Embedded insurance is a hot topic for many in the mobility sector from the traditional original equipment manufacturers (OEMs) to digital disruptors. Many consider it has the potential to create brand loyalty, boost customer satisfaction, and generate additional revenue.
But what does the term really mean? Embedded insurance is where a non-insurance organisation provides cover at the point of sale or as part of a subscription or membership package. The goal of embedded insurance is to provide a more convenient and streamlined customer experience while also increasing insurance uptake and coverage. Insurance is not the main purchase but a complementary add-on.
Automotive manufacturers started providing embedded insurance back in the 1920s when they included insurance in the price of a car. Today’s technology, however, has expanded the benefits of an embedded insurance programme, which enable companies to offer a simple and targeted insurance product at the point of need.
A one-stop solution for consumers
The recent changes in consumer lifestyle has fuelled the sharing economy and mobility sector. According to Oliver Wyman, new urban mobility options, which include ride sharing, are growing at twice the rate of conventional public transport methods. This has led to a rise in the number of short-term rental companies providing embedded insurance within the vehicle’s hire price.
Similar trends are emerging in the micromobility sector given the popularity of e-scooters and e-bikes. In countries where there is a legal requirement for insurance, the mobility operators are embedding insurance within the service offer.
Benefits of embedded insurance
There are significant advantages of embedded insurance for the customer, including:
- Improved buying experience: The customer experiences a frictionless buyer journey — there is no need to move from one site to another.
- Customisation: Embedded insurance can be tailored to a customer’s requirements or interests based on their transaction history and other available data.
- Convenience: The customer saves time, as there is usually no need for a separate insurance purchase. The customer generally does not need to research coverage requirements and compare policies.
- Accessibility: Embedded insurance is available at the point of need.
Challenges of implementing a programme
If the advantages of embedded insurance are evident, what is stopping the mass adoption of embedded insurance?
The plethora of technology options available to create an embedded insurance programme has led to confusion. Some companies are not sure whether to build, buy, or partner in order to integrate a programme. Embedded insurance is complex and requires extensive resources to build from scratch. However, to buy an off-the-shelf programme may not provide the customised solution that a company’s customers require. Furthermore, to find a partner is difficult, as each provider offers different solutions.
In some areas within the mobility sector, such as electric vehicles, finding the right insurance capacity can be difficult. Many companies lack historical claims data, which makes an evaluation of their future maximum exposure tricky. Articulating the benefit of the embedded insurance programme to various stakeholders can be challenging. And designing a suitable programme requires expertise in both embedded insurance and mobility insurance which companies often lack.
Checklist – Is embedded insurance the right option?
In deciding whether embedded insurance is the right solution, there are several key points a company should consider, if a programme is to be successful:
- Does it have a large customer base or potential to reach a large consumer audience?
- Is its brand trusted by consumers?
- Is the company willing to share customer data with insurance and ecosystem partners?
- Will insurance be a complementary product to the current point of sale offering?
- Is the current buyer journey a low-touch purchasing process?
Choosing the right partner
According to one industry estimate, 40% of insurance is going to be embedded over the next decade. Creating a robust embedded insurance programme, however, is challenging. Companies should work with a partner that is well versed in the regulatory, legal, and operational requirements of the geographies their business already operates in and the ones where they may eventually expand. The partner should have a deep understanding of their industry and their customers’ needs. It is also critical to select an insurance broker or adviser who can work with underwriters to obtain competitive premiums.