Putting agents first in built-in insurance
While product design—including technology and architecture features—is fundamental for carriers to play in the embedded insurance space, strategically leveraging the agent will exponentially increase the likelihood of an embedded product’s success. We believe agents can play an important role in native insurance distribution, driving sales and capturing cross-sell and up-sell opportunities.
In our last post, we provided an overview of the development of built-in insurance as it expanded from “version 1.0″—buying life insurance at the airport before a flight—to “version 2.0”; and “version 2.5” where technology and online commerce brought built-in insurance toward its current version, “version 3.0.” We define “version 3.0” as an insurance policy sold as part of another commercial transaction. Buying car insurance from an OEM or home insurance through a real estate agent are examples that we would consider built-in insurance 3.0.
In this post, we’ll highlight why we believe agents are critical to achieving more with embedded and outline the potential implications for carriers, embedded distributors, and agents themselves.
The relationship between customers, agents and embedded
Within a built-in insurance transaction, there are two products: the primary product, which is the original product or service the consumer attempted to purchase, and the ancillary product, which is the insurance product sold within the primary product or service. Ideally, the customer interacts with both the primary and ancillary product through a single, unified experience.
Currently, most residential insurance transactions are conducted via digital/direct rather than agent-led distribution channels. We believe this is a result of three market dynamics:
- Consumers prefer to consult an agent as a trusted guide for most personal products. Consumers worry about the “risk of being wrong” when it comes to the type or quality of coverage they purchased. Meta found that 65% of auto insurance and 71% of property insurance purchases are still made over the phone or in an agent’s office. They also found that while 32% of shoppers discovered car insurance options online, 40% turned to an agent to determine which product was right for them.
- Built-in insurance has a greater proportion of cheaper products, where agents usually do not get involved. The more valuable the insured items, the more customers want to consult with an agent who can provide personalized recommendations. Most built-in insurance deals provide policies that don’t cost much and tend to cover things of limited value or come in where state-specific coverage includes some level of consumer protection.
- Primary product suppliers typically have a strong desire to control the customer experience. This tension between the primary product provider and the carrier offering the bundled products inevitably results in slower development of embedded offerings as changes to the bundled product are negotiated or the primary product provider makes the decision to create its own insurance product. Primary product providers have solved this by developing their own insurance product (such as Tesla) or form an exclusive partnership to offer insurance to customers – as is the case with online used car marketplace Carvana’s insurance offering built with Root Insurance Company.
As carriers have pursued embedded strategies, these market forces have created barriers to the adoption and successful activation of embedded insurance. These obstacles have also led to slow progress in training and upgrading agents to take advantage of the opportunities that embeddedness creates.
Understand where agents fit in embedded deployment
Where the provider of the primary product is focused on selling their offering and controlling their customer experience, the agent can act as an advocate for the bundled insurance product, increasing conversions. A potential use case is renter’s insurance (the companion product) sold through the property rental process (the primary product). Leveraging built-in rental insurance has the potential to allow the carrier to capture additional customer segments and increase overall market share.
Renters insurance is a product that is relatively simple in nature, with low costs and low margins. However, it interacts with other insurance products the customer may own (eg car or pet insurance). As an embedded product, it creates significant opportunities for cross-selling at any point in the customer journey. In this way, built-in rental insurance can act as a gateway for new customers – especially a younger demographic who are more likely to rent – to learn about and purchase additional insurance products from the carrier.
While the embedded partner (letting agent or property management company) may obviously have an incentive to market and sell the bundled insurance product, it is at best ancillary to their core business. The carrier is then responsible for marketing the insurance product and ensuring that sales occur along a customer journey that they may or may not have control over. This is where the agent comes in.
We believe that incorporating an agent into the primary product will lead to a more efficient sales funnel. As a product like renters insurance interacts with other products, it creates a need for advice on a complete risk profile: how the cover will protect the customer and where there may be gaps or overlaps in cover. The agent is uniquely positioned to benefit from the interaction between different insurance products. While commissions on the attached product may be low (as would be the case with renters insurance), cross-selling and up-selling potential would encourage the agent to guide customers to purchase a range of products that meet their needs – which could ultimately lead to higher commissions overall.
The distribution strategy for embedded products is very flexible and must be tailored to the primary product it is associated with. It is important for carriers to assess where and when it is appropriate from the customer’s point of view and profitable for the business to use an agent.
For example, warranty and replacement insurance for a simple e-commerce product like a VR headset can be offered at the point of sale without agent assistance. Because the primary product is a simple purchase, customers are also unlikely to need guidance from an agent and there are fewer cross- and up-sell opportunities. Such a product can be marketed through digital channels and targeted to a digitally native millennial audience. Carriers can leverage the retailer’s digital channels and partner with the retailer to create a seamless cross-brand experience. We see this type of model as a defensive play with less focus on growth. With the right placement, carriers can reach new customers they might not have captured otherwise.
Important considerations for placing the agent in embedded
To see growth through the embedded insurance channel, carriers must pay attention to the relationship between agent and embedded as a central part of their strategy development. When determining where agents fit into the embedded strategy, key considerations are:
- Are your building built-in insurance products for defensive (growing share) or offensive (preventing share erosion) purposes?
- Do you understand your customers’ buying preferences for different types of products?
- Will customers need to understand how the product interacts with other insurance products they may own?
- What segments of the market is this new native product designed for and how does it fit with your current customer base?
- Will the product be marketed only to “new” prospects at the point of sale, or will existing customers of the primary product supplier also be marketed to?
These considerations will help operators determine where and how to deploy agents to support customer experience and sales through the embedded channel. Thinking about how the agent drives the customer journey from the start will enable carriers to develop built-in insurance experiences that really stand out to customers.
If you’re thinking about exploring how to weave native insurance into your current distribution strategy, we’d love to talk to you. Contact Bob Besio and Scott Stice.
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Disclaimer: This content is provided for general information purposes and is not intended to be used as a substitute for consultation with our professional advisors.
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