The knife-edge brand-benefit of embedded insurance

– Mark Rogers, Head of Business Development, Vitesse

For many decades, everything in insurance stayed pretty much the same. Now, driven by new technologies, the whole way people eliminate financial uncertainty is embracing evolutionary change. The structures that underpin insurance are developing rapidly, as the data and processes that support risk analysis, transfer, and distribution ride forward on continuous waves of innovation.

The evolution is visible almost everywhere you look. In consumer insurance, it’s apparent in telematics, for example. That’s the use of gizmos for real-time driver performance tracking. In commercial insurance, we see it in parametric coverage, which insures only against a loss event, rather than the loss itself.

Embedded surges

Across the board, we see it in the huge uptake in embedded insurance. When a business or consumer buys a product or service, it’s now commonplace that the purchase includes insurance of the deliverable or an associated risk. It’s a huge extension of the ‘extended warranty’ we’ve been offered for years when we buy white goods or electronics. By some measures, embedded is approaching a trillion-dollar global market.

Mark Rogers

In marketing-speak, embedded insurance allows trusted brands to deliver seamless and holistic customer experiences. The purchase of a desired product or service is bundled with the sale of relevant and related risk protection in a simple, single transaction. The ability to easily buy two things at once is key to the popularity of embedded.

Everyone likes it. Retailers’ smooth-as-silk delivery of insurance protection linked to a primary purchase has been shown to increase customers’ brand loyalty, and to open new revenue channels. Anyone on the frontline of B2C or even B2B business development is unlikely to have expected such benefits from insurance a generation ago, but now they’re clamouring for it as a value-added offering that makes the primary sale more attractive.

But dangers lurk

In practice, though, many parts are moving behind the scenes. Bundling financial services with widgets is fraught with danger, especially since the insurance component includes a potentially reputation-shattering second incarnation: claims. Get them wrong, and any front-end brand benefit is lost.

It’s relatively easy for retailers to make the sale (that’s their speciality) and collect the commission (that’s part of the lure of embedded). Dealing with claimants – who are often distressed, angry, or both – is different, and difficult. Claims are the ultimate truth-point for any insurance product: if they don’t go the customer’s way, or are particularly cumbersome, or if settlement takes an inordinately long time to complete, the reputational blow-back on the seller can be significant.

Compliance hurts

Meanwhile, selling embedded cover opens a world of potential compliance pain. Insurance – embedded or otherwise – is a regulated financial product. That places potentially cumbersome responsibilities on the seller, who becomes a supervised and regulated intermediary, or the agent of such a firm, with potentially heavy reporting requirements. The company which ultimately bears the risk must be a regulated insurer, subject to reserving, solvency requirements, and a multiplicity of other demands.

Plus, the money has to be treated in special ways. Insurance premiums cannot simply be deposited into the pot like receipts from other sales. Insurance customers’ payments must be sequestered and protected, and cannot be intermingled with general funds.

Insurance has always been subject to layers of complexity. To cope, over the years the sector carved out clear-cut areas of responsibility for all the companies in the distribution and claims value chain. However, the entry of thousands of non-insurance entities into customer-facing roles at the coal face can upset the industry’s delicate distribution of responsibilities and rewards.

Money matters

One area beneficially supported by technology and innovative practice is the maintenance of claims funds. Insurers must hold the statutory balances required by regulators to offset future claims, but actual cash for customers is another issue. To prevent the backfire at the back end of the brand-enhancing benefits of embedded, cash for claims must be available in the form of ready money.

Digital claims-fund management and payment platforms like Vitesse are a tech-driven insurance innovation that make this easy. Such systems help newcomers to the value chain manage the challenges of becoming insurance distributors, allowing embedded insurance and other evolutionary developments to change the landscape of the sector.

They provide the technological infrastructure that lets risk carriers and their agents manage and distribute funds efficiently. And they ensure customers receive claims payments fast, removing a potential source of negative feedback.

Claims-fund management ensures that the right money is in the right place at the right time, while maintaining control and transparency in financial transactions. Vitesse’s offering ensures the new players that embedded insurance brings into the value chain may actually improve the speed and accuracy of claims payments, so customers really do benefit from the evolution that’s been so long coming.

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