Embedded insurance pairs insurance coverage with a related product or service — often, the very product or service for which coverage is required. Auto insurance may be embedded in the purchase price of a vehicle, for instance, or coverage for damage may be offered at the point of sale of a new laptop or phone.
By connecting carriers to customers at the moment insurance is most needed, embedded insurance has opened up new customer relationships for insurers. Yet the relationship isn’t one-sided. Embedded insurance benefits consumers as well as carriers.
Insurance is a complex topic. For consumers without specialized knowledge, insurance can be baffling to purchase.
“Most consumers shy away from insurance owing to its long and tedious process and paperwork,” writes Christian Nordqvist, cofounder and editor at Market Business News. Overwhelmed by choices and questions, customers may purchase the wrong policy or forgo coverage altogether.
Embedded insurance offers a solution. By placing the coverage a consumer needs at the point of sale, embedded insurance eliminates the need to understand coverage needs or compare policies. It provides customers with peace of mind: They’re receiving the right coverage for their needs, and they’re able to take care of it as part of acquiring a new car, house, plane ticket, or other item for which coverage is needed.
Embedded insurance makes the process of obtaining coverage simpler for customers. It also opens up opportunities for customers to get the coverage they need for the risks they actually face.
For decades, auto insurance has relied on a vast array of data in order to set rates for drivers. Policies have been purchased for set time spans, and they apply whether the vehicle is actually driven or is sitting in a garage. The factors used to assess drivers’ individual risk aren’t always well correlated to actual driving behavior, and some have even been found to be discriminatory, writes Zendrive CEO and founder Jonathan Matus.
Embedded coverage offers an opportunity to change that arrangement to benefit both insurers and customers. Underwriting improves when data is more accurate and thorough. For customers, coverage becomes easier to understand and appreciate when it’s tied to the customer’s actual behavior and needs. Customers know they’re getting the coverage they need for the risks they actually face, which boosts their confidence in their insurance and their insurer.
“Forty percent of insurance is going to be embedded over the next 10 to 20 years,” predicts Denise Garth, chief strategy officer at Majesco. The shift to embedded insurance will also change the way carriers think about distribution. Rather than selling a product to consumers, insurers will begin to think about how to meet customers’ various needs and where those customers will benefit from frictionless access to coverage.
Currently, customers find insurance’s technical terms and complex paperwork to be daunting. Embedded insurance offers a way to streamline distribution — but it also generates an opportunity for insurers to rethink their communications from a customer’s perspective.
“Embedding financial products requires simple clear product, with simple clear explanations,” writes Alex Lazarow of Cathay Innovation. Insurers that focus on providing this clarity will encourage customers to embrace embedded policies. These insurers will also build consumer trust and loyalty by helping customers understand the value of their coverage.
Embedded insurance offers benefits for both carriers and customers. To realize these benefits, carriers will need to treat embedded insurance not merely as another distribution model but as an opportunity to create streamlined, personalized and organized opportunities to build customer relationships.
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