Embedded insurance is a red-hot niche throughout the financial services industry.

Consumers and businesses are adding insurance during checkout for rental, travel, and equipment purchases.

Non-insurance companies across the globe are utilizing embedded insurance as a new monetization stream. Insurtechs are improving the ease and convenience for these 3rd-party firms to quickly offer custom options to clients.

The new frontier of InsurTech (blending insurance knowledge with technology to simplify the onboarding process) through embedded partnerships is expected to continue. This movement is only growing stronger in the next decade as artificial intelligence and machine learning makes a significant impact.

Here’s a deep dive on the history of embedded insurance, revenue opportunities, what’s required in partnerships, top companies in this sector, and a potential opening towards embedded finance.

Brief History on Embedded Insurance

Embedded insurance is the ability for a consumer or business to purchase some type of insurance coverage (from a licensed, registered provider) through a 3rd-party partner’s website or app.

An everyday example is in the purchase of concert tickets — the website / marketplace in which the tickets are sold (Ticketmaster, LiveNation, etc.) partners with an insurtech (such as Allianz) to offer ticket insurance (in case of emergency, event cancellation, etc.) at time of purchase. A customer sees the option to add protection to their purchase for an additional fee — disclosures and legal language both included before confirmation. If a purchase is made, the ticket platform receives a referral fee and the rest of the proceeds go to the insurtech (who would also communicate directly with the customer post-purchase).

Embedded insurance isn’t a recent innovation either. Initial versions go back to purchasing life insurance in-person at the airport before boarding a flight.  As consumers made more expensive purchases, new insurance options were slowly added. Buying a car at a dealership could be accompanied with auto insurance if the dealer was properly licensed. Renting a car offered insurance options at the counter for collision protection. Home appliances featured optional warranties that extended coverage beyond manufacturer defects.

As web & mobile technology spread to eCommerce, this capability to purchase insurance coverage moved from in-person to online. InsurTech startups lead this movement as they blended tech to help traditional insurance companies & brokers increase efficiency. These startups leverage AI and data science to reduce manual & repetitive processes, customize plans to customer needs, and streamline the user journey.

The examples mentioned above were now embedded, digital offerings for online car, appliance, event, and travel sales. However, only one option for coverage is typically provided to the consumer at checkout (so as not to delay the core process of making a purchase).

Prospective customers need to be clear on not only the cost of insurance, but coverage amount and instances when this kicks in. Some travel & premium credit cards include certain coverage on car rental and trips automatically (at no cost) when the card is used for purchase.

WHY more INSURTECHS are enabling this path

Embedded insurance solves a key problem in the insurance sector: distribution.

Since the insurance purchase can be separated from the product/service covered, there’s minimal reliance on marketing and sales functions (which means less overhead costs). For some insurance providers, distribution can add up to half of total operating costs.

There’s also a better user experience for consumers & businesses since there’s no need to go off-platform for the insurance purchase. Customers can stay within the checkout flow of a partner company, who has already optimized multiple points for a best-in-class experience. APIs (application programming interfaces) allow for seamless connectivity once a customer opts in for coverage.

Lastly, insurance companies are able to have a better understanding of customers making the purchase. Where are they from, age group, amount of coverage purchased, when is the purchase being made, etc. — are all quality data points that can improve future underwriting of these products and the overall packaging of programs.

MONETIZATION & LIFT for COMPANIES embedding INSURANCE

What’s in it for partner companies embedding insurance in their platform? New revenue streams.

Insurance companies pay out a flat referral fee or % of purchase to the partner for every sale made. Revenue from premiums (one-time or recurring, based on type of coverage) goes to the insurance company.

Based on the user base of the platform and volume of sales, the range of fees or % may be negotiated to maintain a strong partnership.

In terms of the work needed from partners, an integration of the insurance product into the checkout flow is the main requirement. This is typically a lightweight process done via APIs that send customer data between the insurance company and partner platform.

It’s important to note that proper disclosures and acknowledgment are critical since insurance is a regulated financial service. Lack of required documentation can result in customer complaints and penalties for both partners and insurance providers.

Top insurtechs providing Embedded Insurance

As InsurTech companies rapidly expanded over the last 8 years, a few players are emerging as top firms based on rapidly integrating with partners in a custom, white-labeled approach.

• Cover Genius: designs embedded insurance plays for consumer purchase on platforms (such as eBay). The company distributes customizable insurance bundles, rental car insurance, and warranty and shipping protection. Other services include XClaim (for claims management and payouts) and BrightWrite (for product recommendations & pricing analytics).

• Extend: works with retailers & merchants to modernize warranties and protection plans in this new digital era. Extend’s warranty and product insurance tools are easily integrated with pre-existing e-commerce sites to make enrollment in protection plans more seamless.

• Wakam: a European InsurTech offering usage-based liability coverage for gig economy platforms, auto insurance, equipment rental, and employee living expenses coverage. Wakam creates custom, white-label programs and has 400+ partners (in both insurance and non-insurance verticals).

• Inaza: a Platform-as-a-Service startup for underwriting and distributing embedded auto insurance solutions. Inaza provides a white labeled mobile app and APIs to help insurers distribute insurance digitally. The startup also has a partner program that gives seamless access to thousands of vehicles in need of custom coverage.

Other insurtech companies are slowly starting to build proficiency in adding embedded solutions through SDKs (software development kits) that allow partners to quickly deploy insurance offerings in their platforms. The hesitation may come from well-established startups (like Metromile, Lemonade) already having a strong presence and reputation in the sector — an embedded play may dilute customer affinity from existing clients and existing revenue performance.

can embedded insurance lead to embedded finance?

There’s a more extensive lift in launching an embedded finance partnership versus embedded insurance.

Embedded finance requires a financial institution (licensed bank, credit union) to be involved in: (i) holding deposit balances of a customer, (ii) being a BIN sponsor (for issuing debit or credit cards), (iii) connecting to federal payment networks, and (iv) being a lender of record (for certain lending products). There’s much more due diligence, legal & compliance reviews, and approval time needed. This comes with higher costs, both one-time and recurring, for partner platforms.

The upside is that there’s a higher potential for revenue share from deposit interest, interchange on card spend, loan interest, and charging subscription fees for premium banking services.

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