Embedded insurance is evolving – what does this mean for agents?

Embedded insurance – insurance integrated into a product or service – has quickly become a mainstay in the auto, electronics, and travel space.

But one expert believes that this innovative type of insurance is ripe for wider adoption amid the industry’s digital transformation.

This means we could soon see embedded products covering more complex lines of business such as worker’s compensation or general liability insurance, they predicted.

“The digitization of insurance products was one of the fundamental things that fuelled the embedded insurance concept,” said Prateek Sangal, head of digital transformation at AmTrust Financial.

“You couldn’t offer embedded insurance if carriers had not digitized their products. Structured data sets that can be harvested to make decisions on traditional insurance topics weren’t available six to 10 years ago. So, this has been an evolution.”

As data becomes more widely available and easier to leverage, and as insurers’ technological capabilities improve, the embedded insurance market will expand, Sangal said.

“The timing is right to harness embedded insurance because all these things are coming together,” he told Insurance Business.

How has embedded insurance evolved?

Traditionally, embedded insurance functioned as a value-added offering to increase customer loyalty and provide a seamless customer experience.

However, only relatively simple insurance products, which are easy for consumers to understand and require little input from brokers, have been tested out in the embedded concept early on.

“You start thinking about travel insurance and warranty products – very simple products to understand as a consumer. But that’s now evolving,” said Sangal.

“The use case on easy-to-understand products [no longer applies] because there’s been a lot of participation in that field. The field is maturing, and it’s starting to approach more complex products, like a worker’s compensation product, general liability, or professional liability policy.”

This evolution would mark a significant milestone for insurance and ripple out to other industries, as carriers, manufacturers, and service providers reorient their distribution patterns.

What could more complex embedded insurance products look like?

In the workers’ compensation space, carriers could partner with service providers to offer embedded insurance to small to medium-sized enterprises (SMEs) that outsource their payrolls.

“When it comes to underwriting and coming up with the price point for a workers’ compensation policy, you already have that data from the third-party providers,” said Sangal.

“You can use that data to automatically weigh up a policy and make it available when the small business is submitting their payroll.”

The less complex the products, the less information insurers need from consumers, allowing them to provide a one-click buying experience. As the level of complexity goes up, however, insurers will need to adapt a hybrid approach to their embedded offerings.

“It starts off from a one click, if you’re looking at a complex [embedded insurance] product, which lets you know what the price is. But if you want to buy it, I might ask some more questions, which could involve the help of an agent,” said Sangal.

“It becomes a hybrid approach where some parts are completely digitized using the information that’s available, and but it becomes interactive when I need more information.”

Agents as matchmakers in the hybrid insurance experience

As the market evolves, so too must agents, who have an important role as trusted advisers in the hybrid experience that embedded insurance is creating.

Sangal said he sees two ways agents can navigate this evolution: hyper-specializing in highly complex products that embedded insurance can’t touch, else embracing digital offerings and adapting.

“You could be super specialized and transact highly complex products that inherently have a lot of friction built into the process, and you’re not going to immediately get impacted [by embedded insurance,” he said.

“But the agents who are truly embracing digital concepts tend to have a major role. A carrier cannot accept 100% of the risks for clients. That’s where brokers and agents come in. They have to find solutions with other carriers who can insure that risk.

“They need to be the matchmakers. The role of the broker continues to be meaningful. But it may move a little behind the scenes, where they can orchestrate market demand with the available capacity.”

Agents and brokers that adapt to embedded insurance could also become more efficient in prospecting new business or getting involved in value-added conversations for services.

“In the embedded insurance concept, the broker adds value through downstream policy-servicing, endorsement, and the affirmation that there is a person who stands behind this digital product and is able to answer your questions,” said Sangal.

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