Why embedded insurance is a must-have

An estimated 16% of Asian insurers’ revenues are now derived from embedded insurance.

Financial executives are banking on embedded insurance as a revenue generator in the next three years. In a survey of 200 financial organisations’ executives, Chubb found that over six in 10 (62%) of Asia’s financial executives expect to generate more than 10% of their revenue from embedded insurance within three years.

The optimism is not without merit: as of 2023, 16% of Asian insurers’ revenues are derived from embedded insurance, Chubb said.

One advantage that financial firms are now seeing in embedded insurance is that it is leading to more interactions with new products — whilst also minimising interactions at the same time.

“Insurers often do not communicate with end insureds more than once or twice a year,” John Duigenan, IBM general manager for the global financial services industry, told Insurance Asia.

“Embedded products have a much higher frequency of interaction and opportunity to cross-sell.”
It is also leading to higher retention. “The more products customers have with a company, the less likely they will leave. There is a “halo effect” even for small products with break-even economics,” Duigenan added.

Even though it has received much attention, Duigenan believes that the potential of embedded insurance remains underexploited. He noted that whilst many insurers expand their book of business with microproducts and embedded products, they are not as good as converting those to broader business.

“There are three significant emerging opportunities for embedded insurance: creating new insurance products for modern consumers; integrating existing insurance products into daily activities; and applying data and technology from other industries in order to drive better insurance outcomes,” he said.

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Trust and tech
The Chubb study also found that over eight in 10 (81%) of financial firms now agree that having digital insurance embedded in websites and apps is no longer a “nice-to-have” offering, but a must-have.

“The survey’s findings make it clear that there is increasing consumer demand and expectation for offers of insurance to be part of their digital customer journey with banks and fintech,” said Sean Ringsted, Chubb’s chief digital business officer.

Ringstead added that company executives around the world recognise digitally embedded insurance as a growth enabler, but that there are also pain points and challenges that are hindering greater adoption.

Duigenan echoed this sentiment, but noted that the right mix of factors have to be present in order for embedded insurance to “meet its full potential.”

“People must trust the ‘ecosystem’ — whether the insurer is embedding other products, or the other products are embedding insurance. ‘Do I trust that I’m getting a good deal?’ ‘Is it easy for me to purchase even though multiple companies are involved?‘ ‘Do I trust my data, in exchange for good value?’ Being able to provide trustworthy AI is just as important as providing the insurance. Insurance is a sale in response to an emotional need — so trust is paramount,” Duigenan said.

Building the right technology stack is another. Duigenan believes that hybrid cloud strategies and AI will both play a role in embedded insurance.

In connection to this, Chubb’s survey found that almost one in two (48%) of financial executives cited complicated technology integration as a top challenge, second only to the lack of talent.

“AI may or may not sell and administer the product completely — regulators will weigh in on that — but it has great promise in advising customers and helping them procure new products quickly through streamlined advice and application/onboarding,” Duigenan noted.

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The future
Wider adoption of embedded insurance would lead to lesser costs for insurers and the possibility of discounts for the insured, analysts said.

Duigenan noted that people, for example, may enjoy discounts on their alarm systems if consumers are insured with certain carriers, or get discounted home sensors that are ordered through insurers, just to name a few examples.

Duigenan also expects the rise of microproducts that “extend a halo of coverage.” These include pet insurance, cancer insurance, one-day auto coverage, wedding insurance, and what he calls “hole-in-one” insurance.

Discounting within existing policy frameworks: 10% off on liability if consumers insure their home with and maintain a good level of auto coverage. Lower life insurance premiums if consumers share health data and maintain healthy practices.

Expect to also see insurance programmes, or insurance embedded in non-insurance products. A widely known example would be travel insurance embedded into an airline ticket; warranty coverage offered for e-commerce products and shipping coverage for purchases; and even phone loss insurance.

Finally, Duigenan posits that there will be advice and coaching services available based on all the earlier embedded insurance interactions listed.

“We have seen driving coaching and advice based on telematics result in premium discounts and significant claims loss cost reduction. Healthier employees result in lower health loss costs,” he said.