Why insurance is the next frontier for embedded finance

Julie Muhn, Senior Research Analyst at Finovate, explores why insurance is ready for the move to embedding finance

Embedded finance is turning out to be one of the top fintech trends this year. However, most conversations about the topic focus on payments or banking-as-a-service.

But what about the insurance industry? As it turns out, the embedded finance model is perfectly suited for insurance, as well. And insurtech may be the next frontier for embedded finance via insurance-as-a-service.

Why insurance-as-a-service?

For many companies, the value of insurance-as-service is clear. The subscription-like model allows them to focus on their core competencies while providing their client base an insurance offering that is fully integrated into their own website or app.
By adding an insurance product, firms not only provide an additional reason for customers to visit their app, they are also driving consumer-friendly, non-interest income.
Here's why the insurance industry may be ready for embedded finance.

Everything is moving online: Now more than ever, consumers expect to be able to purchase everything they need online. Not only has COVID-19 limited the number of in-person activities, big tech companies such as Amazon help customers find and purchase what they need faster than ever. With an embedded insurance offering, companies are able to guide their users through a process to help them find and purchase the insurance products that best suit their needs, all without leaving the app or website of the financial services company that hosts the insurance-as-a-service product.

Established trust: It is no longer just traditional financial institutions that have gained consumers' trust. Users are switching to challenger banks and adopting solutions from big tech companies at a faster rate than ever. So when it comes to selecting insurance products, consumers may be more willing to try a non-traditional offering that is embedded into their favorite tech company's website.

One-stop-shops mean more revenue: For tech companies and financial services companies alike, the more products and services they can sell, the more revenue they can bring in. However, because it can be costly to build and service a large portfolio of products, it doesn't always make sense for companies to build them from scratch. An "as-a-service" model for a new insurance product can help companies bring in revenue from new streams and keep their customers returning to their site-- all without needing to build, launch, and service an entire insurance offering in-house.

More competition in the insurance-as-a-service sector: The insurance-as-a-service model has caught on in fintech. Not only is there an increase in demand, there is also a growing number of players in the space. With this environment comes all the benefits that come with more competition-- lower prices, better quality of product, and more variety. In fact, companies looking to embed an insurance offering into their existing platform can choose between a full-service insurance-as-a-service offering that provides standalone product development or a licensed white-labeled tool. There are also more limited offerings available that leave the bulk of the product provisioning up to the client but sell specific services such as underwriting, fraud detection, or claims.

Lower barrier-to-entry: Being able to embed insurance products into their suite of product offerings without needing to build and maintain it in-house poses a significant advantage for a company. That's because they don't need to conduct research about the insurance industry, hire experts, and do regulatory due diligence. By simply embedding a third party insurance-as-a-service product into their own offering, companies can provide their customers a branded insurance experience.

Increased differentiation: We're at a time in the technology age where there's more competition in most sectors than ever before. And with the recent public health crisis forcing the transition to digital, consumers are taking even more of their activities online.With this increased competition comes the need for firms to both increase the value they provide for their customers and bolster their revenue streams. By embedding an insurance product into their existing website or app, companies can check both of these boxes.

What's next?

We're at the beginning stages of embedded finance and embedded insurance. Once the concept truly takes off, consumers may look to their favorite social network or their go-to shopping app for insurance needs not covered by their employer.

That said, traditional insurance companies can no longer remain complacent. First, they are going to face a fight in maintaining their existing customers. Second, they will especially need to become creative and competitive in acquiring Gen Z customers as they come of age and begin to shop for auto and renters insurance.

Read more from Julie Muhn on finovate.com >>