According to the FCA’s Financial Lives 2020 survey, 53% of the UK’s population surveyed responded as not having insurance products. This difference between the volume of insurance that is economically beneficial for society and the volume of coverage that is actually purchased, is defined as the protection gap. The impact of this protection gap translates into an enormous cost for the economy, eventually carried by individuals, businesses, and governments. It represents the difference between total economic losses and insured losses.
Research carried by Aon Catastrophe Insight noted that the global insurance loss peaked $130bn in 2021, proving that the world is, in fact, underinsured. Getting an understanding of and measuring the protection gap, is the first step in addressing one of the biggest challenges that the insurance industry faces – narrowing that gap – but it also brings an enormous business opportunity.
The root of the problem lies in the lack of understanding and, often, trust in the insurance industry. Customers are often unsure of the insurance products they are purchasing or require, and there is a huge spread of quotes for the same product, highlighted by insurance comparison sites. The lack of tailored products adjusted to customer needs means missing opportunities to deliver the products that customers want and need. On-boarding processes that can take weeks are another factor that significantly damages CX. But the greatest and most pervasive cause of diminished trust is the assumption that insurers won’t honour the policy.
Embedded finance can help narrow the protection gap
Embedded insurance creates the opportunity to offer affordable and relevant insurance to consumers and business when and where they need it the most. Insurance products are offered through seamless digital customer journeys, often bundled as an add-on when purchasing a third-party product or service in any sector, as part of the customer journey.
A well-known example is Tesla, one of the early adopters of the embedded ecosystem, offering insurance products when purchasing one of their cars. The manufacturer not only built its own insurance, but also offers insurance products based on driving behaviour, tailoring products to consumers and enhancing the overall experience, since customers don’t have to fill lengthy forms with personal data.
Through APIs, insurance products can be integrated into the purchase of a third-party product or service at point of demand.
INSHUR partnership with Uber, providing fast and flexible insurance protection to private-hire and delivery drivers directly through the app, allows drivers to obtain a quote and purchase a policy within minutes, offering flexible 30-Day policies.
A successful embedded insurance partnership case study is Cover Genius, an insurtech that has partnered with some of the largest digital companies, including Booking Holdings, Ryanair or Skyscanner, amongst many others, allowing digital merchants to distribute insurance at Point-of-Sale.
These innovative solutions provide customers with painless access to insurance products and enhanced customer journeys. Insurers gain access to new customer segments that would otherwise be difficult to reach. This provides benefits not only for insurers, but also for customers, businesses, and the enablers of embedded insurance.
As reported by InsTech London, the embedded insurance market cap is estimated to hit $722bn by 2030, growth that will be broadly driven by the Chinese and North American markets, which, combined, are predicted to account two-thirds of the global market in the coming years.
Is Insurance-as-a-Service the answer?
Insurance has borne a poor reputation for years. The rise of insurtech players, digital transformation, and a critical shift in customer expectations, further been propelled by pandemic, is driving a reimagining of the insurance industry. Offering products that are affordable, transparent, and simple, Insurance-as-a-service plays a significant role in this transformation.
Insurance-as-a-service providers are cloud-based platforms offering businesses the use of pre-built elements of the insurance value chain on a subscription basis. These solutions help businesses enhance underwriting processes, claims processes, fraud detection and customer service, amongst other benefits.
Partnering with companies that offer IaaS is beneficial since the solutions are significantly more affordable when compared with building your own capabilities. They are easy to integrate and guarantee access to the latest technologies. For insurers, IaaS is one of the most cost-effective paths to achieving successful digital transformation, helping them to remain competitive.
This also offers benefits to third-party providers: Qover, a leading IaaS platform, partnered with Revolut, boosting their transactions in 32 countries. Another of their most successful case studies was their partnership with COWBOY, resulting on a 60% increase in conversion rates, or their partnership with Deliveroo, that achieved the protection of over 100,000 riders across Europe.
Another example of this would be KASKO, an Insurtech-as-a-service helping insurers design, distribute and run insurance products through digital channels. KASKO has partnered with insurers such as Baloise, Zurich or Barmenia to offer different IaaS solutions to different merchants.
The opportunities are both exciting and considerable. We will continue this discussion at FTT Embedded Finance & Super Apps on 26th April, London, where we explore how retailers (and other non-financial brands) can introduce embedded and IaaS offerings in their digital ecosystem. Register now to join our community as we explore the key trends, technologies and innovations that are driving embedded finance & super apps in 2022 and beyond.