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The Importance and Weakness of Embedded Insurance

As the digital revolution reshapes industries, insurance finds itself at a fascinating crossroads. The term “insurance” often conjures images of cumbersome paperwork and lengthy contracts.  A disruptive shift is challenging this stereotype: embedded insurance.

Offering the perfect blend of convenience and immediacy, embedded insurance integrates insurance products directly into the customer journey of purchasing other services or goods.

It’s a model so captivating that 81% of financial organizations are convinced it’s not just a trend, but a future staple. This article discusses both the allure and the reservations surrounding embedded insurance. While it could be considered a double-edged sword of opportunity and caution, it’s important to understand why many are excited about the future of embedded insurance.

What is embedded insurance?

Embedded insurance directly incorporates insurance options into the buying process of other goods or services. In this model, you might encounter an offer for relevant insurance coverage while you’re shopping online for a new phone or booking a vacation.

The offer is made contextually — right at the point where it’s most relevant to your current activity. Embedded services save time by eliminating steps to look for and buy insurance aligned to your new purchase. It also addresses a major pain point of wasting time sifting through long documents, according to insurance executive John Vaccaro, head of MassMutual.

Companies across various industries—such as travel, ecommerce, healthcare, and financial services—are adopting the embedded insurance model, facilitated by platforms like TechInsure’s NuvoInsurance. It’s driven by modern technology capabilities to understand their users’ needs and preferences, offering tailored insurance solutions in real time as part of the primary transaction.

The practical benefits of embedded insurance

Embedded insurance offers several clear benefits that reshape how we view insurance as an essential part of other services. It’s not just about streamlining the process — it adds tangible value to the customer experience, which is why it’s so potent.

Simplified user experience

With embedded insurance, protection becomes a part of the existing customer journey. Customers no longer have to navigate through multiple platforms or paperwork to secure insurance coverage, making simplification one of the most significant advantages.

For instance, while booking a trip or buying a smartphone, insurance options appear during checkout. Think about AppleCare, a simple warranty insurance add-on when you buy from Apple.

Expanding customer reach

Traditional insurance models wait for the customer to take the initiative and require the help of a sales agent or broker to complete the transaction. In contrast, embedded insurance meets the customer where they already are, whether that’s applying for credit or using a ride-sharing app, and offers a seamless experience. This proactive approach is an effective way for insurance companies to reach markets who might not have otherwise sought out insurance.

Offering more insurance to more clients is positive for the industry. Allowing the products to be directly matched to client needs without the middle processes means, potentially, more people will have the opportunity to benefit from the protection coverage.

Improved risk assessment

Embedded insurance taps into real-time customer data, allowing for more accurate risk assessments. With insurance offers linked to specific transactions or behaviours, insurers have access to contextual data that can help fine-tune policy offerings and reduce anti-selection exposures. Products can be packaged and aligned to specific client ‘journeys’ whether it is a life-event such as signing your first mortgage or simply buying warranty protection for your new cell phone.

For example, with Tech-Insure’s NuvoInsurance platform, agencies separate the customer journey from back-office systems, leading to more focused and accurate risk assessments based on real-time data.

The dangerous downside of embedded insurance

While embedded insurance has revolutionized the way policies are bought and sold, it’s important to consider some of its limitations. One drawback is that the simplified customer journey can lead to hasty, isolated decisions. Because the insurance offer appears as an add-on or checkbox, customers might opt-in, or out, without fully understanding the coverage and its limitations.

For example, they may already have coverage under a homeowners, credit card or floater policy and they may not need the protection based on their financial exposure.

Additionally, selling embedded insurance fragments the coverage and doesn’t allow for optimal risk coverage. It offers particular point in time protection but doesn’t assure that the client is protected for more fundamental, and potentially larger, financial liability risks.

Finally, the real-time data collection enabling these personalized policies raises privacy concerns. Is the data being used for benevolent or malevolent purposes? And is it mutually beneficial in the long run? Are there controls to prevent predatory sales practices including selling coverages that the client may not actually qualify for?

Insurance companies are already battling against these concerns. For instance, TechInsure’s platform has been designed to mitigate some of these risks such as allowing the data to be stored in the agency’s own secured systems and allowing upsell and cross-sell options for clients needing to tailor their options for their needs. Its target marketing feature filters for qualified candidates and fraud risks, helping insurers navigate some of these challenges more efficiently.

Some Predictions

Embedded insurance is undeniably reshaping the insurance industry, making policies more accessible and tailored to individual needs. Companies like TechInsure are at the forefront, offering platforms with unique customer journeys and transaction-as-a-service models.

Embedded insurance leaves us with key challenges to resolve:

  • Embedded insurance only suits some products — those that provide a need that we can easily identify the what and when it is happening for clients (warranty coverage, mortgage insurance)
  • Can we ensure any balance of needs analysis at those right-time-right-place opportunities?
  • Can we leveraging these lessons of simplified, tailored experiences with more complex products?
  • Educating people that insurance is an important tool in their financial plans to be leveraged and optimized

Embedded insurance engages people at the right time, right place. And it’s a start to see more people protected versus unprotected from financial losses but it shouldn’t be our ending.

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