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Embedded Insurance
Embedded Insurance Gaining Steam as Insurers Build Distribution Partnerships

Insurers look to embedded coverage as a growth distribution channel.
  • Renée Kiriluk-Hill
  • January 2022
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Key Points

  • What It Is: Embedded insurance is coverage offered at the point of purchase to a consumer.
  • Possibilities: In property/casualty, the sector could account for more than $700 billion of gross written premiums by 2030, according to one expert.
  • Future: Partnerships between legacy carriers and insurtechs offering embedded services are gathering steam.

Embedded insurance is a massive property/casualty market opportunity that will change how insurance products are created and distributed, according to Simon Torrance, founder of London-based Embedded Finance & Super App Strategies.

Offered at the point of purchase of some other product, service or platform, the format takes advantage of a business partner's data to offer more accurate rates while narrowing coverage gaps, according to experts working in the space.

Embedded will likely beat out other distribution methods globally because it's offered at a point of need, is convenient and consumers already trust the brand or service provider offering the embedded product, said Dave Brune, Cover Genius president for the Americas. He said he thinks the COVID-19 pandemic is rapidly accelerating growth because consumers became “much more comfortable with buying their products digitally. Online trust only grew.”

In property/casualty, the sector could account for more than $700 billion of gross written premiums by 2030, or 25% of the global market, said Torrance. Data sharing is less-sensitive in property/casualty, which can give embedded products an edge. He hasn't projected the reach in life and health insurance.

Simon Torrance

The appeal of embedded products is understandable as traditional products are “complicated, inflexible, expensive, regularly mis-sold, difficult and annoying to buy.”

Simon Torrance
Embedded Finance & Super App Strategies

Torrance assigned a $3.5 trillion market valuation to software-based businesses enabling embedded property/casualty insurance. They wouldn't necessarily be insurance companies. Competition could come from startups or large technology companies like Amazon or Tesla, he added.

Torrance said the appeal of embedded products is understandable as traditional products are “complicated, inflexible, expensive, regularly mis-sold, difficult and annoying to buy.” But change is slow to come in established markets. “The real cutting-edge innovation is where the need is heaviest” Torrance said, the reason he describes China as the world leader in embedded insurance.

“Alipay is way, way ahead of everybody else. It's really early days for the rest of the world,” he said of Ant Group's Alipay, which jumped to the lead by creating an insurtech platform connecting demand and supply in a new way in a large, underserved market. It has 2,000 “customized, affordable and flexible” life and property/casualty products from 90 insurance suppliers.

Related: Root CEO: Embedded Coverage With Carvana Bypasses Telematics

Insurers in China have gained low-cost access to a new customer base, innovative product assistance, improved pricing and underwriting results and better claims management with automated servicing and advanced fraud detection, Torrance said. Among carriers, he said Ping An is the leader in the space after launching adjacent channels for telemedicine and vehicle and real estate transactions—avenues ripe for embedded financial services products.

One factor constraining growth in places like the United Kingdom and United States is pre-digital age regulation that may not address embedded product sales, said Torrance.

Mergers and Acquisitions

That hasn't stopped mergers and acquisitions, fundraising or partnerships. Next Insurance acquired digital insurance agency AP Intego, an embedded insurance specialist placing more than $200 million in business coverage nationally, and formed Next Connect to expand its presence in small commercial. AP Intego built technology to distribute small commercial products, notably workers' compensation coverage, through some of the largest small-business software providers in the United States, including Intuit, Gusto, Square and Toast. Acting as an aggregator and licensed agent, it embedded products with payroll companies that lacked an internal insurance option, said Steve Hauck, managing director at AP Intego for more than seven years and now Next partnerships vice president.

The initial pairing—for workers' compensation insurance—was so synergistic that Hauck referred to it as a magic moment. AP Intego's partners improved their competitiveness with the added insurance service because it was convenient, easy and more accurate for their small-business customers, said Hauck. New customers can link their workers' compensation policy to their payroll information. Premiums are based on an actual amount, eliminating the need to true-up the bill at year end. The insurance application process feels like a small business is still on a payroll company's site, a hallmark of embedded insurance, Hauck said, while noting his team believes many small businesses would rather buy an additional product from an already-trusted supplier.

The partner is happy to increase customer wallet share and retention. “The more products they sell the stickier it becomes,” said Hauck. There's nothing stopping a business partner from opening a licensed agency after insurance sales climb. But Torrance said it's an unlikely outcome outside of companies “with a lot of money and vision to do it yourself.”

Next Connect lessens the risk by acting “almost as a wholesaler,” sharing its sales commission with business partners. It remains competitive, Hauck added, because it only pays for booked business, and it doesn't need to pay Google to generate traffic.

Each distribution method has its quirks. Insurance companies in the embedded space surrender control of product presentation to partners, said Hauck. AP Intego never lost a partner, he said, but his company and partners have worked to improve attachment rates. It's about presenting the right coverage and price at the right time to a partner's customers. “There are so many classes of business and types of businesses, finding the three rights is very complex,” said Hauck.

And insurance partners can't count on their reputation to sell a policy, because a purchaser won't necessarily know their insurer at the point of purchase. But they will have more data on a potential policyholder to help underwrite the policy. In an old-school relationship, a small-business owner would have a relationship with a bank, an insurance agent and an accountant, but none of it would connect. In 2021, software is “eating the world,” Hauck said. “It's especially useful and efficient to have a single operating system in software, managing things that used to be linear relationships.”

Cover Genius started as a full-stack insurance distribution platform for mobility, retail, travel and shared-economy partners in Europe in 2014 and expanded to operations and offices around the world. It has embedded product into the purchase flow at companies like retailer Wayfair and travel company booking.com, said Brune. It offers embedded coverage from traditional carriers, who turn to insurtechs to fill in their technology gaps.

Partnerships

Such partnerships between legacy carriers and insurtechs offering embedded services are gathering steam.

In the third quarter, insurtech carrier Vouch closed on $90 million in new funding to expand business lines crafted for startups and create embedded products for partners. Investor SiriusPoint Ltd. is providing multiyear underwriting capacity. W.R. Berkley Corp. recently invested in insurtech platform Sure, which wants to expand products and geography while streamlining embedded insurance.

And aggregator Insurify raised $100 million after expanding to home quoting and launching two embedded products through partnerships with Nationwide and Toyota Insurance Management Solutions.

Related: Chubb Partners With Insurtech Betterfly to Expand Life Coverage in Latin America

At insurtech Root Inc., co-founder and Chief Executive Officer Alex Timm predicted the future of car insurance will change noticeably because partnerships and embedded platforms will work better for consumers. His company has an embedded product partnership with online used-car dealer Carvana.

No one enjoys the process of buying insurance, said Chloe Johnston, Root director of business development, so embedding coverage within another purchase eliminates the hassle. “Embedding our product leverages our leading quote tooling and can be adapted quickly to our partner's experience. Meeting customers where they are, in the products they already use to seamlessly drive a superior customer experience can certainly give agile companies an advantage,” Johnston said.

Torrance recently formed what he calls a peer group of 10 of the largest insurers interested in embedded insurance. Legacy insurance companies may have application programming interfaces on platforms that improve function, but Torrance only knows of one with a digital platform created for business-to-business-to-consumer embedded coverage—Swiss Re's iptiQ. Three Swiss Re iptiQ subsidiaries create digital life, health, and property/casualty products that can be marketed and sold under a partner brand name.

Brune pointed out embedded insurance may be required by a service or product provider, but a customer is free to attain coverage through another channel. Also, one embedded offering can lead to others. For instance, he said a property manager overseeing a number of landlords or businesses may offer an embedded business owners policy and renters coverage and maybe pet insurance. An embedded travel insurance offering may hatch related products such as event and ticketing, benefiting businesses and end users, said Brune. Cover Genius works with multiple legacy carriers, including Starr, Markel and global partners. And, Brune said, it has a long list of brands in its pipeline.

At this point in the evolution of embedded coverage, Torrance said strategy is “absolutely the most important thing. You need to work out where to play and how to win. There are many different options for insurance companies and players.” He compares it to Lego building blocks. An insurance company can build its own start-to-finish embedded insurance model, assemble configurations from their own and other company systems, or just share their building pieces to reconfigure “in creative ways.”


Renée Kiriluk-Hill is an associate editor. She can be reached at  renee.kiriluk-hill@ambest.com.  



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