Insurers take their place in a world of embedded finance

Taking a deeper look at embedded insurance

Imagine that you’ve just secured a mortgage loan to buy your first home, and you need to purchase insurance for your new residence before you close. Suddenly, your lender comes forward with several competitive offers from different insurers. You review the coverage, select the best option, and purchase directly through your bank.

This is the world of embedded insurance, and it’s not a futuristic idea. It’s a reality that forward-thinking insurers have already embraced, and one that could expand access to affordable coverage to more consumers.

Taking a deeper look at embedded insurance

Embedded insurance is part of a much larger ecosystem known as embedded finance. With embedded finance, businesses integrate financial products into their own infrastructure using platforms and application programming interfaces (APIs). The simple connectivity provided by APIs allows companies to improve the customer experience by seamlessly incorporating financial solutions within their own service or product offerings.

Just think about the last time you used a ridesharing app. As you left the vehicle, the payment to the driver was seamlessly processed thanks to an embedded connectivity with a credit card servicing provider. Another recent example brings embedded finance more directly to the consumer, with the advent of buy-now-pay later. This service allows online retailers to offer financing to customers at the point of sale.

Recent research conducted by Morning Consult indicates that only 11% of adults have heard of embedded finance. While today’s consumer may not be familiar with the terminology used to describe integrated financial services, research indicates that they are embracing embedded options all the same.

40% of consumers are using services such as Apple Pay, Google Pay or Shop Pay to make purchases.^[i] Nearly a quarter of consumers report using buy-now-pay-later financing options,^[ii] and the preference for integrated finance doesn’t stop there. According to Morning Consult’s report, 17% of surveyed consumers have already purchased an embedded insurance product, despite the lack of widespread availability.^[iii]

How insurers are leveraging embedded finance

Embedding insurance offers into ordinary consumer transactions expands accessibility for all insurance types by introducing coverage at the moment it is needed and at the point where the consumer is most likely to buy. Imagine taking a pet to the veterinarian for routine medical care and being offered the option to purchase insurance to cover future medical bills, including vaccines and wellness visits.

The same scenario is already happening in the travel industry. Leading providers, such as airlines, hotel chains and even theme parks are offering consumers the option to protect their trip with travel insurance purchased as part of the initial reservation booking.

Across generations, consumers are open to the idea of embedded insurance. 65% say they would purchase a “fully automated add-on insurance” option, such as travel insurance.^[iv] Additionally, 70% of U.S. consumers say they are interested in bank-embedded insurance offers for at least one type of coverage.^[v]

The embedded insurance industry is expected to grow 31.9% annually through 2029,^[vi] indicating that insurers are already preparing to join the market. Bain & Company believes that broad scale market penetration will happen first across three lines of coverage: auto, travel and property.^[vii]

By allowing consumers to purchase insurance at the point of sale, Bain also believes that more insurance companies will expand beyond the traditional offerings of home and auto.

Partnerships will also become increasingly important as insurance distribution expands outside the traditional bounds of distribution to the automobile showroom or bank branch, just to name a few options.

When it comes to turning the concept of embedded insurance into action, Bain indicates that one insurer is taking the lead on embedded distribution. Chubb has developed its own API interface, allowing partners to easily integrate the company’s products at the point of sale, but it only represents the beginning of how the industry is set to change. A survey conducted by PwC indicates that 79% of insurance executives agree that “insurers will increasingly engage in ecosystems that serve broad needs of customers, where insurance is only part of the customer value chain.”^[viii]

Claims in the world of embedded finance

As consumers become accustomed to the rapidity and convenience of embedded insurance, similar expectations towards the claims process will follow. A recent report issued by Accenture reveals that the speed of claims processing, including time to payment, is the biggest driver of customer satisfaction.^[ix]

Unfortunately, time to payout on claims doesn’t always meet consumer expectations. According to J.D. Power, a typical homeowners claim in the U.S., for example, took 18 days to settle in 2021.^[x] However, J.D. Power also indicates that the average time to payment decreases by up to 5.5 days when claims are handled digitally.^[xi]

Much of the speed from digitization comes through payment automation, particularly when sending cross-border claims payments. Instead of relying on paper checks which take time to mail and can be lost or stolen, digital payments can be sent electronically, drastically reducing the time it takes for customers to receive claims reimbursements, while providing complete transparency to the insurer.

As insurers find their place in the world of embedded finance, how they handle claims and ensure fast and fair payments will become another primary consideration to address, as instant fixed monetary claims pay-outs are the number one choice of consumers.^[xii]

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[i] Charlotte Principato. “How Embedded Finance Wil Disrupt Traditional Financial Services Brands.” Morning Consult, Jan. 25, 2022. Web.

[ii] Charlotte Principato. “How Embedded Finance Wil Disrupt Traditional Financial Services Brands.” Morning Consult, Jan. 25, 2022. Web.

[iii] Charlotte Principato. “How Embedded Finance Wil Disrupt Traditional Financial Services Brands.” Morning Consult, Jan. 25, 2022. Web.

[iv] “Embedded Insurance|A Proven Consumer Desire and Business Growth Enabler.” Companjon, 2022. Web.

[v] “Embedded Insurance Report.” PYMNTS.com, June 2021. Web.

[vi] “Global Embedded Insurance Business and Investment Opportunities – Q1 2022 Update. Research and Markets.

[vii] Andrew Schwedel, et al. “The Future of Insurance: As Risks Mount, Insurers Aim to Augment Protection with Prevention.” Bain & Company, Nov. 8, 2021. Web.

[viii] “insurance Ecosystems Are Upending Long-Held Assumptions.” PwC, 2022. WEb.

[ix] “The Digital Insurer Claims Customer Seurvey: Why Claims Service Matters.” Accenture.

[x] Paul Reynolds. “Processing a Home Insurance Claim Takes Longer Than Ever, and New Apps Are One Surprise Culprit.” Money, Mar. 22, 2022. Web.

[xi] Michael Cline, et al. “Preserving the Human Touch in Insurance Claims Transformations.” Deloitte, Oct. 12, 2021. Web.

[xii] “Embedded Insurance|A Proven Consumer Desire and Business Growth Enabler.” Companjon, 2022. Web.

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