Embedded Insurance is expanding traditional affinity sales with an increased emphasis on digitization. For insurance companies, this creates very exciting opportunities. French insurers and brokers are already active, German and Scandinavian insurers are catching up.
Embedded insurance is seen as a new business area with great potential. It is estimated that by 2030, embedded insurance will generate $700 billion in premiums globally (for property insurance alone). Technology researchers at Celent put this potential at up to 6% of total premium revenue. In addition, insurers can generate 3% of all premiums through embedded insurance, a significant contribution to activating the uninsured and addressing the problem of underinsurance. The “protection gap” observed around the world is considered one of the insurance industry’s major problems. Embedded insurance helps reduce distribution costs and enables insurance companies to offer favorable premiums. According to rating agency AM Best, this makes embedded insurance set to grow rapidly.
Embedded insurance, in fact, is an evolution of affinity sales, in which insurance coverage is part of another product offering. Under this umbrella term the insurance coverage is associated with a particular product sold by a partner. The main driver behind the development of this insurance distribution model is the passivity of customers in managing their personal risks. The need for security is high and has increased in recent years, but this is not reflected in insurance sales.
Automobile insurance is becoming a major growth driver
What is new about embedded insurance is its digital integration. Embedded insurance initially focused on insuring cell phones, tablets and electronics. Today, more and more devices are connected to the Internet, from cameras, stoves, blinds and everything else in a smart home to e-bikes and cars. Car manufacturers are developing technology-based insurance businesses. Leading the way is Tesla, which is already expanding its insurance program in the US.
Specialized insurers such as Iptiq, founded by Swiss Re, and France’s Wakam are among the pioneers in this field. In France, this distribution channel is already advanced. Insurers and brokers there have been doing classic affinity business for many years. Now they are transforming traditional insurance sales in combination with non-insurance products and services based on embedded insurance technology.
Embedded insurance is just in its infancy
There could be big opportunities for insurers in embedded insurance, provided they invest in technology and have access to major customers in the manufacturing or retail sectors. That’s why several insurtechs have specialized in it. For example, German insurtech Wefox last November acquired insurer Asson, which specializes in insuring two-wheelers and electrical appliances.
Insurtech Hepster, also from Germany, has expanded into France to meet ambitious growth targets in areas such as bicycle insurance, roadside assistance, mobile devices, travel and sports. Among the insurtechs in the Scandinavian countries of Sweden, Denmark, Norway and Finland are five start-ups specializing in embedded insurance. The Polish branch of Signal Iduna (Germany) has launched, together with Sollers Consulting, an eyewear insurance sold under the embedded insurance model. The strategic partnership between the insurer and the technology company in creating a new sales channel is a unique model on the Polish insurance market. The field of embedded insurance is only in its infancy. However, we are already seeing increased interest in this model of insurance distribution.
If you are interested to learn more about the potential of embedded insurance feel free to contact me: [email protected]
Author: Piotr Pastuszka, Senior Manager, Sollers Consulting