I was in the UK reminiscing with an elderly relative the other day and she mentioned that when she was a kid the family TV was rented. Ours was too I remembered – as was the VHS video recorder – from ‘Radio Rentals’ in the high street.
It’s pretty much unheard of nowadays but back then renting your telly was commonplace, but it wasn’t so much because they were prohibitively expensive, more that they tended to break down quite regularly.
The rental agreement came with a service contract, so when the box started playing up you just called the company and an engineer popped out that day to fix it or even replace it if needed. Great service, and no need for my nan to miss her much-loved wrestling.
Effectively, the rental agreement fee had breakdown insurance built in – a very early example of embedded insurance – but nobody ever thought of it that way. It was just a logical part of the service that made the whole offer much more attractive.
Nowadays TVs are of course more reliable and readily available at a lower entry price, so the need for specific embedded insurance is less relevant, however there are thousands of services and products today that can benefit massively from an insurance offer that sits alongside or is bundled in with a purchase.
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. Maybe screen damage cover on a mobile phone, or bicycle insurance sold by the bike shop, or travel cover for the first holiday. For this reason, if we want to avoid turning a(nother) generation of potential customers against insurance completely then these initial ‘gateway’ insurance products need to work. Sadly, however this is often not the case.
A colleague of mine recently had to make a claim for mobile phone damage under an insurance, provided by a high-profile UK InsurTech. The original sales and onboarding process for the insurance had been super-sexy, efficient, and polished, so he had high hopes for the claims process too. 6 weeks later and 7 phone calls and he still didn’t have his phone repaired. This same InsurTech also provides white-labelled embedded insurance products for a number of high-profile brands – whose brands are presumably also suffering from the same appalling service. It’s no wonder that insurance has a bad reputation.
Part of the problem is the pressure for higher and higher commissions by distributors – in some cases more than 50% – leaving little left in the pot to pay claims. Another issue in certain markets is the trend of suppliers ‘buying’ business – B2B insurance providers paying massive up-front fees to win, or retain, key brand accounts. Both philosophies encourage a race to the bottom in term of remaining risk premium. I was going to say that the only loser is the end-customer, but of course it’s not – the insurance industry is also damaged in the longer term.
Embedded insurance has existed since the 1920’s, but over the last few years has gained popularity and significant investment interest. The reasons for this are essentially threefold. Firstly, technology now allows us to communicate more effectively with the customer at the point of an online, or even a retail, purchase. Data can be gathered in less obtrusive ways, and quotations given in real time with little information required from the customer. The exponential rise in ‘Insurtechs’ is fuelling this technological revolution. Secondly, traditional retail estates are fading, and online shopping becomes ubiquitous. Thirdly, and linked to the last point, is that companies 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 API’s – with not only client sales and self-care websites but also with the supply chain to process claims efficiently. It requires management of product lists, customer communications, status updates, complaints management, billing management, performance reporting and so much more. Most businesses are not equipped to deliver this kind of technology quickly or cost-effectively (and, ironically, the bigger the business the less likely it will be that it can be nimble and flexible on IT matters). Fortunately, there are a few very smart companies who specialise in simplifying exactly this space for insurers, brokers, and corporates – fast and cost-effective design, build and deployment of embedded insurance products complete with straightforward, hassle-free integration on all sides.
“A bit like the gorilla throwing the proverbial excrement at the wall, too often nowadays distributors will just throw a whole raft of embedded insurance products at the customer and hope something sticks”.
Embedded insurances are everywhere today and run from cradle to grave – in my now-advanced middle-age, I’ll probably take insurance on the inevitable hearing aid, or reading glasses. Cyber insurance to protect me against hacking in my dotage looks worthwhile and my creaking knees are suggesting some kind of private medical cover may not be a bad idea.
And therein lies another key in the success playbook for embedded insurance – it has to be relevant to the product it is sold alongside AND the target buyer. One of the best examples that I have seen in recent years was when I bought a new car. This was my first SUV, so was bigger than I was used to, and it cost me a chunk of cash, so repairs would likely be expensive. The dealer offered me ‘dent’ insurance (I’d never heard of this) – cover to repair small dents or ‘dings’ in panels or especially doors or bumpers until I got used to a car of this size. This insurance didn’t require claims on my main car insurance, had a low excess fee of £20 and even sent someone to my house for repairs. I was sold. I took the cover, and it was just as well, as I got to know ‘Andy’, who fixes the dents, quite well over the subsequent few months. I don’t know how many dents he fixed for me, but I was invited to his wedding. This is an example of an embedded insurance that was very relevant to me and to my purchase, and even more importantly, it worked.
A bit like the gorilla throwing the proverbial excrement at the wall, too often nowadays distributors will just throw a whole raft of embedded insurance products at the customer and hope something sticks. There’s no thought as to relevance to either the customer or the core product which the insurance is being sold alongside. “Pet insurance with your mobile phone contract sir?”, “extended warranty on your $2.99 USB cable?”. Whilst it’s not insurance, I even saw a South Korean bank recently offering free eggs to any customers signing up for their super-saver account. Eggs???
Last in the success playbook for embedded insurances is the accessibility of the offer. In order to buy the aforementioned ‘ding’ insurance I had to tick only one box – and in reality, the dealer even did that for me. I had already provided all my personal and payment information to buy the car, 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.
So, ‘make it easy to claim, pay the claims, make the offer relevant and make it easy to buy’…
…not exactly rocket science, but as an industry we don’t seem great at getting it right very often. There’s a lot of noise around embedded insurance now, with some evangelists and InsurTechs presenting it as the new frontier in insurance. Given that my nan was enjoying the benefit of embedded insurance 50 years ago as she settled down with a mug of tea to watch Giant Haystacks getting a Big Splash from Big Daddy (if you’re not from the UK or under 40, you may have to Google those), I’m not sure that she’d agree that it’s a ‘new frontier’. It is however exciting to see this market develop and I do hope that this new-found enthusiasm – alongside the new technology and suppliers available – for what I personally think is an essential and very valuable component of insurance delivery – will allow us to distil these offers away from just throwing everything plus the kitchen sink at the customer to more elegant, targeted and accessible solutions that actually deliver on the promises.
Ross Sinclair is Founder and Chief Executive Officer of EIP Limited, a provider of fast and simple distribution and orchestration of embedded insurance products. Ross and EIP´s team of experts, have worked globally on embedded insurance for over 25 years for some of the world´s largest brands.
