The rise of embedded financial products has been well documented. One of the key reasons is that embedded products can strongly leverage the “3Ds” of fintech. They enjoy a distribution advantage because they can be purchased where customers are, and with brands they trust. They can become features of a product rather than something that is separately bought. They can leverage different types of data for underwriting and claims. And because they are part of a broader offering, can delight the customer in the delivery.
My favorite example is ZhongAn phone insurance, embedded in phones – before you pick up your dropped phone with a cracked screen, the embedded policy will have been triggered by internal sensors and a new phone will be on its way. No messy claims or repair estimates needed.
This is a powerful shift but not the only driver for the movement.
Embedding products is increasingly popular with consumers. Research by Cover Genius, an embedded insurance provider, unveiled during our panel demonstrates this dynamic at work. Findings showed that 45% of US customers are interested in bank-embedded insurance offers. Strikingly, globally the average is even higher, reaching 70%.
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Gadget is an ideal market for embedded insurance as long as the value and product are good. On the other hand full-stack insurtechs offer great digital customer experience if the embedded product pr price is inferior.
The Altus DigitalBar shows how digitally mature these companies are.
The top rated ( by digital maturity) UK insurers are: -
You can see the full list at Altus DigitalBar ( 14 day free trial). You can even deep dive into maturity across key areas of customer experience e.g.
The customer has great choice - the convenience of embedded insurance at point of sale or rental and/or or the trust and convenience of dealing with a household brand.
Embedded insurance forces us to rethink claims as well. Here, we’ll see greater use of parametric triggers – where a certain event, which is easily measurable – triggers the claim. It becomes indisputable, and as a result can lead to 100% payouts. For instance, parametric weather insurance that pays out based on events, or screen insurance that triggers based on internal phone sensors. FloodFlash is a great example of this.
Better still there is no actual claims process- the customer chooses the cover required and the flood level trigger and by agreeing the premium get paid immediately the sensor triggers payment. An immediate payment to help the short term urgency of business interruption for example.
This also means that some products are easier to embed than others. Products that require complicated underwriting (think life insurance where health and behavior factors are big underwriting drivers), that require an understanding of customer behavior and avoiding moral hazard (e.g. Cyber where customers have an important role in prevention) or where multiple exclusions are present, may be more challenging to embed.
Blockchain, smart contracts and IoT connectivity all make embedded and parametric insurance increasingly beneficial. Customers also have the choice of insurtechs offering custom products for custom risk.
Back to the title and Lazarow's answer.
So, where are we now?
"I believe we are still in the second inning of embedded insurance adoption. The first wave saw a shift in distribution players. Today we’re seeing the beginnings of embedding it in platforms and others, and making insurance a feature of a product."
Embedding financial products requires simple clear product, with simple clear explanations. Descriptions need to be in plain English, rather than complicated legalese. And products will need to shift away from exclusions to be more understandable and viewed with greater trust.
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