Some thoughts on embedded insurance

Embedded insurance is a white-hot industry topic right now. Bundling insurance and protection products, in real time, with a product or service can smooth the path to a sale by proposing cover at the precise moment when the need for it is clearest in the purchaser’s mind.  

The seamless point-of-sale purchase of embedded insurance is a technology-intensive process and heavily dependent of the rapid and connected mobilisation of data, automation, and AI. For now, the attention is mostly focused on B2C applications, but an embedded insurance approach could ultimately play a significant role in reshaping B2B insurance sales. 

While the emergence of embedded insurance creates exciting opportunities for established carriers to partner with sellers of consumer products and services and leverage from their distribution network and customer relationships, it also raises fears that less tech-savvy insurance providers will be being outflanked by data-native insurtechs untrammelled by legacy systems and practices.  

In light of this, many of the leading incumbents are making big investments in the new technology they need to play in the embedded insurance space. Meanwhile, early-stage companies are pivoting to gain the agility and flexibility they need to compete in the new insurance universe that’s beginning to emerge. 

The potential is enormous, and obvious. Take PayPal, for example. This one payments company is currently worth more than all the world’s insurtechs put together. This highlights how much room for growth there still is in this space. Though valuations are already high, five years from now the total value of insurtechs will be many times higher.  

There’s a lot more to embedded insurance than a basic add-on sale. With data-driven customisation built-in, it has the potentially to be something far more revolutionary. Some believe embedded insurance could be a $3 trillion market in the years to come.  

Ultimately, embedded insurance will take a variety of forms. The property and casualty industry is broad, ranging from personal lines, through commercial lines, to a wide array of specialty lines covers – so definitions of embedded insurance will vary, depending on where the provider’s product focus lies. 

Embedded insurance can be hyper-customised, based on what’s being purchased, how, when, and by whom. Bundling protection and insurance cover with the products or services can be seen as enhancing the overall value of the purchase, because it is a tailored product specifically appropriate to what’s being bought – rather than an ‘asynchronous transaction’ that may or may not turn out to be a good fit. It becomes something purposely crafted to match the customer’s wishes and expectations at the point of sale, and hence something that delivers immediate reassurance and peace of mind. 

The ecosystems in which we embed insurance solutions will help drive more accurate underwriting and claims handling. Data is the key element supporting better underwriting, creating a more elegant user experience and journey. The key to success will be removing as much friction as possible from the customer’s purchasing decision. There’s a big difference between selling in a way that makes it hard for people to opt out, and making the insurance value proposition irresistible because of how its distributed and priced. Data-driven embedded insurance makes it easy for the customer to recognise their own immediate needs in what’s being offered to them. 

The key mistake to avoid for traditional players looking to move into the insurtech space is taking paper-based processes and simply replicating them in the digital universe. This achieves little or nothing. It’s essential to start with data-driven processes. Business models need to be fundamentally reimagined. 

With potentially game-changing projects like the Future at Lloyd’s and Blueprint Two, the focus still often seems to be on cost savings. In reality, the benefits of digitalisation go far beyond improved efficiency to take in enhanced price discovery, process optimisation, more intelligent allocation of capital, and ultimately the ability to write more and more difficult risks. That future is just five or ten years off. It’s not going to wait for late adopters. 

There is vast scope for tech innovators – across many different fields of specialisation – to engage with insurance providers to deliver new capabilities. One example would be the sanctions checking functionality DOCOsoft has successfully developed and rolled out with a number of clients. Other examples might include leveraging highly sophisticated digital mapping tools for visualising construction sites originally developed for architects and engineers. These can be adapted to support risk management and insurance applications. Another example might be technology solutions created to support the management and operation of solar panel assets – which again can generate data of significant value in a risk pricing and risk management context. 

Predictive analytics has been identified by many commentators as playing a key part in the future of underwriting. That could take the place of many of the kinds of questions that currently feature on proposals forms and arise in the course of the underwriting process. But it won’t remove the need for skilled underwriters able to apply their own unique skills and experience. The winners in the new insurance landscape will be those who most successfully marry insurance expertise with technology. 

As the boundaries between tech and insurance begin to blur, many businesses are encouraging software engineers to gain CII certification and other insurance qualifications. This is an approach we have already adopted at DOCOsoft. Combining insurance expertise and technology will be increasingly necessary in the years ahead. Collectively, as an industry, we need to ensure, not just that software professionals working in and around this industry understand insurance, but that everybody who works in insurance has a basic grounding in technology.  

There has been a growing awareness over the past few years of just how important it is for (re)insurers to get closer to the original risk so they can better understand emerging risks in particular. Accessing the unprecedented amounts data captured by some of the newer tech-driven startups can massively improve (re)insurers’ ability to gain real insight into their books.  

The challenge is that much of the available data contains errors and gaps that can potentially distract, confuse or mislead. There are also issues around data from some sources being formatted in ways that make it hard to digest. Hence the need for insurance technology specialists like DOCOsoft’s data scientists, who can help (re)insurers extract actionable insights from a disparate array of data feeds. 

Insurance and reinsurance carriers’ ability to gain a deeper understanding across tranches of their portfolios and cohorts of their client bases is crucial. They need to be able to evaluate risk at a much more granular level – rather than relying on a ‘mystery box’ for pricing.    

A number of the big (re)insurance carriers DOCOsoft works with are already looking seriously at the potential of embedded insurance – along with many other emerging aspects of the digital insurance landscape. We recognise the importance of ensuring we have the knowledge and the capabilities to help them realise their ambitions in the growing overlap between insurance and technology. That’s one reason why we are keeping a very close eye on the latest developments in this field. We also just find it inherently interesting and exciting!