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INNOVATION | 2.09.2021

Embedded insurance: just how far can it grow from here?

Marta Villalba

Joan Cuscó

Global Head of Transformation, MAPFRE

Embedded insurance has become the hot topic for many in the industry, including insurers, emerging InsurTechs and venture capital firms, who see it as a potential high-margin, high-growth revenue generator. 

Put simply, embedded insurance is the bundling of coverage or protections within the purchase of a third-party product or service as part of the customer journey.

According to a report by InsTech London, the embedded insurance market is forecast to grow to $722bn in GWP by 2030 – more than six times its current size. This growth will largely be driven by China and North America, which together will account for over two-thirds of the global market by 2030.

Indeed, the Ping An Insurance Group in China is the largest embedded insurance provider in the world. Ping An created an extensive portfolio of platform ventures in sectors such as telemedicine, automotive sales, banking, and real estate, and integrated these into its insurance platform. The company then sold embedded insurance on each of these platforms, which became Ping An’s dominant distribution channel for the sale of insurance products.

In other parts of the world, embedded insurance is set to grow along similar lines – albeit through the development of ecosystems comprising multiple partners. The underlying drivers include evolving customer demand and lifestyles, increasing technological capability, and the proliferation of potential suitable distribution partners.

Customer demand

Customers are buying more and more services online, and they enjoy the convenience and simplicity of buying insurance as an add-on to other purchases. As part of the customer journey, embedded insurance provides the perfect opportunity to offer relevant coverage exactly when customers are most likely to perceive its value. 

Customer lifestyles have changed too, leading to the growth of the sharing economy. Fewer people own cars – particularly in major cities – and are instead turning to short-term hire firms such as Zipcar or hiyacar, which embed insurance in the terms of the hire. Similarly, short-term e-scooter rentals have become popular, and also come with embedded insurance in those countries where that is a legal requirement.

Technology

At the same time, there is now a plethora of modern digital platforms that can be integrated easily via APIs with distribution partners and third-party data sources. Insurers can build their own platform, licence a platform from Platform-as-a-Service providers such as Slice, Trov, Digital Insurance Group, Addinsurance, and many others, or partner with a Managing General Agent (MGA) that specialises in embedded insurance.

Again, there are several MGAs that carriers could choose to work with, including the likes of Zego, Flock, Inshur, Qover, Wrisk, and REIN. As an example, Zego and Inshur have both experienced rapid growth by specialising in providing usage-based insurance to drivers for companies like UBER and Deliveroo, which allows drivers to turn coverage on and off at the start and end of their shifts. Meanwhile, Flock offers usage-based coverage for the motor fleet of Jaguar’s premium car rental service, THE OUT.

Distribution

According to the venture capital and private equity firm AlbionVC, “the biggest tech ecosystems, such as Amazon, Apple, Google and Alibaba, that bring together services, marketplaces and devices into one trusted experience, will be especially powerful in embedded insurance.”

The company adds that digital-first disruptors in an array of verticals are well-placed to take advantage of this growing market: “if your digital business has control of the customer, the data, the trust and the communications, you’re well-placed to embed insurance.”

From the insurance industry point of view, InsTech London broadly agrees, saying that a good potential distribution partner has a lot of customers, a trusted brand, and the ability and willingness to partner and share data.

Challenges

At present, not all kinds of products can be embedded. They need to be simple, transparent, easily understood and have a straight-forward claims process. There is also a balance to be struck between providing a convenient, low-touch purchasing process and ensuring that legal and regulatory requirements are met, such as mandatory KYC checks, providing clear information, fair pricing, and the provision of policy documentation, to name a few.

While these factors are a barrier to certain kinds of insurances becoming embedded, they are not an excuse for the industry to rest on its laurels or allow Big Tech firms to make all the running and end up owning the customer relationship for the most profitable insurance products.

Indeed, this is an area where insurers can leverage their industry experience and insight to anticipate where they might extend the concept of embedded insurance into relatively more complex risks.  

The future

For MAPFRE, embedded insurance is the natural next step for the industry if we want to reflect the fact insurance is becoming more about real-time experiences than just being about assets.

We see embedded insurance becoming an important part of our P&C portfolio in the coming years. We have already seen how embedded insurance is becoming key to the success of shared mobility business models, allowing fleet owners to tailor prices to the specific risks of each driver and situation while ensuring the process is transparent for the end-user.

At MAPFRE, we also see the potential for growth in areas that are currently underserved, such as cyber insurance or small business P&C insurance. In cyber, for example, the risks to firms are increasing rapidly, yet existing policies remain inflexible, hard to understand, and potentially incorrectly priced. Many small businesses, meanwhile, remain chronically under-insured, and would stand to hugely benefit from easy to purchase insurance with more flexible tailored pricing options.

While not all kinds of insurances can be embedded right now, consumers’ increasing appetite for making more complex online purchases suggests that the market could evolve to cover even relatively complex specialty risks in the years ahead. Carriers and MGAs who are willing to invest some time and resource into embedded insurance now will likely reap the rewards as the market grows.