Embedded Insurance – Things You Must Know

5 min read
Mar 22, 2023 3:00:00 PM

The insurance industry has seen a significant change as a result of the tremendous upsurge of artificial intelligence, the internet of things, big data analytics, and machine learning in recent years. 

The way clients buy insurance has evolved, thanks to embedded insurance, which entails utilizing digital technology to deliver digital transformation solutions smoothly and offer more value to many stakeholders. 

Whether clients pay a toll for a bridge, fill up their gas tank, or visit the garage for a service inspection, insurers have the opportunity to market their insurance product via advertisements and other means. 

By doing this, the insurer may reach new consumer groups in novel ways with novel - and more alluring - insurance products and become a part of people's everyday mentality. 

Let’s understand the concept of embedded insurance in a little detail.  

Embedded Insurance: What Is It? 

Embedded insurance is simply the real-time digital bundling of pertinent insurance policies with the purchase of an item or service. It is an integrated insurance, for instance, when you buy airline tickets and are given the chance to add travel insurance to your basket before checking out. 

It's interesting to note that embedded insurance is not a novel idea. Bancassurance agreements between banks and insurance firms have allowed it to operate since the 1980s. This made it possible for insurers to use their sales representatives to offer appropriate policies to bank clients. 

Many digital transformation companies, like TransformHub, are helping the insurance sector create the ideal digital platform to provide embedded insurance as one of the most distinctive digital transformation solutions to their clients. 

Yet, as it becomes more practical for insurance firms to install the appropriate sort of insurance product immediately when a consumer is purchasing a product or service online, embedded insurance has grown in popularity in the digital era. 

Customers are spared the inconvenience of looking for insurance elsewhere, while insurers benefit from lower sales costs and higher client retention. 

Insurance that is embedded in a product might be advertised to clients as the following. 

  • The client has the option to purchase the insurance in addition to the product or service they are purchasing. For instance, choosing extended insurance coverage when buying a new mobile phone. 
  • Choosing not to buy insurance when it is automatically included with the initial purchase. For instance, a consumer may have to decline the embedded offer if they want to shop around for a policy if the required insurance coverage is included in the price of electronic equipment. 

Moreover, the embedding may occasionally be undetectable. As an illustration, consider a situation where insurance is so closely related to the main product or service the consumer is buying that it is automatically incorporated. Invisible embedding is used in Uber's ridesharing insurance, which covers both drivers and passengers. 

The End Customer’s Digital Behavior 

The idea of embedded insurance is not new. As was already mentioned, it is a contract between a bank and an insurance company that permits the insurance company to market its products to the clients of the banks through the sales agents working for the banks. 

Both businesses profit by embedding insurance. Without adding additional salespeople, banks may increase their revenue by offering insurance products, and insurance firms can grow their clientele. They lower their cost of sales as a result. Finally, both businesses benefit from greater client retention and higher customer satisfaction. 

Until recently, embedded insurance was dependent on analog sales procedures where distribution partners and insurance providers would trade leads. Contact is then made with these leads over the phone or another analog method. The rapidly evolving nature of embedded insurance is a result of digital client behavior. 

Nowadays, most businesses that provide products or services to consumers use digital sales platforms. Thus, embedded insurance must be digitized. To do this, insurance must be made available as a component of online purchasing flows, through e-commerce platforms, integrated into applications, and on standalone websites - even at non-points of sales. 

Types of Embedded Insurance 

Several embedding techniques exist. The most common embedding techniques employed by insurance firms are broken down as follows: 

  1. Linked embedding

The goal of linked embedding is to convert the partner's point of sale into a sales channel for insurance. The end-user interacts with the insurance product as an addition to your partner's sales flow, in other words. An electronics vendor who connects extended warranty insurance to a TV or a smartphone is an example of connected embedding. 

  1. Bundled embedding

When the insurance is bundled with or included in your partner's products or services in this situation, you sell insurance whenever your partner makes a sale. 

A user may purchase bundled integrated insurance together with other services with only one click. So, it's crucial that your insurance be pertinent and viewed as being inextricably linked to the product or service from the customer's perspective. 

  1. Related embedding

Offering insurance to the consumer at any digital location within the partner's digital universe is a related embedding. Here, insurance can be digitally positioned in a way that connects the core product's linked value to insurance. It does not, however, depend on a business deal between a partner and a client. 

For distribution partners who want to offer insurance and generate money from their current website, related embedding is a can't-get-enough delicacy. 

The explanation is that they recognize the extra value of providing insurance, which is equivalent to higher commission income and longer client lifetime values. Also, distribution partners may benefit from this without turning their online space into an advertising circus while also boosting client loyalty. 

Why Implement Embedded Insurance? 

The following are some important justifications to consider embedded insurance in the future, which has the potential to revolutionize the whole sector: 

  1. It might be able to close the protection gap

For clients, buying a one-time insurance coverage might be difficult. If it is integrated into other non-insurance products, however, it gives buyers a reason to purchase the policy without having to put in a lot of effort and protect themselves from losses. 

In addition, there is a protection gap of $1.2 trillion, which is the discrepancy between the amount of insurance that a client could buy and the quantity of insurance that was bought. 

Finding these loopholes and integrating their insurance policies through the appropriate channels to interact with online clients is a major potential for insurance firms. 

Insurance companies can embed their policies nearly everywhere they want, thanks to the top digital transformation companies which can effortlessly interact with any legacy or third-party system and give them an advantage over the competition. 

  1. It may open doors to new markets

Inroads into undeveloped markets are made possible by embedded insurance. 

For instance, insurers in underdeveloped countries might not be able to directly offer the products to economically disadvantaged clients. 

Nonetheless, they may collaborate with the microfinance sector and provide suitable insurance products to rural markets thanks to embedded insurance procedures. 

  1. It lowers the expense of gaining new clients

Each insurer will find that adding new clients comes at a high expense. 

Yet, the cost decreases dramatically as integrated insurance makes use of affinity alliances and utilizes the customer acquisition channels already in place for the core product. 

This lowers client premiums while increasing the insurer's profit margins. 

  1. Easier claim procedure

The consumer and the insurer benefit from a simple insurance transaction. The claim process is simplified with embedded insurance since insurers have access to data gathered during the onboarding phase that may be utilized for assessing and resolving claims. 

It is vital to bundle the pertinent insurance plans and show them to the appropriate audience across such channels, given that most customers rely on omnichannel applications to make any purchase choice. 

Embedded Insurance to Drive the Future 

Surviving the competition in the B2B insurance industry is no easy task. Businesses need a workable strategy to attract new clients at the lowest feasible cost while yet meeting their needs. 

With embedded insurance, insurers may increase their client base and target those who are present in various digital ecosystems. 

Digital embedded insurance presents a never-seen-before possibility for insurance providers as well as for businesses that now sell insurance via direct or lead distribution models. It's time to invest in a data-based digital integrated insurance solution if you want to be where your consumers are (and where your competitors aren't). 

Let’s Connect 

With TransformHub, one of the top digital transformation companies in Singapore, you have access to precisely tailored solutions that are accountable to digitally transform your business. To set up a consultation, get in touch now!