Embedded insurance is changing how we sell insurance. For the first time, insurance is a consumable product. This is a reversal in the long-standing maxim, ‘Insurance is sold, not bought.’ By combining customer education and easy binding at the point of sale of another complimentary purchase, embedded insurance is poised to reshape the insurance industry. But how can SMB insurance companies jump on this trend?
At the moment, embedded insurance is solely in the realm of large insurance companies. Some common examples include:
- Tesla offering or including insurance as part of the vehicle purchase
- Grubhub and OTHRSource offer health benefits as part of the driver/contractor onboarding process
- Special Events insurance is being offered through rental venues as part of the venue rental agreement
- Business registration platforms, including business insurance, as part of the business creation process
For Small and Medium (SMB) insurance organizations to add embedded sales to their existing opti-channel strategies will require a bit of foresight and the ability to decentralize resources. We break down exactly what those requirements are and how to get started, so let's get started!
Embedded Insurance Basics
The concept of embedding a product or service into another product or service is not new. A common example is earning mileage points through a credit card. However, embedded insurance is still relatively new, and therefore insurance professionals are less familiar with it.
There are two embedded insurance concepts to note:
- Insurance that is included as a feature (and thus not optional) as part of a bigger product or service (i.e., a credit card that offers extended protection on products that are purchased on the card).
- Offering insurance in the purchase journey of another product or service (i.e. offering travel insurance as part of a flight booking process).
Traditionally, consumer technology limited the capabilities of embedded insurance. Insurance products typically require a lot of information to underwrite and bind, which necessitates a lot of manual entry by the prospective purchaser. However, with the advancement of technologies, APIs, and more open data which we break down in our data enrichment article, it is now possible to automate large parts of the underwriting process, resulting in truly embedded insurance opportunities.
Incorporating embedded insurance into your sales strategies
Embedding insurance requires some basic capabilities. To incorporate embedded insurance into your sales process, look for easy opportunities that follow the KISS method that match the five below qualifying criteria.
The Insurance Product Must Be Digitized (Quote, Bind, and Issue)
In order to make embedded insurance work, the insurance product, at a minimum, must be fully digital. This includes the premium quoting process, the binding process of the coverage, and issuing the policy documents and certificates. If all three are not possible in real-time, there will be a large drop-off between those interested in the coverage and actually getting it. Of course, any risks outside of a company’s appetite can be prevented from being offered insurance altogether (another reason digitizing is important).
The Insurance Product Must Be Short Term, or Subscription Based
Because embedded insurance is an add-on to another product or service, the policy premium that is presented must be palatable to the consumer. If an annual policy is the only option, the premium will probably be too high for a consumer to buy it on an impulse. By making it either short-term or subscription-based (that insureds can easily cancel), it allows the insurer to show a more palatable price while giving the consumer assurances that they can back out anytime if they want. The key here is to get the customer upfront and make them do the work of finding a better option (most never bother).
The price for coverage must be a fraction of the main product/service
Just like soda is a fraction of the price of a hamburger, an embedded coverage option should be a fraction of the cost of the main product/service (10% or less) in order to be successful. It should feel like an impulse buy and the goal is to acquire the customer before they can price shop other products. For certain products, this also relieves the user from additional work for something that already requires an exorbitant amount of time and commitment; car purchase, home purchase, moving, weddings, etc.
The Target Channel Partners Should Be Specific and Grouped
As the battle for ‘digital land’ heats up, it is important to properly define the channel targets. An unfocused approach will cause wasted effort and cost. Target established online players with a high user base (i.e., Expedia and travel insurance) which will result in immediate ROI.
The Insurance Coverage Should Be Mandatory In Order To Purchase The Product/Service
By targeting products/services that require insurance, it not only increases the success rate but also solves a real pain point for both the consumer and the vendor. There is nothing more annoying than having to go get insurance after you are ready to commit to a product/service. By embedding insurance into the purchase process, not only can the consumer get coverage, it reduces the drop-off rate for the vendor as well.
So what comes next?
Embedding insurance into products and services means thinking about your business differently. After all, embedded insurance ultimately sells itself, which is a fundamental shift from how insurance sells today. Stay tuned for the rest of the articles in the series we are writing on embedded insurance. Subscribe to the blog and weekly Insights newsletter to be the first to know about the next embedded insurance article!
