Capitalising on embedded insurance opportunities

The global market for embedded insurance – the real-time bundling and sale of insurance at the moment a consumer is purchasing a product or service – is projected to be worth up to $5 trillion by 2030. For South African insurers and service providers, this provides an opportunity to unlock new business models.

Embedded insurance enables any third-party distributor to integrate insurance products and solutions into their own customer propositions and journeys. For example, a car manufacturer that can embed insurance as part of a sale. A bank that integrates life insurance with a home loan account. Not only does this improve the overall customer experience with significant additional value, but it also enables the provider to increase revenue.

What differentiates embedded insurance from other products is that it creates a relevant offering for customers when and where they need it most. It is not a reactive purchase or something that requires the customer to search for an affordable insurance solution to fit the requirements of the product purchased.

Beyond the market opportunities for embedded insurance, the widening protection gap has played a significant part in making this an attractive option for insurers. From 2000 to 2020, this gap has doubled largely due to digitisation, urbanisation, climate change and a lack of effective innovation.

Pre-COVID, the average South African income earner had a combined life and disability cover shortfall of at least R2.2 million. This translates to a total insurance gap of R34.7 trillion for South Africa’s 15.6 million earners.

Embedded insurance is a great way to help reduce this gap by offering insurance at the proverbial point of sale. In this way, a consumer can get immediate coverage for the high-value goods purchased.

Consumers can even use mobile banking or medical aid apps to purchase embedded insurance. It comes down to creating an integrated process, which the insurance value chain can benefit from in places where consumers already are.

This means people do not have to search for and contact an insurer directly. Instead, they can rely on the partnerships put in place between their service providers and various insurers. Embedded insurance makes the entire process of taking up a policy as smooth as possible, in some cases close to a non-event. It virtually becomes a point and click exercise done within minutes, while the underwriting aspect happens automatically in the background.

According to Accenture, this app-driven environment can be considered the adoption of embedded insurance v2.5. This is web-enabled embedded insurance where customers can purchase insurance alongside other digital products like concert or plane tickets.

It goes on to write: "While customers are increasingly comfortable with learning about insurance and comparing options online, they are often not ready to make a purchase before consulting with a human agent. If consumers are looking for human touch-points when purchasing just one insurance product, they increasingly need guidance when combining multiple, more complex products. As the risk of being wrong about the type of coverage they need multiplies, customers want to be able to rely on a single source of truth to help them sort out their exposure and figure out how to be adequately covered."

This makes embedded insurance a perfect fit for people who almost want a ‘fire and forget’ experience where the insurance purchasing journey becomes completely seamless. Embedded insurance has already become a powerful way to reach new audiences and to bridge the protection gap.

However, if it is to be effective, it must be part of the customer purchasing experience when it comes to third-party goods. This will provide a seamless customer experience that enhances the value proposition of the insurer.