What is embedded insurance?

And what does it mean for you?

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Marria Qibtia Sikandar

Marria has a decade of experience delivering professional content across a number of industries. Her writing expertise extends to insurance, technolo…

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Susan Meyer

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  • Licensed Insurance Agent — Property and Casualty

Susan is a licensed insurance agent and has worked as a writer and editor for over 10 years across a number of industries. She has worked at The Zebr…

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Embedded insurance: the basics

Have you heard of embedded insurance? If you're in the insurance industry, you know it as a growing trend that makes it easier to present insurance opportunities for customers right when they buy something. But what if you're an insurance customer? If you're wondering what embedded insurance is and what it means for you, you're in the right place.

Offering customers risk protection after they've made a purchase is nothing new. However, bundling coverage or protections within the purchase of a product, platform or service is slowly gaining a foothold.[1] Embedded insurance is a form of digital bundling, that enables companies to offer insurance policies as an add-on, generally as a part of the digital sale.[2] This means that the insurance product isn't sold to the customer ad-hoc. Instead, it comes to be provided as a feature of their purchase. 

In this article, we explain embedded insurance and also discuss the significant ways it will affect you.

What is embedded insurance?

Embedded insurance essentially offers a way for companies to embed an offer of insurance right when you buy something. The goal is to catch you at the moment when you're thinking about your finances and wanting to protect yourself.

For instance, when you have just bought a newly launched $1,500 cell phone, you are offered insurance that covers the cost of replacing a broken or malfunctioning phone. Or travel insurance that's offered when you book a flight. Or insurance offered by your car rental company. 

With the COVID-19 pandemic encouraging digital practices for businesses across industries, today, more than ever, companies are seeking ways to embed insurance to make it simply one more step in your shopping experience.[3][4]

This trend is even continuing to larger purchases like cars. After all, everyone needs auto insurance. Liberty Mutual recently acquired Fetch A Quote which is a platform that allows participating cars dealers to integrate an insurance solution right when you buy a car. 

There are similar solutions for embedded insurance for homeowners insurance. Citizens Bank, for example, launched an online home shopping portal where people can search for homes, find a lender for a mortgage and engage a home insurance policy all in one place. 

What are the pros of embedded insurance?

It's easy to see why embedded insurance is popular with insurance companies. Catching you when you're already shopping and when you're most likely to think about the amount of money something is costing you (and thus want to protect it) means you are far more likely to buy insurance than if you were forced to seek it out seperately.

However, embedded insurance also has several benefits for you.

1. Convenience

Embedded insurance streamlines the process of getting insurance. As a customer, you can buy your insurance simultaneously during checkout. You can purchase insurance policies without contacting another institution or talking to an insurance agent, simplifying the process to checking a box. 

The insurance terms and conditions and all other info you need to make a decision should be readily accessible at the time of purchase. Read the details carefully, but in some cases you can pay in installments and can cancel your policy whenever you need to.

2. Personalized coverage

No two customers are alike. Your purchasing preferences, motivations and decisions are different from someone elses. As you're no doubt aware, when you buy anything online (or even just browse) you're providing data. The same data that enables stores to pursue you relentlessly with ads for that one pair of shoes you briefly considered buying online three weeks ago, can also help them provide better insurance recommendations for you.

Insurance companies are traditionally less responsive to changing customer preferences. That is so because they tend to work on older IT systems that cannot cope with the need to adjust in real-time to the type of product demanded by the customer. This is where embedded insurance wins over by ending the traditional 'same for all' approach. Embedded insurance provides relevant, personalized coverage by bundling protections per customers' needs.[5]

3. Straightforward claims process

For customers, the insurance claims process can be hard to navigate through. It is stressful and complex and based on interpretations of policy language, value and the repair cost. However, with embedded insurance, the claims process becomes more straightforward since the data gathered during the onboarding stage can often be used during the claims process. This means that the probability of your claims getting rejected is relatively much lower.

As technology improves, the claims process in some cases may even be automatic. One Chinese online-only insurance company ZhongAn uses internal sensors in phones to detect when the screen is cracked and trigger a new phone to be sent before the owner even picks up their dropped phone.[6]

4. Protection from uninsured losses

With deprecating economies, natural catastrophes and healthcare losses, the global protection gap has been estimated to reach USD 2.1 trillion.[7] As a customer, if you purchase a one-off plan to protect a new product, it will not only feel cumbersome but sometimes even unnecessary. However, when insurance products are simpler to purchase, you, the customer, get a chance to protect yourself against uninsured losses. So, the protection gap narrows, and you get greater peace of mind. 

What are the cons of embedded insurance?

Making it easier to buy insurance, can be a positive both for you the customer and for the insurance provider. However, that can be a double-edged sword. The main con of embedded insurance is that it can make it so easy to purchase that you don't do your due dilligence. Don't let the ease of purchase keep you from reading the fine print.

It's important to understand the coverage fully, how much you will be paying and what the exclusions are. It can be easy to check the box for peace of mind and then discover it doesn't cover what you need. A good example is travel insurance. Most will cover some reasons behind a trip cancellation, but not all. You should also understand what types of documentation you will need. 

Embedded insurance can also prevent you from comparing your options and finding the most cost effective insurance. 

Wrapping up

Embedded insurance reaps benefits for both insurers and customers. As a customer, it will be exciting to see where this trend grows next.

Looking to uplevel your insurance knowledge with more market trends? Check out our articles on car insurance trends and home insurance trends. 

  1. Best’s Commentary: Embedded Insurance Gradually Gaining a Foothold. Business Wire

  2. Is Embedded Insurance Too Difficult A Problem To Solve For Traditional Insurers? PS Kinetic

  3. How COVID-19 has pushed companies over the technology tipping point—and transformed business forever. McKinsey & Co

  4. What makes digital an urgency for the insurance industry. EY

  5. Embedded insurance: a $3tn market opportunity, that could also help close the protection gap. FinTech Futures

  6. Embedded Insurance – Where Are We Now? Forbes

  7. Embedded insurance – 6 things you need to know and how to make it real. Chubb