Embedded Insurance: A Growing Trend  Transforming the Insurance Industry

The last few years have witnessed the growth of insurance products being offered to consumers at the same time they’re making an insurable purchase. From cars to vacations to expensive mobile devices, if insurance is available, major companies are finding ways to offer it directly at the point of sale. 

This trend, known as embedded insurance, can be an effective way to motivate customers to purchase an insurance policy to protect their purchase. While we’ve covered this topic before (see our article on B2B2C insurance), we’re taking a deeper dive into the topic to explain the ins and outs of embedded insurance. 

How does embedded insurance work?

Embedded insurance, also known as built-in insurance, is typically offered in two ways. Customers can either choose to purchase an insurance policy at the same time as a product, or the insurance is truly embedded and already included in the total cost of the product.

You’ve probably seen embedded insurance before. Think about the last time you bought an airplane or concert ticket. You were likely asked at some point in the purchasing process if you would like to insure your ticket purchase for an additional fee. This is a common example of embedded insurance that the customer can opt in or out of. Sometimes, you’ll only get the chance to buy this kind of insurance at the original purchase; other times you might get the option to buy it later if you didn’t do so originally.

Embedded insurance works because it catches the customer at the time when they’re most concerned with protecting their purchase. It’s kind of like asking “do you want fries with that?” when someone is already ordering a cheeseburger. It’s a relatively small additional charge that feels like a big benefit.

Of course, an individual is more likely to add fries to their order at the time of purchase rather than weeks later when they’ve already eaten and forgotten about their cheeseburger. In the same vein, customers who’re purchasing a product are more likely to want insurance to protect that product at the same time rather than weeks later. When you add in the element of scarcity (you can only protect your purchase if you buy the insurance right now), consumers are even more likely to do so. 

Could embedded insurance be the answer to the widening protection gap?

One area in which embedded insurance could have a great impact is the global insurance protection gap. The protection gap is a term for the difference between the value of insurable property and the amount of insurance protection people have on that property. This protection gap is a problem because it leaves so much property uninsured, which means individuals and businesses are responsible for the entire cost when disaster strikes. The protection gap can also apply to health and life insurance, but is most commonly used to refer to a lack of property and casualty insurance. 

As catastrophic events like natural disasters and global pandemics have increased, people’s level of insurance protection for such events hasn’t increased proportionately. This has widened the protection gap, which is now estimated to be double what it was 20 years ago. While embedded insurance won’t singlehandedly solve the protection gap, it can be a useful tool in addressing it, and may even act as a catalyst for wider industry transformation. 

For example, some individuals go without the level of home, auto, and even life insurance they need simply because they aren’t thinking about shopping for it. Embedded insurance can simplify the process and increase consumer uptake by offering the type of coverage someone needs at the moment they’re most aware of their need for it. It also eliminates the hassle of shopping around since the policy is already pre-chosen and tailored to their circumstances, which often coincides with a product they’re already purchasing.

What does embedded insurance mean for agents?

At first glance, the rise in embedded insurance might not look so good for insurance agents. Embedded insurance allows carriers to sell insurance products directly to customers, eliminating the need for an agent acting as the intermediary. 

But this doesn’t mean insurance agents are going anywhere! The embedded insurance model works best for fairly straightforward types of insurance with terms that are easy to understand. A consumer may have no problem buying car insurance immediately when they purchase a new car, and they may feel good about walking off the dealership lot knowing they’re covered. But it’s less likely for a business owner to be comfortable purchasing multiple complex business policies without speaking to their agent. We don’t think licensed insurance producers need to worry about being replaced by convenient opportunities to add insurance to people’s everyday purchases.

Embedded insurance can improve the agent-client relationship 

With embedded insurance, the entire policy purchasing process is a lot faster and more convenient for everyone involved. Consumers have the option of purchasing a specific type and amount of insurance at the point of sale. And, if they do, they’re not reliant on their agent to shop for quotes from different carriers. 

On the one hand, this saves agents time and lets them focus on more complicated insurance policies for other clients while the quick (and likely less lucrative) policies take care of themselves. On the other hand, a client may be offered embedded insurance and decline to purchase it, opting instead to reach out to their agent to see if they can get something similar through a carrier they’re already working with, or at a better price, or maybe with higher coverage levels. 

Either way, agents and their clients benefit from the potential for expert advice and relationship-building interactions that can come from an agent having the time to focus on the more complicated cases and from clients bringing questions about coverage to them. 

Limitations and drawbacks of embedded insurance

While embedded insurance certainly seems like the way of the future, it’s not without a couple of key limitations. One of the main ones is that not all kinds of insurance products can be embedded, at least currently. To make the convenient purchasing process work, embedded insurance products must be relatively simple, transparent, and come with a straightforward claims process. 

Without a licensed insurance producer involved, it’s on the carrier selling the product to fully educate the consumer about what they’re buying and how it works. Distributors who want to offer embedded insurance have to find a balance between convenience and compliance. Offering a low-touch purchasing process while also ensuring they’re meeting legal and regulatory requirements is a challenge that won’t be easy when it comes to new and more complex risks. That’s why, for now, embedded products tend to be relatively low-cost policies that cover something very specific, like a vacation. 

Along the same lines, another drawback of embedded insurance is that the consumer doesn’t have a local, friendly face to ask questions to or seek advice from. While some people prefer to make purchases (including insurance) with as little human interaction as possible, many still prefer a human touch. The absence of that touchpoint may lead customers to decline embedded insurance offerings and instead call up their agent to ask about a similar policy. In this way, embedded insurance is doing a great service to agents by bringing awareness to clients that they may need insurance for something they wouldn’t have thought of on their own. 

Embedded insurance is on the rise

Embedded insurance isn’t an entirely new concept; built-in insurance has been around for quite some time now. But, with high-profile companies (like Ford, Amazon, and Tesla) rolling out new embedded insurance products, it’s becoming quite the hot topic in the insurance industry.

And it looks like embedded insurance is one trend that’s here to stay. Thanks to customer demand and an increase in technological capabilities, embedded insurance is on the uptick with the U.S. market value projected to reach over $70 billion in the next couple of years. And, as Ford has modeled in its partnership with Pie Insurance, embedded insurance is no longer only for individuals. It also has a place in the commercial insurance space.

As the embedded insurance market continues to grow, carriers and MGAs who are willing to invest their time and resources into embedded insurance policies will likely reap future success. 
While embedded insurance can help provide a seamless purchasing process for insurance consumers, AgentSync can do the same by removing roadblocks at your agency, carrier, or MGA/MGU. To learn more, check out AgentSync today.