As digitization transforms the way people browse and buy goods, insurance companies are looking at old markets in new ways. Including insurance with the price of a car or home is just one of many new avenues digitization has made possible.
Embedded homeowners insurance, which is included in the purchase price of the home or added during the mortgage process, can solve several problems for buyers. It also represents an opportunity for property and casualty insurers to reach qualified customers at the precise moment they want to buy coverage.
Embedded insurance coverage is also becoming more popular because it leverages some of the biggest trends already transforming insurance. Mobile technology, improved data analysis and a rise in weather-related property claims are all changing the way property and casualty insurers think about coverage, says Kevin Reilley in PropertyCasualty360.
Big data and better mobile connectivity make it easier for insurers and insurtech startups to connect their coverage directly to an item being purchased. For instance, companies like Tesla and BMW now bundle auto insurance with the purchase of a new vehicle, says Alanis King at Jalopnik.
As embedded auto insurance gains traction, P&C carriers and insurtech startups are also looking at ways to embed homeowners insurance with the purchase of a new home.
Most homeowners insurance policies are purchased the same way they have been for decades. Customers either research options online, get recommendations from friends or work with an agent. When using such processes to research insurance, however, consumers often struggle to distinguish products and companies, says Pádraig Floyd at The Digital Insurer.
New homebuyers don’t always know when they’ll need to buy homeowners coverage for their new dwelling. They may also struggle to decide the type and amount of coverage that will offer the best protection, says Brandon Cornett at Home Buying Institute. While buying homeowners insurance can seem simple on its own, it can feel more difficult during the homebuying process.
For instance, many customers don’t realize they can shop for homeowners insurance 30 days or more before closing, says Josh Lipstone, vice president at Lipstone Insurance Group. Nor do they realize that shopping early can result in better coverage for the specific dwelling they’re purchasing.
Buying a home is a complex process for most buyers, mainly due to a fragmented mortgage process and the participation of multiple parties, says Angela Strange at Andreessen Horowitz. The growth of mortgage regulation and requirements has made the process increasingly opaque and frustrating for buyers.
Startups in both fintech and insurtech can leverage this complexity to find new opportunities for business, says Strange. Offering home insurance as part of the homebuying process is only one such opportunity.
Rising casualty losses — plus the need to find and keep additional customers — have made embedded homeowners insurance a promising field for a number of insurance and insurtech companies.
In 2017, 6 percent of insured homes had a claim, but 98.1 percent of those claims were for property damage, according to data from the Insurance Information Institute (III). The most expensive claims included those caused by fire and lightning, and the most common were caused by wind, hail, water and freezing temperatures.
Both the frequency and severity of claims has increased in recent years, according to the III. In 2013, the average claim payment was $10,603; by 2017, that amount had risen to $15,532.
Embedded homeowners insurance can attract customers through its simplicity and stability. Including it as part of the purchase price reduces stress during the homebuying process. It may also be seen as part of the home itself, which may make some customers less interested in changing their homeowners insurance carrier based on price.
Embedded homeowners insurance also allows insurance companies to strengthen their relationship with customers by changing the conventional insurance approach.
“Insurance is the only product people buy that they hope they never use,” says Assaf Wand, CEO and co-founder of Hippo Insurance. Insurance companies that stay in regular contact and add value to their customer relationships, however, also build loyalty — often for a far lower cost than the price of acquiring new customers.
Wand predicts that insurance companies will begin to shift their focus to the customer, offering services that can prevent or mitigate damage, like regular checkups from certified plumbers or electricians. When included with an offer of embedded homeowners insurance, these value-added services can boost homebuyer confidence in their insurance company.
Banks, financial organizations and fintech companies are already interested in offering embedded homeowners insurance. This is because it gives customers a more streamlined experience, making them more interested in pursuing a mortgage.
“Buying a home is one of life’s biggest financial and personal decisions, and it can also be one of the most stressful. Creating a digital experience that simplifies the homebuying process enables us to alleviate some of its most challenging aspects,” says Eric Schuppenhauer, president of home mortgage at Citizens Bank.
Citizens Bank recently launched a digital mortgage platform and online home shopping portal. These tools help customers shop for homes, connect with local real estate agents and apply for a mortgage from the same online portal, says Ben Lane at HousingWire.
Partnering with a bank or financial institution can help an established carrier leverage existing interest in embedded homeowners insurance. The partnership helps both the insurer and lender access the data necessary to calculate more precise interest rates, premium prices and other factors.
Partnerships with realtors can offer similar opportunities for data analysis across businesses. As the point of contact for homebuyers, realtors already play a significant role in helping buyers understand their homeowners insurance needs when they buy a house, says Erin Salem at Roundtable Realty.
Insurance companies should aim to work with banks or realtors to bundle homeowners insurance with the home purchase price. This allows them to reach an audience that needs coverage, but isn’t sure how to shop for the right insurance product.
For insurers who prefer to sell homeowners insurance without a financial or fintech partnership, there are other options. Installing storm shutters or bundling home and auto coverage can attract customers seeking the best rates, says Cheryl Crews at Turner & Associates Insurance.
For both partnerships and new platforms, adaptive design is essential to success in a digital transformation of homeowners insurance, says Laura LaBerge, a senior knowledge expert at McKinsey. Whether insurers are partnering with financial institutions or streamlining their own homeowners insurance offerings, regularly adjusting digital strategies can increase chances of success, she adds.
While embedded auto insurance is taking off, embedded homeowners insurance remains an emerging market. Insurance companies that take the initiative early will establish themselves as key players in this space, improving their relationships with customers, mortgage companies and realtors.
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