Meeri Savolainen is the CEO of INZMO, a Berlin-based insurtech for the rental sector & a top 10 European insurtech driving change.
With growth being squeezed across Europe, there is an open goal staring at the insurance value chain: embedded finance is valued at $770 billion for European brands alone by 2026.
With a number that big, embedded finance has obviously got people’s attention. Three-quarters of brands say they plan on launching embedded services and consultants at EY predict that more than 30% of all insurance transactions will take place within embedded channels by 2028. Yet 95% of those same brands admit they do not fully understand what that means.
What Is Embedded Insurance?
The insurance sector is undergoing significant changes due to advancements in technology and the proliferation of data. This evolution has led to a more granular and specialized insurance value chain, where technology enhances every aspect from underwriting to claims settlement, driving innovation and improving the customer experience.
Embedded insurance is a partnership between a technology partner, known as an insurtech in our world, who provides another business with the means to sell insurance on their website. (Full disclosure: My company is an insurtech, but there are many options in this space.) Picture buying a new phone along with accidental damage protection or adding flight cancellation insurance to your travel booking—these are examples of embedded insurance in action.
Partnerships are hardly a new idea in insurance, but the beauty of the embedded approach is its simplicity. The insurtech does all the hard work of developing the tech—the partner just drops a few lines of code into their website and voila!
It’s not all about the money either. Potential insurance customers are now used to seamless, personalized experiences across many areas of life. Embedded insurance fits into and enhances that trend. It presents a powerful opportunity to enhance customer engagement by offering protection and peace of mind exactly when it is most needed.
From usage-based insurance models powered by IoT data to seamless claims processing through digital wallets, the possibilities are vast.
Understanding The Embedded Insurance Ecosystem
Embedded insurance integrates relevant insurance solutions directly into the customer journey of non-insurance products and services. It’s an ecosystem based on collaboration between various players who bring different skills and advantages to the table:
• Traditional insurers provide the necessary underwriting expertise, risk management capabilities and claim settlement infrastructure. Established players also bring brand trust and regulatory compliance.
• Insurtechs and managing general agents (MGAs are specialized insurance agents or brokers who have been granted underwriting authority by an insurer) act as innovation engines, developing and deploying platforms that seamlessly integrate insurance products into non-insurance platforms. MGAs are becoming increasingly critical in property and casualty (P&C) distribution, with a growing need for capacity providers offering speed, flexibility and strong client relationships.
• Non-insurance companies are companies outside the insurance industry—retailers, travel platforms or car manufacturers, for example—who leverage embedded insurance for new revenue streams.
Everyone Benefits
Embedded insurance expands insurers’ reach beyond traditional distribution channels, tapping into the needs of customers of non-insurance partners. They can acquire new customers more efficiently, with minimal legacy IT integration issues and costs and reduced marketing spend.
New data insights from within the value chain enable insurers to create more personalised and relevant insurance products for customer segments. Some of that data might be real-time from connected devices, leading to improved risk assessment, more accurate pricing and potentially lower premiums.
For insurtechs, partnering with established insurers provides regulatory and risk management expertise, brand reputation and an existing distribution network, accelerating market penetration. While insurtechs and MGAs are key players in the evolving insurance sector, their success hinges on forming strategic partnerships to drive global growth and effectively manage financial risks. Collaborating with insurers allows them to adeptly manage, negotiate and implement insurance policies, guaranteeing the smooth integration of insurance services within various ecosystems.
A better customer experience means non-insurance companies can potentially increase customer loyalty, as well as generate additional revenue streams through commissions or referral fees. Insurance offered at the exact time it is needed is a compelling proposition for customers, keeping them within a “walled garden” provided by the company with the most convenient and comprehensive package.
Harnessing The Power Of Data
Data is what makes the entire chain work as it underpins personalized offerings and accurate risk assessment. In a well-functioning ecosystem, positive collaboration between partners can create an even richer data pool, encompassing customer behavior, usage patterns and real-time information.
The most effective ecosystems are already translating enhanced data visibility into significant operational advantages. By analyzing usage data and risk factors, they can use dynamic pricing to offer more personalized and competitive premiums to customers. Real-time data from wearables or connected devices can help identify potential risks and offer scope to intervene proactively, minimizing losses for both insurers and customers. And access to customer data and purchase history can result in more efficient claims settlement.
Embracing win-win
The whole edifice relies on all stakeholders collaborating with a win-win approach. Our experience shows that open communication, clearly defined roles, and transparent data sharing are the most crucial factors here.
With $770 billion at stake for European brands, the future of insurance is clearly collaborative. I believe partnerships and a thriving embedded insurance ecosystem will unlock that value.
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