Insurance policies are becoming increasingly front-and-center in many consumer and business-to-business purchases.
While travel insurance has been offered at air travel points of sale for some time, what is known as embedded insurance is now migrating into many consumer and business ecosystems. Electric-vehicle maker Tesla Inc., for instance, has spoken about its desire to build out underwriting capabilities and is now selling auto insurance as part of the car purchasing process. Amazon.com Inc. gives sellers on its online retail platform access to product liability insurance via the Amazon Insurance Accelerator, which was built with the assistance of Marsh & McLennan Cos. Inc.'s Marsh LLC.
Optimists see embedded insurance systems as a potential boon for carriers as they help to quickly find customers when they need to buy policies. End customers also get quick and easy access to plans meeting their specific needs, rather than having to seek quotes on their own, while retailers and distributors can tout a new service and collect additional revenue.
Smaller, nontraditional insurance companies, known as insurtechs, are particularly looking at embedded sales as it fits in with their technology focus and lets them quickly and cheaply find new customers. Root Inc., for instance, highlighted lower customer acquisition costs as a key benefit from an embedded insurance deal signed in August with online used car sales company Carvana Co.
Root incurred sales and marketing costs of $180.1 million in the first half of the year while making just $158.4 million in total revenues.
Auto insurance is one area where embedded insurance works well because the product on offer is simple and transparent, according to Seth Rachlin, executive vice president and chief innovation officer for insurance at information technology services and consulting company Capgemini SE. It also works well for other small- and medium-ticket products like, such as supplemental health and travel insurance, Rachlin said.
The embedded insurance market could reach "tens or even hundreds of billions of dollars," said Caribou Honig, partner at SemperVirens Venture Capital. Given the relative size of the insurance industry as a whole, earning just a "point or two of market share would be a huge win" for insurtech startups, Honig said in an email.
Even as embedded insurance grows, more traditional sales channels will still retain business, according to Honig. The direct-to-customer method will still be part of the marketing mix, and there is "no reason to believe" that the higher-touch agency and broker model will become obsolete in the near future.
Embedded insurance can lower distribution costs versus traditional agents, even with the expense of paying the new partner, according to Sean Harper, CEO of Kin Insurance Inc., which operates direct-to-consumer mode. This is one reason Harper views it as among the best ways for insurtechs to have their products distributed.
Because often there is no comparison shopping involved in the embedded model, that can lead to "good selection dynamics," said Harper.
An insurtech wins by focusing on a very specific customer need, as well as providing benefits to the channel partner carrying the embedded insurance product, Honig noted.