By Mary Sams, Senior Research Analyst, Triple-I
“Embedded insurance” – often described as “B2B2C insurance” – has long been singled out as a path to innovation and growth in the traditional insurance market. However, it has been slow to mature.
The term refers to the integration of insurance products and services into retail transactions. The goal is to offer insurance solutions at the point of sale or as part of a package of products or services. This requires simplifying the products and processes so that the consumer can make an informed purchase. Complex commercial insurance products are unlikely to succeed with the built-in insurance model.
Six years ago, according to a report published by global investment firm Conning, embedded insurance was often cited as a use case for distributed ledger technology, or blockchain. Blockchain is a complex, ledger-centric technology that has a variety of benefits, such as improved data security, immutability, and optimized data sharing.
More often than not, these benefits are overshadowed by cryptocurrency̵7;s somewhat lackluster reputation. This complexity – and the more recent difficulties with crypto – may have contributed to the slow adoption of this technology for built-in insurance.
“We are overwhelmed by the insurance industry’s curiosity about network-based technologies, such as blockchain,” said Brendan Picha, Director of Outreach for RiskStream Collaborative. “We have several initiatives, some global in scope, that are reaching a welcome maturity within the company. This occurs at an interesting intersection with the development of other emerging technologies. The industry is now looking closely at how these technologies could work together and RiskStream is well positioned to to support and initiate this exploration.”
RiskStream – like Triple-I, a subsidiary of The Institutes – is a member-led not-for-profit organization that aims to create an ecosystem that uses blockchain to streamline data flow and verification, reduce operational and supplier costs, increase efficiency and improve the customer experience.
Many embedded insurance applications have used open APIs and microprocesses to scale applications with reseller partners. These technologies have helped support the growth of embedded insurance in travel, car, homeowner and extended warranty products.
But for most traditional insurance products, built-in insurance is a challenge. These products are sold, not bought, and moving the purchase to a simplified platform and linking it to the retailer gives customers choices they might not be inclined to make without a sales pitch.
Private equity investment firms have been attracted to companies looking to expand into embedded insurance, attracting $3.5 billion since 2015, according to Conning. Gartner, a major research and consulting firm, has placed embedded insurance at the heart of what it predicts will become the dominant insurance business model.
Growth in online sales since 2020 has increased opportunities for built-in insurance as consumers have become more engaged in all types of online transactions. Financial services companies have grown and expanded tremendously during this time. Consumers have engaged in buying and selling cars online and have expanded the OEM relationship.
But online sales of insurance have not seen similar growth. In 2017, Tesla launched a direct-to-consumer full-stack insurance business. While this isn’t technically built-in insurance, it illustrates the benefits of sharing vehicle telematics data to underwrite the insurance program.
Expectations for built-in insurance vary. Personal insurance with $400 billion in premiums and small business with $100 billion in premiums continue to be the biggest targets, according to Conning. Simplifying the insurance application, increasing the premium, lowering cost ratios and reducing protection gaps are all possibilities. The realization of these benefits and successes will depend on their being embraced by the carrier-retail partners.