When companies that provide digital goods and services think about growth, they probably don’t think about insurance - but they should.
“Insurance” might call to mind a complex, largely offline business, but the reality is that modern consumers’ behavior and expectations are driving rapid change to the industry, especially for the embedded insurance market. Over 60% of US consumers have said they prefer to buy insurance digitally, and just as many are happy to buy from non-traditional insurers1. In the US market alone, embedded insurance is opening up billions of dollars in opportunities for new entrants.
Most people are familiar with embedded finance, whether they realize it or not. If you’ve ever used a meal delivery or a ride-sharing service, you’ve used an embedded finance system. The meal delivery company likely didn’t develop its own payment processing system from scratch - it probably integrated with a fintech company who already had the technology. You were able to seamlessly make your payment for the service without ever leaving the app, because the payment-processing tech was embedded in the app experience.
Embedded insurance follows the same premise: a business offers an insurance product, usually at the point of sale, and the consumer can buy it within the same experience as the rest of the company’s products. This creates opportunities for companies whose core product or service isn’t insurance, but that consumers would benefit from insuring. The point when the consumer buys the product or service is a natural (and convenient!) time to buy insurance as well.
An embedded insurance example might be a televet provider offering pet insurance on their app or website. A consumer could set up a virtual vet visit on their mobile device, and then be offered insurance to protect their furry friend’s health, right on the same page (and from a source they already trust when it comes to their pet). The consumer could then buy the policy in a few clicks, without ever leaving the televet’s brand experience.
This is different from the more usual click-through partnerships with insurance, also called affinity partnerships. In the affinity scenario, the televet might have a button for getting insurance on the site, but clicking on it would only send the customer off to the insurance partner’s signup experience (with the televet essentially just acting as a lead gen channel for the insurer). The customer buys the insurance product from the insurance company directly, who then manages the relationship (for better or for worse).
With embedded insurance, the entire purchase experience takes place in the televet’s front end environment, with the televet’s branding. The televet also continues to own the relationship, and benefits from the consumer’s continued brand loyalty.
It sounds simple, but it can make a big difference for your top and bottom line, along with your customer satisfaction and retention.
Here’s three key reasons why your company should be thinking about adding embedded insurance:
The single biggest reason to consider offering embedded insurance? It’s a very significant financial opportunity.
Your customers will make regular premium payments to keep their policies active, which translates into regular income for your business. And recurring revenue builds value for your company besides just the money itself - regular, repeating income streams are exactly what investors and shareholders like to see.
The more your customers buy from you, the more likely they’ll keep buying from you. Adding insurance products increase your stickiness as their brand of choice - both by strengthening your relationship with the customer, and increasing their switching costs. This has benefits beyond just increased ARPU; Bain & Co. famously posited that a 5% increase in customer retention can boost profits by as much as 95%.
In 2021, the US property & casualty (P&C) insurance market is projected to take in $700B in gross profits. That’s an enormous sum coming in just from insurance, and a considerable amount is open for new entrants to tap into.
Despite its size, the insurance market is ripe for disruption, because...
For many consumers, the traditional insurance-buying experience just isn’t working any more. Why?
The explosion of personalized services over the last decade has raised the bar on consumer expectations, and traditional insurers aren’t meeting it - as reflected in traditional insurers’ often-low NPS scores. A one-size-fits-all, take-it-or-leave-it approach isn’t compelling to the modern digital consumer.
If a consumer does want to buy traditional insurance, providers don’t make it easy. The insurance industry is still largely dominated by old-school analog processes, requiring phone calls, printed and scanned forms, or even faxes (and nothing adds friction to a signup flow like needing to stop and google where to find a fax machine). Making things worse, the process itself tends to be a disjointed mix of multiple UIs, with the consumer required to submit the same information multiple times. This wastes consumers’ time - and increases the odds they’ll just abandon the transaction.
With traditional insurance, the policy they offer is the policy you get, regardless of what you actually need. Need pet insurance to help cover your dog’s allergy meds? A traditional policy will likely package that coverage along with coverage for things like cancer and hip dysplasia, even if your dog is unlikely to ever require those treatments. If a company like Equifax gets hacked and costs insurers tens of millions in losses, your neighborhood coffee shop gets hit with a rate increase as if they pose the same risk.This one-size-fits-all approach means that many customers get stuck paying for things they don’t need, because it’s the only way to get insurance coverage for the things that they do.
All these problems with traditional insurance add up to a big embedded insurance market opportunity for companies like yours, because as it turns out...
It may seem counterintuitive, but companies who aren’t traditionally known for selling insurance are uniquely positioned to win a significant share of the modern insurance market. The opportunity is greatest for digital businesses that provide other goods and services, where protecting those offerings with insurance is a natural fit. So why is your company in such a good place to help?
You’ve already spent a lot of time and energy acquiring, learning about, and understanding your customers. You know their needs, which helps tailor the right insurance products to fit their life, and you know their preferences, which helps create the right experience. You specialize in serving your customer group, and you understand their needs in a way that a giant, generalized insurer can’t.
Your customer knowledge also allows you to reduce friction in the signup flow. Instead of requiring customers to fill out and send long, involved applications, you can use the information you already have about them to prepopulate the necessary forms, and ensure you’re only asking them to provide information you actually need.
One of the insurance roadblocks for modern consumers is that they prefer convenient buying experience with brands they already use and trust - which isn’t most insurance companies. This is particularly true for younger people. In a recent survey, 82% of millennial customers said they’d want to buy insurance from a “new entrant” (i.e., a company from outside the insurance industry)1.
Buying a traditional insurance policy often means tracking down and researching products from brands they aren’t familiar with - and as we’ve already seen, the industry doesn’t make this an easy task. For customers, it’s far simpler to obtain insurance from a trusted brand that they already have a relationship with (and also to keep track of the policy once they have it).
In the past, all these advantages still might not have been enough to make adding an insurance offering worth it. Insurance is a highly complex, highly regulated business, and new entrants could expect to take 24-48 months bringing a minimum viable insurance offering to market. For companies whose core focus isn’t insurance, the investment simply wouldn’t pencil out.
Things have changed, however, and so has the business equation. Advances in the insurance-as-a-service space mean that you can now partner with a company that’s already done the heavy lifting on the technology, operations, compliance, and capital required (like Boost!). With the right partner, you can go to market with a white-labeled or co-branded insurance offering in a matter of days or weeks, instead of years.
If you’re looking to increase your company’s revenue (and who isn’t?), offering embedded insurance should definitely be near the top of your consideration list. With potential for significant recurring revenue from embedded insurance, increased customer engagement and satisfaction, and an easier go-to-market path than ever before, there’s never been a better time to start.
Ready to get started with embedded insurance? The Boost digital insurance platform can help.
1 Bain/Research Now Insurance NPS Survey, 2018