Embedded Insurance

A sea change in how we find and feel about insurance

Embedded insurance — the creation, sale, or enrichment of an insurance product by a non-insurance entity — is now becoming a defining theme of innovation in the industry. The ability to leverage the brand and data of companies closest to customers, bundle products to add retention and revenue, and solve distribution inefficiencies has enabled a new way for insurance products to live and thrive.

While the changes are early and interrelated with larger movements in embedded finance, the contours of embedded insurance have emerged distinctly in the following five areas.

I. Point-of-sale bundling and cross-selling

Embedded insurance began with the bundling together of products at point-of-sale. Some typical transactions include renting a car at the airport and paying the additional fee for insurance coverage, or buying a new electronic device and opting in for warranty before checkout. These layers have largely continued as the world has become more tech-enabled, with startups like Mulberry, Clyde, and Extend offering businesses the ability to add a revenue stream through extended warranties.

In this new digital era where mobile is the dominant platform but insurers have struggled with creating engaging mobile apps, partly because individuals think of and use insurance far less than other products that cater to spending and saving, cross-selling through non-insurance apps has emerged as another source of embedded. Albert, a consumer personal finance manager, for instance built its brand as being a trusted advisor for one’s money, and that trust in turn enabled them to find success with cross-selling insurance products. That approach was so successful Albert continued to expand it, and now holds licenses to quote and recommend products in most states.

The main insight from this first wave of embedded insurance is that, particularly as buying and selling becomes more digital, we will increasingly find insurance in relationships or purchase flows that don’t start with the need for insurance. Whoever has customer attention and trust will also have the opportunity to sell them an insurance or insurance-like product.

This is directionally part of a larger and older trend — insurance as an ecosystem of services. The push to be relevant in more than just coverage when something goes wrong is reflected in the strategy of the most mature insurtech startups as well, from Coalition providing loss recovery and guidance on new security management to Hippo providing loss mitigation tools like water leak detection.

II. Mobility

Tesla’s launch of an insurance product to cover its cars in California, push to hire several actuaries, and plan to become an insurance company to the extent that a significant (30+%) of its future revenue could come from insurance, reflects how embedded products are beginning to transform auto insurance. Their movement into a product that feels so fundamentally different to their origin story, and to what people think of when they hear the name Nikola Tesla or Elon Musk, was predicated on a few beliefs:

• Traditional insurers write Tesla policies at much higher prices.

• More expensive insurance policies mean a strong disincentive for buying a Tesla car.
• Vertical integration, i.e. launching and owning the insurance part of the value chain, will allow for lower policy prices, encouraging more car sales. Lower prices will be achieved through operational efficiencies, e.g. bringing Tesla repairs in-house, offering discounts for autopilot, and keeping lower commissions. Long-term, Tesla will have an additional revenue stream and happier customers.

Soon after Tesla’s launch in insurance (made possible by State National), several other OEM plus insurer products were announced, including Nationwide partnering with Toyota, Allstate partnering with Ford, and General Motors launching an insurance business and agency.

The enormous potential embedded insurance has for mobility products is extending beyond car ownership to newer forms of risks and assets as well. In the sharing economy, for instance, Flock (a UK-based MGA and SaaS platform) just announced a partnership with Jaguar’s rental service, THE OUT, to provide usage-based policies for its fleet. In the U.S., Turo partnered with Liberty Mutual to provide its own insurance product, Rivian just announced embedded products for their recreational vehicles, Outdoorsy worked with Assurant to insure its RV rentals, and Uber and Lyft have spent considerable resources finding and training teams of actuaries for their own driver policies.

The main learning from this wave of embedded insurance in mobility is that the amount of data OEMs have, coupled with the efficiencies of selling a product tied to the build and brand of the car itself, is difficult to compete with. This in turn creates a large market opportunity for startups who are enabling embedded insurance, ranging from specialized platforms like Flock to more generalist ones like Tint. This enablement opportunity is so large that older insurtechs that have struggled to find product-market fit, like Trov, are pivoting their efforts fully in this direction.

III. Health and Wellness

In health and wellness, embedded insurance products are beginning to unlock value in a few areas.

First, preventative care providers are increasingly offering insurance products. Beam for example, has created a dental insurance product that underwrites and mitigates loss through its connected toothbrushes. Zoetis, the world’s largest producer of medication and vaccines for animals, launched Pumpkin to insure pets with policies that are competitive in price and quality to leading incumbents. Verily, Alphabet’s subsidiary that focuses on healthcare data and interventions, launched Granular to sell employers stop-loss insurance policies. As insuring an end user that is already using risk mitigation products (e.g. medication and toothbrushes) intuitively makes sense and is de-risked further through modern datasets, we should expect to see more healthcare device, care, and medication providers embedding insurance.

Second, products to protect our health and life are being sold in brands and spaces of comfort. Wal-Mart signaled this with their expansion into insurance, and startups like Live Chair are recognizing this and crafting products tailored to specific communities in response. Spaces and brands who are trusted will increasingly function as distribution channels with the best conversion rates.

Third, digital wellness and therapeutics programs are enabling insurers to reduce claims and support channels of policyholder wellbeing. Second Nature’s weight loss and Bold Health’s digestive health programs are examples of tools that begin consumer-first and expand to employee benefits, providing life and health insurers with meaningful new ways to enrich the data behind or value of their policies.

Fourth, and part of the larger unbundling of healthcare, smaller and more specialized coverages like accident and injury insurance are being coupled with event and lifestyle transactions. Spot, for example, enables mountain resorts and athletic events to offer injury insurance.

The two main insights from the growth of embedded insurance products in this category so far are: 1) as the number of total products grows, and as those products leverage better sources of data, prices and under-insurance will continue to fall, 2) insurance is rebranding itself, from a policy you use on your worst day, to an ecosystem of positive activities you do every day.

IV. Home

Home ownership makes buying insurance compulsory. Yet, the process is largely disconnected from the agents, brokers, and lenders that buyers spend most of their time and effort with. Some of this disconnect is being filled by startups like Matic, which partners with mortgage originators, servicers, banks, and other real estate firms to integrate with home insurance products. Young Alfred, an insurance product comparison tool, has taken a similar approach to enable companies to embed insurance with their existing product suite. In the same vein for renters, RentSpree is a tenant verification platform that just announced a partnership with Sure to offer renters insurance. And in the sharing economy, Airbnb has launched liability coverage up to $1M under its host protection plan.

The rise of the smart home — filled with IoT appliances, devices, and infrastructure — will continue to drive embedded insurance partnerships. Marketplaces that facilitate the buying and selling of homes like Zillow could offer insurance at the point of purchase, while apps like Dobby that are focused on post-purchase services can become trusted channels for enriching the services of an insurer or offering new products in a well-maintained home.

V. Commercial

As blue-chip companies increasingly expand their cloud services reach, embedded insurance products that focus on cyber coverage are emerging. Microsoft partnered with AXA and Slice to offer policies to users of Microsoft tools, and Google recently announced partnering with Allianz and Munich Re to insure cyber breaches for customers that use Google’s cloud services.

Amazon also began experimenting with embedded insurance last month when it announced that, via Next, Amazon Business Prime members can receive insurance quotes and purchase a variety of policies, ranging from general liability to workers comp.

Vast consumer data and trust in their platforms has allowed each of these behemoths to seamlessly embed insurance into their growth trajectories. As their data grows, and as long as their trust remains stable, the insurance market will become noticeably more defined by the same companies that are defining work, search, and shopping today.

Google, Microsoft, Amazon, Wal-Mart, and Tesla in insurance. Toothbrushes that help underwrite dental products. Individual and family health programs that are sponsored and subsidized by insurers. Hearing about and buying policies through the apps and people we engage with the most. All of these and other facets of embedded insurance reflect an ocean of new innovation and excitement in the industry. Ultimately, if we believe that more options are better, leading to quality policies at lower prices rather than coverage we don’t need, embedded insurance will drive the most important change to how we feel about and deal with insurance.