By Ross Sinclair
When insurance products are designed elegantly, they make the underlying product even more attractive. For example, many credit unions now offer coverages such as travel, cellphone and cancellation cover to their prestige checking customers.
These offerings enhance the perceived value of the account and therefore attract (and retain) more high-value account holders. In fact, cellphone coverage is a very logical offer, given that most credit unions now have banking apps. One U.S. financial institution currently offers free cellphone protection if you use their credit card to pay your cellphone bill each month.
Another good example – vacation home rental sites that offer insurance against rain during your vacation. If it rains more than 1/10th of an inch in three days during your vacation, then you receive compensation automatically…without even having to make a claim! The insurance makes the core product even more attractive.
Thus, embedded insurances can drive revenue growth, loyalty and competitive advantage but they also inform society. It may not be obvious to think of embedded insurance as a social impact product, but in fact, for many people, embedded insurance is their first real exposure to buying any type of insurance protection. Think screen damage cover on a mobile phone, or bicycle insurance sold by the bike shop, or travel cover for a first vacation.
For this reason, if we want to avoid turning another generation of potential customers against insurance completely then these initial gateway insurance products need to work.
Since The 1920s
Embedded insurance has existed since the 1920s, but over the last few years has gained popularity and significant investment interest, especially in the financial sector. The reasons for this are essentially threefold.
- First, technology now allows us to communicate more effectively with the customer at the point of an online transaction. Data can be gathered in less obtrusive ways, and quotations are given in real time with little information required from the customer. The exponential rise in fintechs is fueling this technological revolution.
- Second, traditional storefronts are fading, and online banking is becoming ubiquitous.
- Third (and linked to the last point), is that credit unions are diversifying their product
- offerings to bolster revenue streams.
The technology aspect here is a critical component of the success playbook. The strength of
these products is driven by gaining volume, and that can only be done if the onboarding process is fast and super-efficient. This requires technological integration – often in real time and driven by APIs – with not only client sales and self-care websites but also with the integrated supply chains to process claims efficiently. It requires management of product lists, customer communications, status updates, complaints management, billing, performance reporting and more. Most businesses are not equipped to deliver this kind of technology quickly or cost-effectively. Fortunately, there are a few very smart companies who specialize in simplifying exactly this space for financial institutions – fast and cost-effective design, build-out and deployment of embedded insurance products complete with straightforward, hassle-free integration on all sides.
Embedded insurances are everywhere today and run from cradle to grave. Here are some examples of products a credit union could embed and sell to customers:
- Purchase protection & warranty products,
- Cyber insurance protection,
- Travel/trip insurance,
- Cellphone insurance,
- “Smart Home” coverage and more.
Another key in the success playbook for embedded insurance – it has to be relevant to the product it is offered alongside AND the target customer. For example, auto dealers sell a myriad of products…including a new cosmetic damage insurance – which is coverage to repair small dents/dings to the car. This insurance doesn’t require making a claim on the main auto insurance policy and it has a low deductible and they come to your house to make the repair.
It Works
This is an example of an embedded insurance that was very relevant to the customer and the purchase, and even more importantly, it worked.
Surveys show clearly that insurance customers want value for money, but that’s not the same as cheap. When an insurance is presented that is highly relevant to the customer, price sensitivity reduces dramatically (and sales go up!)
Last in the success playbook for embedded insurances is the accessibility of the offer. In order to buy the aforementioned ding insurance we only had to tick one box – and in reality, the dealer even did that for us. They already had all our personal and payment information, so no need to provide it again. Now that’s about as simple as you can get. In these post-COVID days of online purchasing, many embedded insurance offers can enjoy just such a simple onboarding experience. The customer´s name, address, age, email etc. may well be available from other parts of the core purchase process (this is why the insurance offer should be relevant to the core purchase), so if the technology is properly integrated there’s no need to request this info a second time and the onboarding is fast, smooth, and hassle-free – meaning a much higher take-rate.
Ross Sinclair is Founder and CEO of EIP Limited.