We are living in the embedded insurance revolution…but who's best placed to drive it forward?

Embedded insurance reminds me of that old saying, “the wise adapt themselves to circumstances, as water moulds itself to the pitcher.” It’s widely believed that no one actively thinks about insurance, only about their next purchase. So the embedded insurance premise is simple – bring insurance to the point of sale for those more thought-about products. With the help of third-party insurance providers, companies that do not naturally provide insurance services can do just that, embedding insurance into their product offerings.

The concept of embedded insurance has been around for a while and the demand for its seamless and sophisticated integrations has grown in recent years. For example, it is now commonplace to add  travel insurance to a train ticket booking by simply ticking a box. This is all part of the broader embedded finance movement, and by 2030, it's projected to reach $722 billion in Gross Written Premium due to new revenue streams it's creating. But who is driving this innovation, and is it making the impact it should be?

Who is currently at the wheels?

The foundation on which embedded insurance services are delivered is based on an application programming interface (API). Generally, APIs allow multiple parties to interact and exchange information between their software components. Additionally, they provide a seamless and secure way to integrate insurers with third-party systems. Considering APIs are technology products, it's no surprise that digitally native insurtechs were originally at the forefront of the embedded insurance revolution. Insurtechs also have access to more customer data and the knowledge to navigate sophisticated tech stacks to best control the customer journey and distribute embedded insurance solutions.

Where incumbents stop, insurtechs get on…and the cycle continues

Yet for all of the insurtechs’ advancements in technology and customer data management, there have also been stifling challenges. As a result, they continue to face issues when it comes to innovation and embedding insurance into products.

The rigidity of underwriting practices and the intricate regulatory environment shoulder a portion of the responsibility for these challenges. Within European markets, for instance, most insurtech companies cannot independently underwrite the products they oversee, due to their lack of ownership of said insurance offerings. International licence acquisition also proves an intensive and intricate process. As a result, insurtechs must work with third-party underwriters to introduce products, a dynamic that inevitably stifles their agility, customisation capabilities, and speed to market.

In contrast, incumbents experience the opposite trend. In spite of having the necessary brand trust, infrastructure and robustness, as well as underwriting licences, their legacy systems create a lack of flexibility. For example, they cannot easily integrate with new digital ecosystems,and therefore are unable to utilise APIs to support faster vital integral parts of the insurance value chain, i.e. claims processing.

Paving the way to drive embedded insurance forward

The objective for embedded insurance was to provide tailor-made insurance services for both buyers and sellers through the merging of insurance and technology. And the vision was clear – combine product offerings with accessible distribution that in turn would create a wider audience pool for increasing lifetime customer value for the businesses greater profits. However, it seems that this revolution hasn't gained momentum quite as anticipated. There remains more to be done to increase general customer awareness, education, and even advocacy.

Insurtech and incumbents need to recognise that they go together like two pieces of a puzzle. Where one lacks, the other supplies and vice versa. So what's needed is a cooperation over competition approach. By merging incumbents' comprehensive compliance and underwriting experience with modern technology capabilities and flexibility, we can build truly tailored embedded solutions.

With the right combination of insurtechs and insurers, there could be an unstoppable revolution brewing to bring embedded insurance to the next level. In this phase, any insurance product can be delivered in an embedded format, anywhere, anytime, based on the customer's needs. With a growing number of young, technology-savvy people purchasing online, embedded insurance is more relevant than ever.