"Stay close to the customer. Don't lose touch with him. Otherwise, you will perish," so said Lord Ian MacLaurin, former CEO and Chairman of Tesco. It's a sentiment that rings especially true for the insurance sector today. As industries adapt to digital transformation, insurance — often viewed as slow to change — finds itself at a crossroads, with embedded insurance emerging as a major catalyst for redefining how insurance is distributed and sold.
The growth of embedded insurance
Embedded insurance holds tremendous potential to reshape the insurance landscape. The market is in the early stages of development, but the opportunity it presents is vast and its growth potential is still largely untapped. According to Deloitte's Center for Financial Services' Predictions for 2023 report, global embedded insurance revenues could reach $700 billion by 2030. This impressive growth highlights the enormous potential surrounding this innovative point of sale distribution model.
However, many in the insurance industry are still struggling to get their heads around embedded as a new concept. It is important to understand that embedded insurance is not simply about adding a leaflet into a delivery box offering insurance options to cover an item after a purchase. Fully embedded involves offering insurance alongside the purchase of a product or service either in the shopping basket online or via the point-of-sale system in-store. By fully embedding insurance into the shopping journey, the customer buys the product or service and the insurance protection in a single, streamlined transaction, improving the user experience rather than disrupting it and not asking the consumer to do something after the event. Whether it's purchasing travel insurance with a holiday booking or adding protection when buying a new smartphone — it is about adding value, creating convenience, and bringing peace of mind for the consumer.
Benefits of embedded insurance
The key benefits of embedded insurance lie in its simplicity and customer-centric approach. First, it provides an effortless experience, allowing users to purchase insurance at the point of sale without needing to take extra steps. AppleCare, bundled with the purchase of an Apple product, is a good example of how a trusted brand can seamlessly integrate insurance into its customer journey.
Another advantage is tailored insurance options. For instance, why can't motor insurance be integrated into a new car purchase experience, providing coverage specific to that vehicle and driver at the point of purchase?
Not only can embedded insurance take out frictional costs in the selling journey, but it can also streamline the claims process, another significant pain point for consumers and insurers. By integrating claims management into the digital purchasing experience, insurers can simplify claims handling and expedite payouts, making it a better experience for customers.
Parametric insurance or automated claims for small items like a $200 drill, for example, could allow the customer to receive a replacement quickly (should the item be damaged or stolen) from the same retailer that originally sold them the drill and insurance policy, both minimizing downtime and reducing cost and the risk of fraud for the insurer.
The role of trust and changing consumer preferences
One of the reasons embedded insurance has massive potential for disruption is the influence trusted brands have on modern consumers. In the past, companies like British retailer Tesco were pathfinders, showing consumers that there were other ways they could buy insurance rather than from traditional providers. Today, this principle applies more than ever.
Consumers are more likely to purchase insurance from a brand they already trust, whether it's an e-commerce platform or a retailer. For example, the 2023 online survey by Wakam found that over 60% of online shoppers in the UK said that insurance offered at the register would increase their likelihood of completing a purchase.
Millennials and Gen Z are driving this change. These generations prioritize convenience and digital experience, and this is why insurers must evolve to meet the needs of these digitally driven generations. Today's consumers want fast, easy transactions that they can complete on their smartphones. If the insurance industry fails to adapt, it risks becoming irrelevant for the new tech-savvy generations.
Regulatory challenges and opportunities
While embedded insurance offers numerous benefits, it also faces challenges, particularly around regulation. The current regulatory framework is still aligned with traditional insurance models, making it difficult for embedded offerings to fit within established guidelines. The recent Financial Conduct Authority (FCA) Consumer Duty regulations, for instance, place an obligation on insurers to ensure that products are appropriate and transparent. Insurers must balance compliance with the demand for seamless, digital experiences.
However, the "connected contract exemption" under Article 72B of the UK Financial Services and Markets Act (FSMA) 2001 offers some relief. This allows certain entities to offer insurance contracts without full authorization, provided the contracts are connected to the sale of a non-insurance product or service. Leveraging this exemption enables businesses to offer embedded insurance with fewer regulatory hurdles, helping to drive innovation in the market, with the help of a trusted insurance partner.
Driving sustainable progress
As embedded insurance continues to evolve, the industry must engage in more inclusive discussions with regulators, insurers, the retailers, and individual consumers. Open dialogue is essential to foster innovation and ensuring that regulatory frameworks keep pace with consumer behavior and technological advancements. The insurtech community, alongside digital influencers, and organizations like the Open and Embedded Observatory, will play an increasingly key role in shaping the future of embedded insurance.
Embedded insurance represents an exciting opportunity to modernize the insurance industry and create more customer-centric, transparent and relevant products that highlight the direct benefits of insurance at the point of sale.
As the market develops, the focus must remain on innovation, trust and convenience — key factors that will define the success of embedded insurance in 2025 and beyond.
