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The Future of Insurance is Embedded

Alexandre Moreillon, Principal, CommerzVentures

The Future of Insurance is EmbeddedAlexandre Moreillon, Principal, CommerzVentures

It’s an exciting time to be within the insurance sector. Neo-insurers such as Lemonade or Bought By Many are redefining the distribution model and client-centricity of established lines of business. Machine learning and data-science, through companies such as Omni: us, are reshaping and optimising claim handling and underwriting processes for established insurers. And a third tidal wave is looming: embedded insurance.

Embedded insurance can roughly be defined as the bundling of insurance coverage or protection products into other non-insurance services, products, or businesses. This trend follows the roaring consumer success of embedded finance, in which API driven banking and payments services allow users to access and carry out financial transactions such as paying for a taxi or splitting a bill without leaving the primary app.

These embedded finance services offer considerable benefits to consumers, including streamlined processes, reduced friction points in the customer journey, and most importantly - ease of use. However, the benefits are even greater for the companies embedding these financial products into their offerings. For businesses, integrated products provide access to new revenue streams, along with a tighter relationship with their existing customer base. This is a considerable advantage for driving user loyalty and engagement, and can be a valuable tool for attracting new customers within a fiercely competitive sector.

Companies increasingly want a slice of this success, with the practice now widespread with credit and debit cards, wallets, and lending products. Notable examples include Marqeta, an API-first issuer processer embedding its capabilities into DoorDash to power their Red Cards. Or Klarna and Affirm, offering “buy-now-pay-later” credit to e-commerce consumers. Market forecasters, such as Juniper Research, estimate global yearly revenues in embedded finance will comfortably exceed €100bn by 2026, a claim we have no difficulty in endorsing.

"Although disruptive technologies can sometimes spark concern from incumbent companies, the embedded insurance model is in fact ideally suited for bridging the gap between traditional and emerging insurance practices"

Insurance is a perfect candidate for embedded finance. Traditionally, there has been a deep disconnect between the point where goods or services are purchased or consumed, and where the corresponding insurance is purchased.

Take warranty extensions and protection plans, provided by Extend in San Francisco, for example. Extend integrates directly in eCommerce and retailer platforms to offer consumers a frictionless way to buy warranty and protection plans. The platform also handles claims at lightspeed pace, without retailer involvement. Merchants benefit from higher conversions, incremental revenue from the sale of protection plans, and high customer satisfaction. Extend is on track to sell 3 million protection plans in 2021.

Research estimates from Juniper Research point towards $10bn in annual premium written through embedded insurance by 2026. This is a figure we deem very realistic, especially given the magnitude of the overall global P&C premium volume of $1.5tr written in 2019.  

In fact, whenever an insured good or services are sold digitally, or when a product can be better underwritten with the help of its provider, it’s hard to not picture the embedded opportunity.

The trend, albeit nascent, is currently spearheaded by a handful of nimble MGAs, such as Qover in Brussels or Boost Insurance in New York. We also observe the rise of technology enablers such as Tint in San Francisco, or Penni in Copenhagen.

Although disruptive technologies can sometimes spark concern from incumbent companies, the embedded insurance model is in fact ideally suited for bridging the gap between traditional and emerging insurance practices. We believe it represents an incredible opportunity for insurers to redesign notoriously expensive, agent-led, distribution channels and take full advantage of consumers shifting to digital platforms.

For an incumbent to capture that opportunity, it will require a visionary CIO. Someone who is able to rally their whole organization behind a new distribution model, supported by a modern, API-driven architecture and nimble teams of underwriters, product and engineering talents.

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