embedded insurance work a digitized framework is essential. This gives embedded insurance the advantage of being included into the buying journey of any product or service. Since the insurance offering is linked to the core product, the customer then gets used to having insurance protection along with their purchase.

Let’s look at an example where a footwear retailer has embedded shoe insurance in its purchase journey: A customer purchases his choice of footwear from the retailer. The option to insure his pair of shoes is integrated into the purchase process as an add-on. By opting for the add-on coverage, the customer insures his shoes for a fraction their price. The customer can view his policy and file claims from a dashboard provided by the insurtech company. The policies are underwritten by an insurer thus opening a revenue stream. The claim process is automated and handled by the insurance intermediary.

Insurtechs have been able to leverage technology to be there are at the right place at the right time to cover any kind of risk. Access to relevant data and tech-based risk assessments allow insurtechs to set prices for embedded insurance offering accordingly. This ability to integrate with any businesses means that risks can be covered virtually anywhere.

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Impact due to Embedded insurance distributors

The rise of embedded financial products has been well documented. One of the key reasons is that embedded products can strongly leverage the “3Ds” of fintech namely, distribution, data, and delivery.. They enjoy a distribution advantage because they can be purchased where customers are, and with brands they trust. They can become features of a product rather than something that is separately bought. They can leverage different types of data for underwriting and claims. And because they are part of a broader offering, they can delight the customer in the delivery.

Why is embedded insurance more relevant than ever before?

Embedded insurance now delivers differentiated services to customers. This means that insurtechs should develop a deep understanding of its partners, the supply chain and customers. Embedded insurance has the capability to provide a plethora of solutions for insurers and business to work in collaboration to differentiate and scale offerings to new avenues. Thus adding value to all stakeholders involved.

‘Embedded insurance’ can be an incredible tool for insurers and intermediaries to increase insurance penetration, particularly in rural or other underserved regions of the country. Likewise, there are also significant benefits to customer’s ease of use and convenience.

Embedded insurance also helps close the gap in insurance protection for a country that is under insured like India. With embedded insurance gaining mainstream popularity it is a matter of time until all players jump on the bandwagon. Insurers, fintechs, product and service providers should look at defining strategies on how to win with embedded insurance solutions.