It seems that everyone is always in a rush to declare the next big thing, and the InsurTech space is no different. According to some recent declarations I've seen, embedded insurance is the "new affinity". The only problem with this take is that traditional affinity is still going strong, and embedded insurance is anything but new.
Look at travel insurance; you’d be hard-pressed to book a flight anytime in the last ten years without being offered convenient, embedded protection from the airline and its partner insurance carrier. Another popular offer comes from all of the leading national wireless carriers to include mobile device coverage at the time the device is sold, and the leading market carrier, Asurion, has been doing so for nearly as long as iPhones have existed.
Clearly this has all been going on a bit too long for it to be the “new” anything. Not to mention that in a Bindable survey of independent insurance agents, 76% of those that partner with traditional affinity groups report that they are still an effective generator of new business leads — we don’t need a “new affinity” because traditional affinity isn’t going anywhere. Instead, embedded insurance offers an opportunity to leverage digital channels to create relationships built for the digital age.
It’s more accurate to think of embedded insurance as a means to reach new and nontraditional affinity groups than something that aims to replace them. How many times have we heard the saying that “insurance is sold, not bought?” This reality has made some groups nonviable prospects due to the insurer’s high distribution cost in attempting to sell products to people who might not want, understand, or think they need them. However, when you begin to consider the myriad of transactions into which you can embed an offer at its time of highest relevancy - always in front of the right person, with the right product, and at right moment - it opens up a whole new world of potential customers. And while the concept of embedded insurance is well established, the API economy provides innovative ways of approaching these sales.
Embedded insurance has historically been offered through direct mail and paper applications, which is still effective for certain audiences. In fact, the early pioneers of embedded insurance are PIMA members, who discovered early on the value of offering a personalized and convenient product by way of an affinity relationship. GradGuard, a company which I co-founded, has been embedding medical withdrawal protection into college tuition payments and renters insurance into student housing for several years. Similarly, the new winners in this space will be the ones who thoughtfully architect how embedded insurance will work going forward — harnessing technology to create digital experiences that reach a wider, younger audience.
Leveraging API integrations, insurers can now provide offers within a complementary partner ecosystem. The arrangement benefits the partner by providing new revenue opportunities (from possible referral fees), improving buyer confidence, and increasing brand loyalty. And insurance products offered at the point of purchase (for things like electronics, pet care, travel, cars, etc.) guarantee the insurer’s relevance, creating a mutually beneficial system. We can definitely expect more and more companies to add this functionality in the future.
Speaking of all the upsides, it’s arguable that the entity who benefits the most from this approach is the end consumer. Instead of pre-packaged, homogenized policies that only loosely fit their lives, they will be able to purchase insurance that is specifically tailored to their needs — and grounded in data.
By granting access to their health, fitness or banking apps, for example, they could shop personalized policies based on real-time visualization into their net worth and/or risk. Apps can track and deliver reports on safe driving, allowing consumers to save on their car insurance policies. Renters insurance could also be updated based on purchase history.
Bespoke insurance is the future, and embedding will make it possible. The question we need to ask ourselves now is: what role will my company play in architecting this future?
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This post is an updated version of an article by Bill Suneson that was originally shared via PIMA in April 2021.