Unlocking the Potential of Embedded Insurance: Challenges and Opportunities

The Slow Maturation of Embedded Insurance

Embedded insurance, often referred to as B2B2C insurance, has been heralded as a pathway to innovation and growth within the traditional insurance market. However, its development has been sluggish. This model involves integrating insurance products and services into retail transactions, aiming to offer insurance solutions at the point of sale or as part of a product or service bundle. Simplifying products and processes is crucial for consumers to make informed purchases, making complex commercial insurance products unsuitable for this model.

Technological Advancements and Challenges

Six years ago, embedded insurance was frequently linked to distributed ledger technology or blockchain, according to a Conning report. Blockchain offers benefits like enhanced data security and optimized data sharing, but its complexity and the recent issues with cryptocurrency may have hindered its adoption in embedded insurance. Brendan Picha from RiskStream Collaborative notes the insurance industry's curiosity in network-based technologies and the potential for these technologies to work together. RiskStream, a member-led non-profit, aims to create an ecosystem using blockchain to streamline data flow and enhance customer experience.

Market Dynamics and Future Prospects

Despite challenges, embedded insurance has seen growth in travel insurance, personal auto, homeowners, and extended warranty products through the use of open APIs and microprocesses. However, traditional insurance products, which are 'sold, not bought,' pose a challenge. Private equity investment companies have invested $3.5 billion since 2015 in companies expanding into embedded insurance. Gartner predicts embedded insurance will become the dominant business model. The growth in online sales since 2020 has increased opportunities for embedded insurance, but online sales of insurance have not seen similar growth. Tesla's direct-to-consumer insurance business, while not embedded insurance, illustrates the benefits of sharing telematics data. Personal lines and small business insurance remain the greatest targets for embedded insurance, with opportunities for simplifying applications, growing premiums, lowering expense ratios, and narrowing protection gaps.

To maximize the benefits of embedded insurance, carriers and retail partners must embrace this model. Consumers should be aware of the convenience and potential cost savings offered by embedded insurance, especially in sectors like travel and automotive, where online transactions are prevalent.