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Embedded Insurance Explained, And Why There's So Much Hype

For many that work in the financial sector – such as insurers, emerging InsurTechs, and venture capitalists – the rise and hype of embedded insurance has become one of the hottest topics of discussion in recent months.

July 12th, 2022

In simple terms, embedded insurance refers to a bundling of coverage or protections within the purchase of a product or service, whereby the insurance product is not sold to the customer ad hoc, but rather as a native feature. A large part of the reason why this brand of insurance is attracting so much attention is that it is widely viewed as a potential high-margin, high-growth revenue generator. As such, a recent report by InsTech London is forecasting that the embedded insurance market will grow to $722 billion in Gross Written Premium [GWP] by 2030 – over six times the size that it is today.

But in order to understand this brand of insurance, and why there is so much hype currently surrounding this model, it is first necessary to clearly establish what it actually is, how it works and why it is growing quickly.

Explaining embedded insurance

We all know that people often have a love-hate relationship with insurance. While most acknowledge its necessity – without it, after all, they’d likely be unable to pay for major car or home repairs, etc. – many begrudge paying for it nonetheless.

By bringing coverage directly to customers at the point of sale through embedded insurance, insurers are effectively repositioning coverage as a necessary and intrinsic part of a purchase. This means consumers do not then have to go looking for their own coverage, and ensures that they are fully protected right from the get-go.

Why is it becoming so popular?

The reason why it is catching on so much comes down to the fact that it is seen as a win-win for customers and insurers alike.

For consumers, being offered coverage at the point of sale means they have a route to purchasing protection right at their fingertips, cutting out the hassle of having to do extensive internet research to find a relevant insurance product. Not only can this be a time-consuming process, but the gap between the purchase and obtaining coverage leaves the customer vulnerable in the event that something should go wrong during this unprotected period.

For insurers, offering embedded insurance makes sense because it provides them with another means to reach prospective customers online. With online shopping having exploded during COVID, and 49% of global consumers spending more via the internet than before the pandemic, many insurers are rightly seeing online as the new frontier for insurance.

How is embedded insurance growing?

The popularity of embedded insurance has led to the growth of the model, with Yuri Poletto, founder of the Open and Embedded Insurance Observatory, suggesting that up to 20% of current insurance business could soon migrate into embedded distribution.

When you consider that embedded insurance – which mainly comprises affinity policies, travel insurance, product protection, and extended warranties – accounts for £1.46 trillion of today’s global insurance market, which has a total valuation of £4.46 trillion, it is clear to see just significant this model is becoming.

With the popularity of embedded insurance showing no signs of waning, and consumers and insurers alike reaping the rewards that it has to offer, it is highly likely that this type of insurance will continue to grow in popularity in the months and years to come. As such, insurers who are yet to dip their toe into the embedded insurance pool really owe it to themselves to take a closer look and find out what all the fuss is about.

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