What is Embedded Insurance?

What is Embedded Insurance?

The insurance industry is undergoing a seismic shift with the rise of embedded insurance, a disruptive model that's reshaping how consumers access and purchase coverage. As a key component of the broader embedded finance ecosystem, embedded insurance is challenging traditional insurance models and creating new opportunities for businesses across multiple sectors.

But what exactly is embedded insurance and how does it work? Embedded insurance seamlessly integrates insurance products into the customer journey of other goods and services. This innovative approach makes coverage more accessible, relevant, and convenient for consumers. 

From income protection bundled with savings accounts or credit scoring apps, to warranty protection offered alongside electronics purchases, embedded insurance is becoming an integral part of the customer experience in various industries.

As this trend gains momentum, it's not only disrupting the traditional insurance model but also causing ripples throughout the embedded finance industry. By leveraging data and technology, embedded insurance providers are able to offer more personalised and context-specific coverage. This evolution is forcing established players to adapt and creating new opportunities for partnerships between insurers, technology companies, and businesses across various sectors.

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Why embedded insurance?

Younger generations show proclivity for long-term risk analysis

Our research is clear - Gen-Z are getting serious about insurance. According to our 2024 report 'Why are Sales of Income Protection Growing?' we found that 52% of those who took out an income protection policy in the last 2 years, were aged 25-34, indicating a growing interest in insurance among very young adults.

Digital natives hit their stride with investing

A report by Don’t Disappoint Me reported that 75% of young people in the UK have invested or are considering investing. The report also stated that three-quarters of Millennials and Gen Z  were preparing to invest within the next 12 months; while according to a Finder report, 75% of Millennials and Gen Z are planning to invest, with around 50% saying dedicated platforms and apps made them more likely to do so. However, the FCA's Financial Lives Survey revealed that 27% of UK adults have low financial resilience, with less than £1,000 in savings. Income protection insurance could provide crucial security for these digital investors, safeguarding their growing portfolios against unexpected income loss and ensuring their investment journey continues uninterrupted.

Everyone’s a winner

Offering protection insurance to a willing and financially prudent audience who are already active users on financial super-apps, creates the opportunity for passive revenue generation and increased customer retention and satisfaction for these platforms.

The Nitty Gritty: How Embedded Insurance Works

Embedded insurance operates on a simple yet powerful premise: integrating insurance coverage directly into the purchase flow of products or services. Here's a breakdown of how it typically works:

Integration: Insurance products are integrated into the customer journey of non-insurance goods or services. This integration can occur on digital platforms, at point-of-sale terminals, or within product offerings

Customisation: The insurance offering is often tailored to the specific product or service being purchased, ensuring relevance and appropriate coverage

Seamless Purchase: Customers are presented with the option to add insurance coverage with just a few clicks or even automatically, depending on the implementation

Data Utilisation: The primary transaction provides valuable data that can be used to personalise the insurance offer and streamline the underwriting process

Claims Processing: In many cases, the claims process is simplified due to the direct link between the insured item and the coverage

Embracing the future: Embedded Insurance as a Catalyst for Growth

It’s clear that embedding insurance into business platforms represents a significant opportunity for companies to enhance their value proposition, boost revenue, and strengthen customer relationships. By seamlessly integrating insurance products into their existing offerings, businesses can provide a more comprehensive and tailored customer experience. This not only meets the evolving needs of consumers who seek convenience, but also elevates the status of the business.

As technology continues to advance and consumer expectations evolve, the ability to offer embedded insurance may become not just an advantage, but a necessity for businesses looking to stay competitive. Those who embrace this trend early stand to gain a significant edge, fostering innovation, building stronger customer relationships, and ultimately driving long-term growth and success.

By implementing embedded insurance, businesses can take a proactive step towards future-proofing their operations and meeting the changing needs of their customers. As the line between traditional industries continues to blur, the integration of financial services such as insurance into both fintech and non-financial platforms alike, may well become the new standard in customer-centric business models.