Preparing for InsurTech’s Second Act: Embedded Insurance
The InsurTech industry has been around for about a decade, and experts say that while it has succeeded in bringing new entrants into the industry, it has struggled at times with distribution and customer acquisition. This is where embedded insurance is stepping in to fill some of those gaps, according to Sebastien Bert, co-head of strategic partnerships for the Americas at Swiss Re, on the most recent episode of Strategy Sessions.
Strategy Sessions is a monthly webinar series presented by Carrier Management that explores the biggest trends in insurance.
“I like to describe embedded insurance as changing how insurance is distributed,” Bert said. “I like to say it’s a second act to InsurTech.”
Bert said that Swiss Re began seeing a large new wave of entrants into the insurance industry around 2015 in what he described as the first InsurTech wave. A few years later in 2019, the company decided it was time to create strategic partnerships to address these new entrants.
“It wasn’t only for InsurTech, but we were seeing new entrants that were in the form of corporates that were doing embedded insurance, and that was something super interesting to us and a way to access new markets,” he said.
Embedded insurance is an emerging area of the insurance industry in which insurance is wrapped into the purchase of a product, such as a home or a car, bringing coverage directly to consumers at the point of sale. Bert said that while historically, the insurance industry has spent its resources and money trying to bring the customer to where insurance is sold, embedded insurance reverses that.
“We bring the insurance to where people live, shop, and work,” he said.
Most people have typically associated embedded insurance with simple products, such as warranty or travel, Bert said.
“If you think about when you go on Expedia or one of these travel sites, and you check out at the end, and it says, ‘Oh, if you want to buy travel insurance, click here,’ that’s been around for a number of years,” he said.
Now, that’s changing as insurers realize more products can become embedded.
“Think about everything that’s changed in the last 10 years of how we buy product and services. There’s the digitization of the purchase, the customer journey, companies like Amazon, that have changed how we shop and buy,” he said. “Customers are looking for bundle products and more personalization and that applies to all services, so insurance is not excluded from that. And if you think about the pandemic, that accelerated that trend.”
He said products that are increasingly becoming embedded include auto, home, small business, and even workers’ compensation. However, one challenge for insurers as embedded insurance expands into different product lines is around building the right partnerships.
“It’s a different type of partnership,” he said. “You’re working with a company that may or may have not ever had experience in the insurance industry.”
The key to approaching these partnerships is thinking long-term and considering any operational challenges that may arise, Bert said.
“You’re dealing with infrastructure that is non-insurance facing,” he said. “You want that customer journey to be seamless … and the navigation from the non-insurance side to the insurance side to be a smooth flow.”
Another big challenge when working with non-insurance partners is compliance and regulation.
“I think most insurance carriers and reinsurers are well aware of the regulatory needs around insurance, but when you’re working in other products and services, there are other sets of regulations that you might have to be cognizant of,” he said.
There’s also a consumer protection element when it comes to the use of data.
“The great thing about embedded insurance is that you have information on the customer that enables more of a seamless customer journey, but you also have to be aware of what type of regulations govern the protection of that customer data privacy and also the permission to use that data when offering a product,” Bert said.
With so much to consider, Bert said the most important thing for insurers when seeking to expand into embedded insurance is to develop a strategy and a shared vision with any partners that will come on board.
“We started off in 2019 with an idea of, ‘Hey, this is a market that we want to be in, both InsurTech and embedded insurance,’” he said. “But I would recommend insurance companies and reinsurers develop a strategy first. [Ask] what do you want to do? Because it’s a pretty big space, and there are a lot of new entrants. You have to figure out what your niche is first, what you want to do to grow and the right partnerships you want to go after.”
Understanding the motivations of all partners involved and making sure they’re aligned is also critical, he added. Although embedded insurance is still a small segment of the industry, Bert is optimistic that will change over the next decade. As change happens, he said it’s his hope that insurance will become more accessible and affordable to not only fill these distribution gaps seen in the market for insurers, but protection gaps for consumers.
“It takes time for these partners to onboard insurance within their products and services, so we foresee, you know, this is going to take maybe five to 10 years to be a significant portion of the industry,” he said. “Where I think is really exciting is the generation of new insurance where people didn’t buy it before. This is what we kind of dubbed the protection gap where people are either uninsured or underinsured, and they don’t even know about it or just choose not to buy it just because the products are not affordable or are hard to access. This is where embedded insurance can really help bridge the gap.”
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