A digital renaissance – the rise of embedded insurance

Embedded insurance is currently one of the most dynamic trends emerging on the digital insurance market, says our CDO Mark Klein. It allows buyers to quickly and easily purchase insurance cover that is tailored to suit their needs as part of a product or service package. But embedded insurance is a lot more than just another sales channel. It is about an insurer’s ability to pinpoint needs, generate real added value and, in doing so, elevate their partners’ product range and brand. Embedded insurance turns the conventional concept of insurance coverage into an offering based on the idea of “insurance as a service”.  

The concept of embedded insurance is nothing new. Retailers in Europe and the US were offering insurance coverage alongside the goods they were selling as far back as the late 18th century, one example being the sewing machine insurance offered by the manufacturer Singer in 1870. Back then, customers who bought a sewing machine automatically received insurance to cover damage to their machine. So packages or “bundles” of policies and products or services have a long history behind them. Never before, however, has embedded insurance been as prominent as it is today.

The term “embedded insurance” generally refers to an offering that incorporates insurance solutions into a third-party supplier’s core products or services, making it a conventional B2B2C model. It gives customers access to customised insurance coverage as part of a simple and convenient process, without the need to take out a separate policy. The process is seamlessly integrated into the customer journey of the cooperating business, giving consumers the right product at the right time and place in keeping with the motto: making insuring easier.

Embedded insurance allows customers to take out protection for a broad range of products, services and areas of life, from electronic devices, vehicles, travel, health and fitness products, to smart home applications, digital services, events, financial products, real estate and much more. It also holds substantial potential for the B2B sector.

The following example illustrates how we at ERGO utilise this topic together with partners:

ERGO is also cooperating with O2 Telefónica and Telefónica Insurance in the German market: the first offer was launched on 7 August: 'O2 Care | Mobility'. This enables O2 to offer its private customers a mobility guarantee in the event that a rented vehicle or bicycle breaks down. The second offer, 'O2 Care | Travel', will follow in autumn. This includes international health insurance with repatriation, rescue and recovery costs as well as comprehensive travel and emergency assistance. Two more products for life insurance will follow.

Boost from advancing digitalisation

Real impetus has come in recent years with advances in digitalisation, driven largely by data and technology. They not only provide the basis for the model; they're also what makes it work. While data and technology have always been around, the platform economy and the associated trend towards direct online sales have taken both to the next level:

Not only is there now more data available on the core product and the customer journey than there was only a few years back. The quality of the data itself has also improved over time thanks to a number of factors, including standardisation, better data management, automation and new integration options. Consolidating this “new” data allows even more customised offerings to be put together in real time. The interfaces (APIs) used to integrate insurance solutions into the partner’s customer journey have also evolved. Once again, new standards have helped make APIs more powerful, flexible and user-friendly. Today, a policy that has been offered to a customer can be added to a product bundle with the click of a mouse, transforming pure insurance into an offering based on the idea of “insurance as a service”.

The embedded insurance model is much more than just another sales channel or way of selling policies to go with certain products. Embedded insurance is about gaining an in-depth understanding of customers’ needs and about the real added value that can be generated for them. Identifying these needs and reducing complexity are core competencies for any insurer. There is virtually no other sector that can orchestrate data analysis, risk management and customer experience in as targeted a manner as the insurance sector can – all while complying with the most stringent data protection standards. 

Embedded insurance as a competitive advantage

Companies from outside the sector looking to cooperate with insurers are increasingly coming to realise this, too. They have picked up on how well designed insurance policies can improve their business model as an add-on to their products or services. Offering this service can give them a competitive edge over their peers and open up new opportunities for generating additional revenue. What is more, embedded insurance can boost third-party suppliers’ brand image by showcasing them as full-service providers as opposed to simply vendors or distributors of individual products. Embedded insurance is becoming part of a holistic concept designed to make customers’ lives easier. And good service tends to translate into brand loyalty.  

Admittedly, these collaborations push the insurer brands into the background and the partner brands into the spotlight. In models like these, the insurer only gets involved if customers need to make a claim or have questions regarding their coverage. And that’s not all: the technical component of embedded insurance and its successful implementation shouldn't be underestimated. This not only applies when connecting insurers’ own IT infrastructures to partner systems. Having to make rapid adjustments to product offerings to reflect ever-evolving partner needs is another factor.  

Embedded insurance benefits stakeholders along the value chain

When implemented correctly, however, strategic embedded insurance partnerships also offer insurers considerable potential in terms of market innovations and cost-effective sales opportunities. They allow insurers to reach out to new target groups that they haven’t been able to target in the past. This, in turn, can create growth opportunities on a cut-throat market in which an increasing number of brands from outside the insurance industry are looking for any opportunity to expand their field of business. In future, it will be those insurers that manage to position themselves as partners in these ecosystems by offering convincing products and services that end up leading the race.

It remains to be seen whether the expert Simon Torrance's forecast that the European embedded insurance market will swell to a volume of €1.5 trillion over the next ten years ultimately proves accurate. But there is no doubt that embedded insurance benefits stakeholders at all stages in the value chain. As such, the topic is rightly enjoying a digital renaissance, and is poised to mark a real paradigm shift in the insurance industry. With this in mind, insurers are well advised to address the trend sooner rather than later. After all, another development that will play a key role in driving this trend is only in its infancy: artificial intelligence.

Please note: This article was first published by Versicherungsmonitor.

Text: Mark Klein, CDO ERGO Group AG