Historically, insurance was risk-mitigation for the really big things that mattered, our lives, our ability to work, our health, our homes, our cars and our summer holiday. We knew we needed it to protect us, but it was a pain to organise and we hoped it was an expense we would never have to use. In short, insurance was limited.
But whilst insurance used to be a big, once a year and let’s face it, a grudge purchase, insurtech is the opposite. It’s making insurance more micro, more frequent and often not a purchase at all. In short, insurtech has the potential to make insurance unlimited.
Underpinning this is the rise of embedded insurance. MAPFRE defines embedded insurance as “the bundling of coverage or protections within the purchase of a third-party product or service as part of the customer journey”. And according to a report by InsTech London, the embedded insurance market is forecast to grow to $722bn in GWP by 2030.
I distinguish between 3 forms of embedded insurance.
Embedded insurance 1.0 is where insurance is offered as part of a checkout process, e.g. would I like travel insurance with that flight? An embedded widget makes it a synch for easyjet to add to the customer journey. The key here is that insurance is ‘separate’ to the purchase being made. Personally I tend to say ‘No, thanks’ as my perception is that the cover offered isn’t particularly good value, and I’d be better off shopping around.
Which takes me to embedded insurance 2.0. This is where the insurance is not a separate add-on but inside the very product itself, e.g. my flight comes with travel insurance, covering me in the event my flight is delayed or my bag is lost. Whilst the underlying insurance is exactly the same as 1.0, my chances of booking with the airline offering this as a ‘differentiator’ increase measurably, and given that basic insurance comes for free, I’m also much more likely to opt-in and say ‘Yes, please’ when offered protection for unexpected medical costs given that the price should have dropped too.
It won’t be long before micro-insurance is embedded into the everyday goods and services I buy. Amazon is foremost in people’s minds but why stop there? Wouldn’t it be great if my direct debit to eON came with an instant payout in the event of a cold snap, mitigating the rise in energy costs for those most worried about their heating bills? Embedded insurance will not only make insurance much more ubiquitous but the possibility of instant claims settlements will do much to re-imagine trust in what is meant to be society’s 4th pillar.
Which leads me onto embedded insurance 3.0. This continues with including more advanced protection as standard, as well becoming hyper-personalised whilst retaining the absence of a conscious purchase. Let’s illustrate using my bike insurance. The embedded insurance I could expect from a retailer like Balfe’s Bikes would simply be against theft (a good start) but tomorrow could include legal protection in the event I cause an accident. But what if Balfe’s could continue to charge my card monthly based on the number of miles recorded by either a connected app (Strava) or my wearable device (e.g. my Oura ring). You can see why Balfe’s Bikes would be interested in this – by understanding my actual cycling habits, it has much better data to send me personalised offers.
In doing so, I can’t help but hope that in flipping the distribution model away from me visiting comparison websites to retailers/merchants offering insurance as a service, that I might never have to hear a GoCompare advert or see a meerkat again. That’s a nice thought.
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