As the embedded insurance market continues to take off, more and more companies are using insurance as a service to help them get started quickly. Embedded insurance represents a significant revenue and customer engagement opportunity for many businesses, but getting started can be costly and time-consuming.
With insurance as a service, businesses get everything they need to get to market much more quickly and cost-effectively, as well as access to technology and capacity they might not be able to secure themselves. Rather than spending several years and millions of dollars building a new insurance program from scratch, the business can simply connect with an insurance as a service partner via API, and get started right away with offering new or additional insurance products through their own website and brand.
In this article, we’ll look at the definition of insurance as a service, what the benefits are, and how it’s different from other types of insurance partnerships.
Insurance as a service provides everything a company needs to start offering insurance to their customers. This includes:
Insurance as a service is sometimes also called insurance infrastructure as a service, because it provides the whole solution necessary to support an insurance program, rather than just the insurance products themselves. This is important, because selling policies is actually only a small part of offering insurance. Without the broader infrastructure (including claims processing, regulatory upkeep, technology, reinsurance backing and more), a business won’t be able to successfully enter the insurance market.
Insurance as a service was developed to help companies launch new or expanded insurance programs, for drastically less time and cost than building from scratch.
Modern consumers expect seamless, all-digital experiences, and they want to buy from brands they already trust. Traditional insurers often can’t meet those expectations, which creates opportunities for new entrants like insurtechs, or businesses who offer related products, to offer customers the insurance they need. Actually taking advantage of those opportunities, however, can be easier said than done.
New entrants to the insurance space have traditionally faced significant barriers. Complex regulations, specialized operations needs, and high capital requirements make it difficult for new players to even get to market, much less grow:
Many of these barriers are in place for good reason, to ensure that insurance buyers will get the protection they pay for. However, a side effect is that they also make it difficult to innovate in the insurance industry, and many new ideas can’t even get off the ground. Insurance as a service was developed to help new entrants get to market more quickly and cost-effectively than the traditional DIY path.
Here’s a few ways insurance as a service helps businesses overcome traditional barriers to getting started with insurance:
Building an insurance program from scratch is a long, difficult, expensive process, and it can easily take more than two years just to bring an offering to market.
With insurance as a service, the provider has already gone through the process of creating the insurance products and securing regulatory approval, and building the infrastructure to sell and support them. With the hard part already finished, the go-to-market process is dramatically shortened. Working with an insurance as a service partner allows business to launch a new insurance program in as little as a few weeks.
One of the hardest parts of building an insurance program is securing enough financial capacity, both to launch the program and to scale it. Insurance capacity is the maximum amount of value that a program can insure, determined by how much capital is available to cover its losses.
This requires an enormous amount of money. Most capacity providers have millions or billions on their balance sheets, and by law insurance capacity must be provided by a licensed insurance carrier. For new entrants to the insurance market, it can be very difficult to convince an established carrier to provide capacity for their products.
An insurance as a service provider has already built relationships with insurance carriers, and secured capacity for their products. When a business white-labels the insurance-as-a-service product, they’re getting access to the capacity behind that product as well, with no need for lengthy, complex business development initiatives.
Modern insurance buyers expect seamless, all-digital experiences - something traditional insurance companies have frequently failed to deliver. This creates significant opportunity for new entrants, but delivering an insurance transaction experience that meets modern consumer standards is easier said than done.
Digital insurance requires a fairly complex piece of software called a policy management system, which automates all the key workflows and decisions involved in any insurance transaction. This is how claims get submitted, reviewed and paid out to your customers. Building a policy management system from the ground up can take a year or more in development time, and cost several million dollars.
With insurance as a service, the policy administration system is already built and tested. Businesses only need to connect it to their own systems, usually through an API. The system can then deliver the all-digital insurance policy management that modern buyers demand.
As we’ve seen, building a new insurance program is a very long process. It’s also very expensive. From concept to launch, creating an insurance program from scratch requires years of work by a number of legal, actuarial, and technology experts - all of which comes with significant cost. Businesses who take the DIY approach to insurance will spend millions of dollars in development before they’re able to sell a single policy.
Insurance as a service allows businesses to start or expand insurance programs without those high upfront costs. Instead, they can begin making sales and collecting revenue from premium payments right away, usually with a small commission paid to the insurance as a service partner.
For companies without insurance expertise, building and managing an insurance program in-house would likely be a costly distraction from their core business. An online pet supply store, for example, would probably see better returns from investing its resources in sourcing and marketing pet products, rather than learning how to be both an insurance company and a pet store. With insurance as a service, they’re free to do what they do best, while the partner runs the insurance backend.
Even for insurtechs, whose business is focused on insurance, the core mission usually doesn’t involve getting bogged down in a long, expensive slog to get to market. For many insurtechs, insurance as a service fills a similar role to how software companies use AWS. It provides access to infrastructure that would otherwise be costly and time-consuming to build and maintain, so that the insurtech can get to market quickly and focus on serving customers.
Whether you’re a non-insurance company considering offering embedded insurance, or an insurtech looking to expand your product lineup, insurance as a service can help you get there faster and more cost-effectively than trying to build a new insurance program yourself.