The prospects for embedded insurance in the big-ticket P&C market
The rise of embedded insurance gives carriers an opportunity to partner with vendors of consumer products and services and leverage their distribution network and customer relationships.
Embedded insurance is big news right now. For younger consumers in particular, the idea of purchasing a purpose-built insurance solution along with the thing it insures makes a lot of sense.
So far so good, but an increasing emphasis on embedded insurance means that less tech-savvy insurers risk being outflanked by data-native insurtechs untrammelled by legacy systems and practices.
Bundling insurance and protection products with a product or service in real time can smooth the path to a sale by making the offer of cover at the precise moment when the need for it is clearest in the purchaser’s mind. Enabling such seamless point-of-sale purchases is a technology-intensive process. It relies on a rapid and connected mobilisation of data, automation and AI. For now, the attention is mostly focused on B2C applications, but an embedded insurance approach could ultimately play a significant role in reshaping B2B insurance sales.
Many leading insurance carriers are making big investments in the technology they need to play in the embedded insurance space. Meanwhile, early-stage companies are pivoting to gain the agility and flexibility they need to compete in the new insurance universe that’s beginning to emerge. The potential is clear. Some believe embedded insurance could be a $3 trillion market in years to come.
And there’s more to embedded insurance than a basic add-on sale. With data-driven customisation built-in, it could develop into something far more revolutionary. Ultimately, embedded insurance will take a variety of forms. The property and casualty industry is broad, ranging from personal lines, through commercial lines, to a wide array of specialty covers - so definitions of embedded insurance will vary, depending on where the provider’s product focus lies.
There’s a big difference between selling in a way that makes it hard for someone to opt out and making the insurance value proposition irresistible because of how it’s distributed and priced.
Embedded insurance can be hyper-customised, based on what’s being purchased, how, when, and by whom. Bundling protection and insurance cover with products or services can be seen as enhancing the overall value of the purchase, because it is a tailored product, specifically appropriate to what’s being bought - rather than an ‘asynchronous transaction’ that may or may not turn out to have been a good fit.
The ecosystems in which we embed insurance solutions will help drive more accurate underwriting and claims handling. It will be important to remove as much friction as possible from the customer’s purchasing decision. There’s a big difference between selling in a way that makes it hard for someone to opt out and making the insurance value proposition irresistible because of how it’s distributed and priced. Data-driven embedded insurance makes it easy for the customer to recognise their own immediate needs in what’s being offered to them.
The key mistake to avoid for traditional players moving into the insurtech space is taking paper-based processes and simply replicating them in the digital universe. It’s essential to start with data-driven processes. Business models need to be fundamentally reimagined.
There is vast scope for tech innovators to engage with insurance providers to deliver new capabilities. Examples might include leveraging sophisticated digital mapping tools for visualising construction sites originally developed for architects and engineers. These can be adapted to support risk management and insurance applications. Another example might be technology solutions created to support the management and operation of solar panel assets - which again can generate valuable pricing and risk management data.
Predictive analytics has been identified by many commentators as playing a key part in the future of underwriting. This could take the place of many of the kinds of questions that currently feature on proposal forms and arise in the course of the underwriting process. But it won’t remove the need for skilled underwriters who are able to apply their own unique skills and experience. The winners in the new insurance landscape will be those who most successfully marry insurance expertise with technology.
As the boundaries between tech and insurance begin to blur, many businesses are encouraging software engineers to gain CII certification and other insurance qualifications. This is an approach we have already adopted at DOCOsoft. Combining insurance expertise and technology will be increasingly necessary in the years ahead. Collectively, as an industry, we need to ensure, not just that software professionals working in and around this industry understand insurance, but that everybody who works in insurance has a basic grounding in technology.
There has been a growing awareness over the past few years of just how important it is for (re)insurers to get closer to the original risk so they can better understand emerging risks in particular. Accessing the unprecedented amounts data captured by some of the newer tech-driven startups can massively improve (re)insurers’ ability to gain real insight into their books.
Insurance and reinsurance carriers’ ability to gain a deeper understanding across tranches of their portfolios and cohorts of their client bases is crucial. They need to be able to evaluate risk at a much more granular level — rather than relying on a ‘mystery box’ for pricing.
The big-ticket P&C insurance market is still at a comparatively early stage with embedded insurance. But a number of the big (re)insurance carriers DOCOsoft works with are already looking seriously at its potential. In the meantime, here at DOCOsoft, we’re making sure we have the knowledge and the capabilities to help our clients pursue their ambitions in the growing overlap between insurance and technology.