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Embedded Insurance: Becoming seamlessly protected
Embedded insurance sounds like a logical and simple next step in digitalization but in reality, it is a massive change within the business model. If products are offered together with insurance coverage for them, then insurers with product expertise will be able to offer customers a great deal of added value.
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    Offering risk protection when purchasing a product or service like a car, mobile phone, vacation, or even an event cancellation like a concert has been commonplace for years. Previously, there was insurance on the product, but the technology behind it was not integrated. 

    We now call this the B2B2C business model “Embedded Insurance” (EI) since the insurer as well as business partner are becoming more tech-savvy and products and protections are now being offered in a single and seamless journey. Insurers need to have a dedicated organisation and have to own a modern, evolutionary IT architecture to be able to partner successfully with OEMs, retailers, telcos, etc. Most importantly, they need to best serve the insured, not only during automated quote and policy issuance but also in case of a loss. Technical integration is of enormous importance in the sale of policies and also in the recording of claims in order to keep the costs of requests and  processing fair and as low as possible.

    A win-win-win scenario: advantages of EI for insured, business partner and insurer

    Insured: Being protected without any hassle. Does it make more sense having to call your insurance agent and remaining unprotected until the policy is signed a few days later or becoming seamlessly protected in seconds without resharing data like name, address and payment details?

    Business partner: Partners generate additional income when selling risk protection with their product or service. The insurance coverage option can also increase the purchase rate, since the customer no longer has a loss risk. Insurers with embedded insurance technology (millisecond-fast APIs, messaging, computer vision, etc.) enable cost efficient operations for the business partner.

    Insurer: The EI business model is very attractive for tech-savvy insurers because distribution is accomplished by the partner who often has customers in the thousands or even millions. Once the fully automated EI technology is established, the insurer protects new customers daily and can return focus to their main duties: Serving the insured needs and settling claims – digitally, automated and face-to-face.

    Some obvious risks of Embedded Insurance do exist for insurers

    There are not only advantages for insurers to operate an EI business model: The embedded distribution comes at a cost, with some partners running tender with multiple carriers more than once a year. The insurer’s organisation needs to continuously improve the evolutionary architecture; there is not one set of API integration, but API mediation is needed for many business partners. The technology must be able to scale internationally in regard to performance, reliability and compliance.

    And since the insured typically doesn’t care by whom he/she is protected, it’s often only the cheapest price and best customer satisfaction rate while getting protected and claiming a loss (NPS) that drives decisions for most participants.

    Embedded Insurance as a present-day strategy for the future of insuring

    Truly embedded insurance has just started to emerge and has the potential to grow into a trillion-dollar market (Torrance, S., 2020). Embedded insurance has grown out of simple device protection and warranty products to more complex motor insurance coverages; and is expected to develop even further into other lines of business once data privacy concerns have been resolved.

    Early on Munich Re has identified the underlying digital processes of embedded insurance as strategically important and has therefore implemented many of the underlying tech trends with its product expertise. As part of our consulting expertise, we pass on this added value directly to our clients in the form of solutions such as fully API-driven automated underwriting, portfolio analysis or via our Insurance Analytics Marketplace. 

    The term “disruption” has been used frequently and sometimes incorrectly in recent years. However, when a business model makes customers’ lives easier, the technology behind it is no longer rocket science, and automation lowers costs than it becomes obvious that the tech that began on the unnoticed fringe will now grow exponentially into a very significant share of the insurance market. With embedded insurance: a truly disruptive process has been set in motion.
    Our experts
    Martin Thormählen
    Martin Thormählen
    Chief Technology Officer
    Munich Re