Embedded insurance ready to take off
In the coming weeks, we will discuss many sides of the embedded finance revolution.
Today we start from one of the hottest topics: embedded insurance.
Embedded insurance means that the insurance product is not sold to the customer ad hoc, but is instead provided as a native feature, embedded in a platform, marketplace or ecosystem. E.g. car insurance bundled with the purchase of a used car.
Embedded insurance is projected to account for over $700B in Gross Written Premiums by 2030 in P&C alone, or 25% of the total market worldwide.
Startups in the space raised almost $800M in VC funding last year, led by Extend, Bolttech and Cover Genius, but we are still in the first innings. With most startups founded in the last 5 years, they are only now entering their scaling phase.
We discussed the topic in our “The State of European Insurtech” report in partnership with Mundi Ventures. Since then we have mapped and analyzed over 60 embedded insurance startups 👇 and next month we’ll be holding a dedicated event on embedded finance – sign up not to miss it.
The embedded insurance opportunity
The sacred mantra in insurance is “insurance is sold, not bought”, meaning that insurance is hard to sell. Customers just do not wake up wanting to buy insurance. This means that any distribution channel, be it direct-to-consumer, agents, brokers and comparators carry a very high cost of customer acquisition (CAC).
Embedded insurance offers the opportunity to lower distribution costs by integrating insurance in 3-rd party ecosystems, so to rely on the partner distribution capacity and customer relationship. This way, customers are offered insurance when and where it matters the most.
If this does not sound so new, it’s because it is not. Insurance has been distributed by 3-rd parties for a long time, but a transition from integrated insurance to a truly embedded insurance experience is happening:
- In the past, the focus was on using new distribution channels to sell already existing inflexible products. Now new products, more personalized and customisable, are being developed for embedding as a feature of the purchase. This means that the product requirements are no longer driven by the insurance providers but by 3rd party.
- Embedded insurance is building a new insurance tech stack and doing so by bringing more developers into insurance.
Embedded insurance can benefit all the actors involved, from 3d party distributors and insurers to end-users.
However, while almost 93% of the 3rd-party distributors saw customer satisfaction improvements, more than 50% are not satisfied by the support provided by the insurance partner and found significant challenges in the partnerships established mostly due to legacy systems and the lack of digital competence from insurers, especially the lack or the poor state of APIs for integration.
In cases in which APIs were offered by the insurers, 45.5% of the partnerships were established in under 6 months, with an average completion time of 6.9 months. Without the API, however, only 9.1% of the establishments were completed within the 6-month timeframe, taking an average of 9.5 months. (extract from Penni.io embedded insurance report).
A gap is clearly present between the current digital capabilities of insurers and the expectations from their partners. This gap is an opportunity for tech-enabled insurtech to become substantial players in this market.
Embedded insurance enablers
Embedded insurance requires a new industry technology stack and new players are filling this gap. We track over 60 startups offering embedded insurance globally which raised almost $800M in VC funding last year.
Despite the many nuances, we can broadly distinguish two approaches, insurtech can either act as an infrastructure provider and liaison between insurers and distributors or provide full-stack solutions.
Startups such as Penni.io, Bsurance, Simplesurance, Weecover, Kasko and many others provide the infrastructure for distribution and claim management. Some of them also provide technological support for the design, pricing and underwriting to insurers, while others act as MGAs. Often a mix of the different approaches.
Other players such as Element insurance, Qover, Cover Genius, Senya, Companjon are licensed insurance carriers and able to offer insurance-as-a-service and white-label solutions. Also here different strategies exist, Element focuses on acting as underwriter and license provider for MGAs and other players, while Cover Genius and many others offer products directly to 3rd-party distributors.
Since distribution and customer relationships are based on platform partners, embedded insurance startups can expand to different countries rapidly once sorted out the regulatory landscape. Cover Genius for instance operates in 60+ countries and in all 50 US states. No insurtech challenger have such a reach.
Most insurance incumbents are struggling to compete in the space, but some such as the Ping An Insurance Group in China is the biggest embedded insurance provider globally, which has built a portfolio of ventures in different sectors from telemedicine to automotive sales and integrates its insurance offerings in these platforms. In the rest of the world embedded insurance grows through the development of multi-partners ecosystems.
An example is Wakam. The almost 200 years old Paris-based insurer La Parisienne Assurances rebranded to Wakam in 2020, “an insurer that offers 100% digital, white-label insurance solutions to e-retailer, broker or insurtech partners”. In its 2021 year recap, the company announced it has expanded its Play&Plug tech platform to cover 32 European countries, delivering more than 170 new partnerships.
Embedded insurance is not the silver bullet for everything
Embedded insurance is today generally best suited to simple and transparent products, which are easy to understand for the client and where the claim process is more straightforward. With the ecosystem maturing and players improving their expertise to navigate embedding, more complex risks might start to be covered in the future.
Most of the adoption has happened and will continue in the P&C space.
Home and car insurance are widely offered by most players and SME business insurance is one of the fastest-growing areas, including cyber insurance. Such as the insurance-as-a-service offered by Boost. Qover offers solutions for the gig economy and shared mobility, Extend is a leader in embedded warranties for merchants.
The L&H is comprised of more complex, high value and low-frequency products which makes embedding harder. Some forerunners in the L&H insurance are BIMA which offers mobile embedded health insurance in emerging markets and DIG and Dacadoo partnered to offer embedded lifestyle-based products to life insurance clients.
Life insurance challenger Bestow also recently branched into embedded insurance, which allows Bestow to offer life insurance as a service to other fintech or insurance platforms.
We are also starting to see a renaissance of bancassurance, bancassurance 2.0 where insurance products are embedded into fintech platforms such as challenger banks. As an example, Latam challenger bank Nubank launched in Dec 2020 its life insurance offering in partnership with Chubb.
Embedded insurance can also help close the insurance protection gap, the difference between how much insurance would be socially needed and what is actually covered.
Already in April 2021, SouthEast Asia super app Grab sold over 100M insurance policies, as low as $0.30 for rider cover thanks to the lower cost of distribution of embedding and driving financial inclusion.
A promising intersection is the conjunction of embedded and parametric insurance. In parametric insurance, the claim process is automatically activated by a trigger event and the
premium and payout are automatically calculated from a list of parameters. This is enabled by the availability of IoT data and enhanced analytics capabilities. Parametric insurance brings certainty and a seamless claim experience, which coupled with the seamless distribution of embedded insurance, can bring a completely streamlined experience.
Examples of applications are usually related to the P&C space, especially around climate and weather insurance but also crop insurance, cargo transport insurance and cyber insurance. We mapped 60+ parametric startups here.
Overall, embedded insurance will be an important approach to insurance, but not universal across all insurance lines.
Once embedded, does insurance become commoditized?
Embedding insurance in 3rd party platforms reshapes the role of insurers to product providers bringing them further from the end client. This is a fundamental shift in how insurance operates and has the potential to rearrange the power structure in the industry. Which new role do insurers and their distribution network have?
Embedded insurance brings more focus on the tech aspect, is an infrastructure play that will see some big winners, but differently from other sectors insurance has many niches and regulatory hurdles which will prevent the rise of winner-take-all scenarios.
Nevertheless, insurers will have to innovate if they do not want their profits to fly away.
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startups and investment:
Explore over 60 startups offering embedded insurance.
Simon Torrance: embedded insurance primer
AlbionVC: VC investment thesis
Penny.io: embedded insurance report
a16z: the case for default insurance