The accelerating shift to embedded insurance

The insurance industry in Canada is undergoing profound change. More than half of today’s customers prefer to engage with companies through digital channels. Even more, 64%, expect tailored engagement based on past interactions.¹ Customers are making decisions on whether to get insurance at the exact moment they purchase something – from homes, to cars, vacations, electronics, and more. As new segments of the economy emerge, coverage is evolving to meet buyers where they are with tailored products based on their needs.

As a result, more insurers are embedding insurance products within digital transactions when insurance is most likely top of mind. Embedded insurance on “go-to” consumer platforms integrates insurance coverage into non-insurance products, platforms, and services, with positive impact and diversification across the insurance and retail value chain. With added efficiency and more data generated, embedded insurance improves customer stickiness, increases Customer Lifetime Value (CLV), and grows revenue.

Insurance organizations that delay nurturing these alternative points of contact may miss an important opportunity. In a tight Canadian marketplace, they may be left competing for the shrinking remainder of consumers who put off insurance purchasing to a later date or customers who are unaware of what coverage exists.

Most Canadian insurers are aware of embedded insurance, but many don’t recognize how it’s evolved.

A few years ago, “embedded” was not much more than a link-out from a partner website to a page offering existing insurance products. Today, organizations that want to win with embedded insurance need to offer something unique and innovative to the platform partner that owns the customer relationship.

Whether it’s a real estate platform, a shopping platform, a travel platform, or an airline website, platform partners are in the business of maintaining their audience. For them, the price of the insurance product is not the primary concern. Rather, partners need to be confident that any embedded insurance offering enhances and adds value to that journey without disrupting the experience.

To illustrate how embedded insurance is progressing, we observe four distinct stages.

1. Awareness without implementation
   Insurers at this stage are aware of embedded insurance but haven’t moved to implementation. Some may be thinking about strategy and partnerships, but aren’t sure where to start.
2. Winning with placement
   A preliminary stage with link-out representation on a partner website to existing, “one-size-fits-all” products. This is useful as an exploratory phase to test the insurer-platform relationship. Most Canadian insurance organizations are at this stage.
3. Winning with product customization
   An intermediate stage marked by product innovation, differentiation, and strong partner relationships. Insurers embed tailored product offerings into established purchasing flows with no disruption to those flows. The insurer’s technology and data pipelines are built flexibly to enable quick, efficient changes.
4. Winning with innovative experiences
   An advanced stage that leverages customer and purchasing context data to provide holistic, state-of-the-art service innovations to drive engagement. An insurer might build credit score monitoring into the experience or offer adjacent products (e.g. pet insurance for pet owners alongside travel insurance).

Embedded insurance is most mature in travel and already established for events, such as tickets and leisure activities. For organizations that offer property and casualty (P&C) and life insurance, opportunities are emerging and growing. For these product lines, it’s an ideal time to start developing retailer relationships, exploring and testing technology pipelines, and innovating products in line with data.

As the embedded insurance landscape evolves and accelerates, insurers in Canada face a tightening market. As large, consumer-facing organizations partner up with insurers, fewer and fewer partnership opportunities remain. For insurers to secure those partnerships and get ahead, they need to demonstrate creative solutions that enhance the experience that retail partners can deliver. At the same time, insurers need to maintain control over all their traditional capabilities, from policy inquiries, to underwriting, claims assessments and settlements.

Forecasts for the United States anticipate embedded insurance to generate over $70 billion by 2030.² That opportunity promises to reap significant rewards in Canada as well. Not only is the Canadian insurance customer quite similar to the American profile, but the proportion of digital-first customer personas in Canada is growing rapidly. Furthermore, Canadian consumers demonstrate a high degree of trust toward their preferred technology, social and lifestyle brand platforms. They’re more likely to buy financial services products through those channels than through their own financial services providers.³

Many are looking for the increased convenience of a “one-stop-shop” for insurance products with tailored offerings and a simplified claims process. A survey of Canadian bank customers indicated that 67% are highly interested in receiving embedded insurance offerings based on their transaction data.⁴ It’s also estimated that by 2030, embedded insurance could account for over $700 billion in gross written premiums in property and casualty alone, or 25% of the total market worldwide.⁵

In response to these and other market trends, many insurers have already shifted from a traditional broker-led business to the direct-to-consumer business. However, as exemplified by embedded stages 0.0 to 3.0, that direct-to-consumer business is evolving and intensifying. To reach customers in today’s market, insurers need to be even further upstream and seamlessly integrate insurance coverage with the customer experience.

While offering insurance represents an incremental stream of revenue for customer-facing platforms, the real value-add for them is in deepening relationships, extending the customer experience, and generating more data to serve the customer better on the next transaction. Cross-platform data sharing and customer geo-location data helps insurers strengthen product offerings and allows both partners to own a broader slice of the customer journey.

In other words, embedded insurance is much more than inserting products into the retail chain. Insurers that integrate into customer platforms gain access to new touchpoints and inflows of data from those sources. Insurers at embedded stages 2.0 and 3.0 make the core experience better for the partner and its customers by harnessing and leveraging that data. Customer geo-location data, for instance, helps deliver tailored insurance offerings at the right time – just prior to boarding a flight, for instance. That enhances the customer’s experience of the partner platform and the insurance product combined and extends and deepens those relationships over time.

Insurers with richer data also gain a competitive edge. They’re able to design customized and personalized products specifically for customers on the other end of the transaction. Data is also essential to managing risk, as additional data helps improve the underwriting process.

As with any new business model, there’s a learning curve. Insurers need to build technology-enabled and product customization-enabled programs that will help them win in the embedded insurance landscape. They also need to find a way to administer claims in a frictionless way. From our observations, insurers must evolve across four key competencies:

• Develop embedded strategy: Identify partners with market and brand alignment
• Level up technology capabilities: Enable rapid partner integration, product innovation, and insurance delivery
• Evolve underwriting processes: Leverage partner data to streamline underwriting
• Foster customer centricity: Develop tailored products and experiences to delight target customers

Because embedded insurance is an extension of digital transformation, many organizations will want to build these programs internally. They’ll need to manage the whole package – from technology capability, to the customer relationship platform, to product innovation, features, and claims.

Insurers without the right kinds of technical expertise or knowledge in certain lines of business may need to work with technology or industry-specific partners or external vendors. For example, embedded insurance is still new in the home buying journey; an insurer wanting to partner with a major real estate or home mortgage portal must reach a high bar to prove they’re a worthwhile partner. Insurers also need to consider the complexity of the purchase in building out their offering. For travel insurance, adjudication can happen in real-time; in the P&C context, that’s more difficult.

It’s more than finding partnerships with anybody who’s interested. The reality in Canada is that the number of available partners is limited. Think “musical chairs.” Once a widely-used platform is spoken for, there’s one less spot for your insurance organization to integrate. Insurers need to figure out which markets and segments will bring the most success. They need to determine what they can build in a reasonable amount of time to bring positive benefits to the core business and minimize investment risk.

Strategy-setting first will help insurance organizations:

• Enter spaces where specific customers are, and where they can win
• Start serving up innovative, tailored insurance offerings instead of waiting for customers to seek them out
• Build agility into the product manufacturing toolset to keep up with changing demands – from both partners and end-customers

As insurance organizations strategize, they need to recognize that they aren’t necessarily the primary value creators in the embedded insurance relationship. The relationship between customers and platforms, in many cases, already exists and is quite strong. The risk for retail partners can be greater than the reward. This is the challenge for insurance organizations. They need to bring something of value to the table.

Our experienced consultants can help you develop an embedded insurance strategy and broker strong partnerships in a competitive marketplace. Working with global technology partners, our financial services team has helped insurance organizations and financial services providers develop, launch, and grow their embedded finance products in Canada and around the world.

With our professional guidance, you can streamline and accelerate the product development and implementation process. To get started building the competencies and relationships you need for success in the embedded insurance landscape of tomorrow, contact our financial services team.

^{1. State of the connected customer, Salesforce, 2019}

^{2. Embedded Insurance Distribution Could Exceed $70 Billion in Premium in the U.S. by 2030, Insurance Canada, 2023}

^{3. The embedded insurance report: Research shows Canadian consumers desire insurance & warranty offerings from their banks, Cover Genius, 2022}

^{4. Research shows Canadians interested in receiving embedded insurance offers from banks, Canadian Underwriter, 2021}

^{5. Embedded insurance: a $3tn market opportunity, that could also help close the protection gap, Fintech Futures, 2021}