Future of FinTech - Embedded Insurance

InsurTech Innovation Taking the World by Storm

The last five years have witnessed explosive growth in the insurtech industry. Dominating seed rounds and VC funding, the global insurtech market will be worth $119.4bn by 2027, according to a study by Valuates Reports. 

Hillside Ventures defines insurtech as “companies within the insurance sector who take advantage of new technologies to improve industry efficiency and increase customer value proposition.” As a subset of FinTech, these tech-driven start-ups are establishing a presence at every level of the insurance value chain. 

While researching the insurtech industry, I have learned about a significant trend: embedded insurance. This trend was highlighted in our newsletter article following InsurTech Connect 2021. With technological revolutions, embedded insurance has enabled companies to become more flexible, competing in an industry needing modernization.

What is Embedded Insurance?

Embedded insurance is any insurance that can be bundled within the purchase of another product or service. This means that insurance is not sold to the customer ad hoc, but is instead provided as a native feature embedded in a platform, marketplace, or ecosystem.

There are various ways this insurance can be embedded. It can be embedded in a customer journey (such as when buying a bike), or directly into a card or plan. The latter means the end customer does not need to worry about their insurance plan, as it is seamlessly built into the purchased service. Embedded insurance offers more personalized, affordable, and relevant coverage when customers need it most. 

The Future of Customer Engagement and Experience, 2022

Why the Interest?

Embedded insurance can help close the “insurance protection gap.” This gap is the difference between how much insurance would be socially needed and what is covered. According to research by the Swiss Re Institute, the protection gap doubled between 2000 and 2020.

The success of super apps like Grab shows the interest in embedded insurance. This mobile technology platform integrates city transportation for driver-partners and customers. Since April 2021, Grab has sold over 100M insurance policies, with a low distribution cost ($0.30 per rider) for embedding and driving financial inclusion.

Growth and Potential 

According to a report by InsTech London, the embedded insurance market is forecasted to grow to $722bn in GWP by 2030, over six times its current size. Embedded insurance allows customers to be offered insurance when and where it matters the most. As part of the customer journey, it offers relevant coverage when customers are most likely to perceive its value. 

A transition from integrated insurance to a truly embedded insurance experience is happening. New products, more personalized and customizable, are being developed for embedding as part of the purchase. Customers also enjoy the convenience of buying insurance as an add-on to purchases. In this way, embedded insurance can build customer acquisition and retention strategies.

Evolution of Embedded Insurance

Embedded insurance is an innovation that has evolved. The option to purchase life insurance at the airport before a flight was “Version 1.0,” a model that transformed into a profitable business.    

As consumers began to purchase increasingly expensive items, “Version 2.0” was developed. This allows customers to add on insurance while making a physical purchase seamlessly. Examples include the ability for customers to buy an extended warranty when they buy an appliance, or opt for extended protections when buying a new cellular device (i.e., AppleCare).   

With the evolution of technology and online commerce, “Version 2.5” was adopted. This entails web-enabled embedded insurance, allowing customers to purchase insurance alongside “digital” products. Examples include travel insurance when booking a flight or concert ticket. This version also allows customers to get car insurance through sites like Credit Karma or online car sales sites.    

Chubb Business Insurance, 2022

Looking forward 

More recently, online insurance platform Coverager has mentioned a new protection paradigm, “Version 3.0.” This entails insurance products designed to be in the background. In this case, consumers do not have the opportunity to choose their carrier or level of protection. Examples include Volvo’s electric vehicle or Spot’s injury insurance in ski passes. 

The revolution of embedded insurance has become more apparent over the past 12 months. For example, Amazon has partnered with several companies to offer product insurance at checkout. According to venture capital firm AlbionVC, “the biggest tech ecosystems, such as Amazon, Apple, and Google, that bring together services, marketplaces, and devices into one trusted experience, will be especially powerful in embedded insurance.” 

Buying insurance is no longer about visiting a company website to purchase a policy you know you will need. Today, coverage is offered on many leading eCommerce platforms. These collaborations are expected to increase in the coming months, promoting the scale and success of the insurtech industry.

Final Words

This is an exciting time to watch the evolution of embedded insurance as it continues to move the insurtech industry forward. Hillside Ventures is here to be a part of the evolution. If you are interested in learning more about Hillside Ventures, an insurtech founder looking to raise, or are interested in venture capital, feel free to reach out to Alyssa Pelletier (alyssa.r.pelletier@uconn.edu). Stay tuned to our newsletter to catch our future posts!

By: Alyssa Pelletier, Analyst on Hillside Ventures - Hartford / Stamford