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What Does an Embedded Insurance World Look Like?

Embedded insurance continues to spread and grow. Its popularity stems from its ability to provide benefits to carriers, agents, third party businesses and customers — all in the same transaction. As technology makes it easier to offer embedded and point of sale coverage, it’s likely that customers will soon be able to access insurance for every need at the moment that need arises.

What does a world of embedded insurance look like? When point of sale coverage becomes the norm, what changes for insurers — and how does it affect the carrier-customer relationship? Envisioning an embedded insurance world can help insurers make better decisions about today’s tech investments.

Embedded Coverage and Recent Distribution Trends

Customers shop differently today than they did a decade ago. These habits affect nearly all purchases, not merely insurance. Customers may do their research online but make their purchases in person or over the phone. They may do their research in person but make their purchases online.

The way customers seek out insurance shapes their understanding of their insurance needs, writes Matteo Pisani at innovation platform Plug and Play. The information customers digest on their way to a purchase, and the source from which they obtain that information, affects the coverage choices they make.

Embedded coverage provides insurance at the point at which a customer is most likely to see the benefits of insurance — because they already see the value of the purchase or activity. Instead of insurers needing to sell customers on the value of insurance, customers buy coverage as a feature of a purchase they have already determined to make, writes Denise Garth, chief strategy officer at Majesco.

Customer behavior vis-a-vis insurance has changed dramatically in recent years. The relationship remains in a state of rapid growth. Further changes in customer expectations will continue to shape insurers’ approach to distribution, writes Gary Shaw at Deloitte. As customers become more familiar with embedded and point of sale insurance options, they are likely to change their behavior to embrace these opportunities.

What To Expect From Point of Sale Distribution Options

Embedded insurance wasn’t born in the digital age. Certain types of coverage, like travel insurance, have long been embedded in the price of the underlying purchase (like a train or airplane ticket) or available at the point of sale of these items (like the option to add cancellation coverage).

For many years, however, embedded and point of sale coverage was limited to risks that were clearly defined and simple to insure. Even today, as embedded insurance expands, the distribution model is making quicker progress when underwriting is straightforward.

Currently, several obstacles make a future of universal embedded insurance challenging for insurers to realize, writes global venture investor Alex Lazarow, author of “Out-Innovate.” These challenges include:

  • **Complex underwriting. **Lazarow cites life insurance as an example, but some property and casualty policies also must evaluate a number of complex factors for accurate underwriting.
  • **Understanding customer behavior and engagement. **For instance, insurance against cyber attacks relies heavily on what customers do or don’t do to prevent attacks and mitigate damage. Providing a point of sale policy without information on customers’ individual approaches to cyber security proves challenging.
  • **Handling multiple exclusions. **Not every auto, home, business or other insurance focus is the same. When multiple exclusions are present, such as multiple outbuildings on a property whose owners seek flood coverage, embedded “one size fits most” options will be a poor fit for that customer and property — as well as for the insurer.

Advances in technology will likely improve and change insurers’ underwriting capabilities in ways that make embedded insurance easier, even when the question is complex.

Yet turning to the technology poses another current problem for insurers: Does the carrier have the technological tools and capacity to meet their goals?

The tech question is a big one for today’s incumbent carriers. “While most insurers do try to focus on their strengths, they also typically underinvest in these areas and fail to act with urgency, resulting in a race to the middle,” write Ellen Walsh and fellow researchers at PwC. In the case of embedded coverage across the P&C spectrum, the tech ask is a big one — and insurers’ hesitancy to go all-in without support is understandable.

Insurers don’t have to meet the tech demands of embedded and point of sale insurance alone, however. Creating embedded insurance partnerships may help insurers clear some of these technological hurdles by forging partnerships with companies that already have some of the necessary tools in place.

“Generally non-insurers are able to take advantage of newer technologies which allow for customer-driven engagement” in a way that incumbent insurers may struggle to do, says Alex Astengo, head of sales UK at Cloud Insurance. By partnering with non-insurers who offer products and services that require coverage, insurers may be able to improve their own technological position while sharing the risk of technological evolution with a partner who is better equipped to handle the shift.

Above all, embedded and point of sale insurance options will lead to growth. “The potential to leverage businesses as distributors while also offering more bespoke insurance products could unlock huge untapped potential,” writes Joan Cusco, global head of transformation at MAPFRE.

Looking Forward: Point of Sale Insurance and the Future

Embedded insurance is driven by several technologies making inroads on insurance distribution, including artificial intelligence, distributed data collection and improved automation. As these technologies mature, insurers will find themselves able “to underwrite a much wider range of risks more or less automatically using real-world, real-time data from a variety of sources,” write Krish Krishnakanthan and fellow researchers at McKinsey.

For customers, many of these technologies are becoming part of everyday life. Artificial intelligence and distributed data collection underline personalized customer experiences online. Improved automation helps customers manage energy use, protect their homes from water and fire damage, and build more security without having to devote excess attention to the process.

The embedded insurance revolution won’t end with individual customers. Business owners who experience the benefits of embedded coverage as individual purchasers are likely to demand similar convenience for their companies, writes Cusco. As businesses seek the benefits that individuals already enjoy, embedded insurance will move from a B2C venture into B2B relationships.

“As a business model, [embedded insurance] has a lot going for it because it benefits the entire value chain - customers, distributors and insurers,” writes Robin Merttens, cofounder and partner at InsTech London. As insurers seek to unlock that value for themselves, their business partners and their customers, embedded insurance may become the new norm for P&C distribution.

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