By Tommaso Giovannini, Area Manager, Mia-Platform
Research by Statista found that 45% of respondents felt comfortable taking out an insurance policy from a non-insurance company when making a large purchase. With this, there is a growing trend of purchasing insurance within the commercial transaction of another product, which is known widely as embedded insurance.
Sectors as diverse as retail, healthcare and property have all successfully introduced external insurance products within their own proprietary services via Open APIs – publicly available code designed to facilitate communication between software applications for easy integration. For example, being offered ticket protection when purchasing travel or entertainment tickets online.
Historically, the insurance industry has been slow to embrace change due to stringent regulations, its complex products and a penchant for risk aversion. However, consumer demand for convenient and personalised services is driving the shift to open technology ecosystems and more embedded insurance solutions.
Insurance is a competitive environment. Only companies that adapt to change will survive. With worlds of opportunity opening via embedded insurance, now is the time for established insurance companies to break from tradition, embrace technology and evolve their offering. Here, we discuss five benefits of adopting an embedded insurance model in 2024.
Customers now have universal access to a range of services and no longer wish for a ‘one-size-fits-all’ solution. Deloitte’s ‘The Future of Home and Motor Insurance Report’ found that roughly 60% of respondents favoured products that were materially different from the traditional, static 12-month policy.
With an embedded insurance approach, traditional insurers can create more personalised user journeys to help attract new business and increase loyalty among existing customers. This is made possible by access to wider customer data. Data is the catalyst for customisation, and by integrating with third-party providers and distributors, insurance companies can build innovative and personalised solutions.
Detailed information on customer behaviour and preferences also enables companies to develop highly targeted marketing campaigns offering customised insurance policies tailored to a specific market need.
2. Customer Retention
Offering greater convenience is the easiest way to retain customers. Embedded insurance facilitates easy-to-navigate customer journeys by positioning cover at the point of need.
The Embedded Insurance Report for Retail conducted by PYMNTS found that 67% of consumers were more likely to spend money with online retailers if they had the option to purchase insurance cover at the checkout. For example, adding a warranty when purchasing household appliances.
The secret lies in making these additional processes seamless and easy to perform, not redirecting customers to an external site, for example. This is more likely to earn customer loyalty. By offering ‘all-inclusive’ insurance and other benefits, there is scope for companies to create simpler and more transparent purchasing journeys for customers.
3. Portfolio Diversification
The whole premise of embedded insurance is to transform insurance into a native feature of the everyday products we use. Increased accessibility of insurance will drive innovation across different industries and sectors. Launching new products and services to meet evolving consumer needs will help break down barriers between traditional insurers and digital transformation.
Customers want to move away from traditional and static policies, and insurers must embrace embedded insurance to develop more dynamic offerings. Ernst and Young predicts changes in this space moving forward: “Insurers will use different data, largely based on actual usage patterns and real-time risk insights, to price products and dynamically adjust premium levels.”
4. Market Expansion
Given the scale of technological innovation over the past 12 months, opportunities will arise for traditional insurers to embed their offerings into new markets in 2024. Technology will continue to drive innovation and the emergence of AI will unlock new possibilities. For example, chatbots and virtual assistants can provide real-time customer support whilst predictive analytics can automate and optimise insurer’s risk management strategies.
Organisations can’t afford to miss out on the opportunities emerging technologies such as AI offer. In 2024, collaborating with non-insurers and tech companies to ensure insurance products are visible in other markets is a must. If insurers are committed to digital transformation and expanding their presence in vertical markets, they must adopt a composable digital platform where they can manage the Open API network of insurance services and non-insurance partners in one place.
5. Limiting Risk
Whilst data is the catalyst for customisation, it can also help companies limit their exposure to risk. Embedded insurance simplifies management and control for insurance companies. It enables them to monitor how their services are used, offers transparency on their margins and helps protect the gap between insured and economic losses, otherwise known as the insurance protection gap.
By integrating their products with external datasets, insurers can gain more accurate insights into the behaviour of onboarding customers, meaning that they are exposed to a lower risk of claims or fraud. Insurance is about spreading risk and insurers stand to gain accurate underwriting and better coverage when they adopt an embedded insurance model that utilises data exchanges from a variety of third-party providers.
The Technology Gamble
Insurance companies need to embrace technology if they wish to remain relevant in 2024 and beyond. Non-insurers are already making ground in the insurance space, with embedded insurance products being offered via companies like Tesla, Amazon and Airbnb that are easy to purchase and offer a wide range of coverage.
Insurers have proven that they are open to the idea of adopting embedded practices by making their policies visible on comparison websites. However, more needs to be done going forward. Moving into previously inaccessible spaces, they can bridge the technological gap and evolve into organisations capable of delivering streamlined customer journeys and data-driven products that meet current and future demand.