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The unique embedded insurance market opportunity

Nikolaus Sühr
KASKO
Published in
14 min readJun 29, 2021

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Embedded Insurance has become THE hot topic of the current insurance and insurtech scene and is fundamentally changing the dynamics of the traditional insurance market.

Insurtechs, both full-stack and MGAs (e.g. Extend, Boost, Qover, Next) are gaining market share over traditional “Affinity” insurers (like Assurant, Allianz, Chubb). This means that incumbent re-insurers and insurers are re-allocating resources big time to pick up the pace, with Swiss Re’s IptiQ recently being valued at 5x of annual Gross Written Premiums. In their Business Report for 2020, they shared a $2bn valuation for their white-label insurance platform IptiQ, which grew to $371m in premiums in 2020, with an annual growth rate of 83% since 2017 (for more information, check out their report on page 45).

As we are really big fans of embedded insurance, we have aggregated and summarised our favourite articles and most recent funding announcements in the space.

  1. Embedded insurance = the vision of insurance industry?
  2. A $3 Trillion market opportunity
  3. Requirements for success in Embedded Insurance
  4. Simon Torrance’s embedded insurance 2.0 ‘Market Map’ report
  5. Takeaways for insurers or MGAs in the Embedded Space
  6. KASKO CEO & Co-Founder Nikolaus Sühr on Embedded Insurance on the Ecosystemizer Podcast
  7. Embedded Insurance Partnerships
  8. Why we’re excited about embedded insurance in 2021
  9. Where insurance is bought, not sold
  10. Insurance: to Embed, or not to Embed
  11. Avoiding the next beartrap: What open banking means for insurers
  12. Reinventing Finance Podcast with Simon Torrance & Jean-Charles Velge
  13. Recent funding announcements in the embedded insurtech space

1. Embedded insurance = the vision of insurance industry?

Sherry Lee Min and the Ancileo team have put together a comprehensive visualisation of the digital ecosystem trends that one should know all around embedded insurance:

  • The companies that can play in embedded insurance could also encompass a range of digital-first disrupters in various verticals.
  • Ping An started developing a “finance and ecosystem” strategy in 2015 and has now built an ecosystem empire with five ecosystems covering the real estate, automotive, finance, smart city and health care industries.
  • Developing economies now account for over 52% of global premium growth and emerging markets in Asia have become global growth drivers.
  • According to McKinsey, 12 distinctive ecosystems will emerge around fundamental human and organizational needs by 2025.
  • Both Gen X and Gen Z are strongly interested in purchasing insurance included as part of another service or product.
  • 74% of consumers surveyed expect their insurance companies to appropriately use their personal data to give the right recommendations.
  • Taking the ecosystem capabilities index, insurers currently fall short in technology and resources, culture and capability.
  • To succeed at the ecosystem model, companies must have integrated cross-channel capabilities and cross-functional teams, personalizing key touchpoints across the value chain and will need to refocus externally in nearly every part of their organization.

Have a look into the full piece for a simplified view of the Insurance Stack and what the four differentiating capabilities in B2B2C Insurance 2.0 are to create additional “stickiness” with partners.[Read]

2. A $3 Trillion market opportunity, that could also help close the protection gap - Simon Torrance

Our second recommendation is this great article by Simon Torrance on the $3 Trillion market opportunity of embedded insurance. Embedded insurance means abstracting insurance functionality into technology to enable any third-party product or service provider to seamlessly integrate insurance into their customer propositions to offer more relevant, personalized and affordable insurance.

By 2030, in the P&C market alone, embedded insurance could account for $700bn in Gross Written Premiums or 25% of the worldwide market and businesses enabling embedded insurance in this field could be more valuable than the Top 30 financial institutions today.

If you are wondering how incumbent insurers can win in this market, Simon Torrance has some suggestions such as:

  • Identify your partners for embedded insurance who have access to a large number of customers that they interact with regularly and thus have contextually relevant risk information in verticals such as travel, retail, product manufacturers, banking, mobility, (e)-commerce and B2B SaaS.
  • “Break” your primary insurance stack into modularised services consisting of interfaces, products and pricing, service and ops, claims management, underwriting, asset and liability management and license and risk coverage.
  • Design flexible products which can easily be sold through embedded channels.
  • Deploy developer platforms through which their own and 3rd party products and tools can be distributed.
  • Build closer relationships with end-users by also designing non-insurance digital services, ecosystems and platforms which creates new demand for insurance solutions.
  • Consider whether to collaborate with others, develop new ventures or build things internally taking a portfolio approach, making bold moves works best. [Read]

3. Requirements for Succes in Embedded Insurance

We have been big fans of pretty much any content that was shared by Adrian Jones Partner at Hudson Structured Capital Management Ltd. (HSCM Ventures) over the years. Embedded insurance is one of our favourite topics so we are pleased to share our view about the key success factors to making embedded insurance work (added with some commentary from me).

We are also pleased to see that Adrian shares our view on defining embedded insurance broadly, namely any channel other than
- Tied agents or brokers
- D2C website or call centre
- Aggregators
- Price comparison websites
- Lead generation (affiliate links)

Thus including things such as
- Affinity marketing (e.g. associations, groups)
- POS marketing (offering insurance in addition to something else)
- “Truly embedded” (offering insurance as part of something else)
- Voluntary employer benefits programmes
- B2B2C

These are the 9 Requirements for Success in Embedded Insurance (meaning if you miss one, your programme will likely fail):
1️⃣ Solve a problem for the seller/partner 👉 yes
2️⃣ Customer purchase occasion 👉 ideally yes, but with strong brands non-POS programmes can also be viable
3️⃣ Unobtrusive insertion point 👉 yes
4️⃣ Access to unique and relevant data 👉 ideally yes, but not a requirement, we need enough data to enact the insurance contract and most products can be designed with assumptions in place and most insurtech hype about better underwriting models has been BS
5️⃣ The breadth of the product (& license) 👉 yes and no. Products need to be designed with the distribution partners’ problem in mind, sometimes this is a lot and sometimes little protection
6️⃣ Adjustments to product design, ratings and filings 👉 yes, but US only
7️⃣ People who can design, build, underwrite and sell 👉 yes, yes, yes
8️⃣ Reasonable split of economics 👉 yes
9️⃣ Enough volume to cover fixed costs 👉 yes

Some additional thoughts💡
With the POS becoming more crowded, combining traditional advisory sales, target group product design and digitally enabled processes will be key in offering broader products as well as up-and-cross-selling customers. This will be the next frontier for insurtechs where incumbent insurers with existing advisory assets have a trump to play (if they know how) 😊

Read the original post here: https://lnkd.in/eKGPjPkK

4. Simon Torrance’s embedded insurance 2.0 ‘Market Map’ report

I finally got around to reading Simon Torrance’s #embeddedinsurance 2.0 ‘Market Map’ report.

Why?

📌$5tn of insurance spend could be distributed by non-insurance brands over the next 10 years around the world, generating $1tn extra income for brands (at 20% average commission)
📌Brands have a role to play in bridging the #protectiongap to embed more convenient and affordable products to the everyday lives and touchpoints of consumers
📌Some retailers make up to 10% of their net profit from selling insurance
📌But, the status quo to partner and launch programmes is slow, expensive and inflexible and poor UX/CX leads to low conversion rates, which lowers brand interest, which in turn minimizes insurer investment and so on…
📌As a result, the ‘brand partnership channel’ (‘B2B2C’ or ‘Affinity business’) has only been a small part of an insurer’s overall business.

This is about to change…

In this report you will learn:

💡Who the 46 most promising startups in the embedded #insurtech space are (spoiler alert, KASKO is also one of the select few) 🙂 and how do they fit into the categories of Digitisers, Accelerators, Commercialisers, Transformers

💡Many large, traditional brands have been selling insurance for some time, but typically the experience is no different compared to buying insurance from insurers (ie. expensive, un-personalised, painful to claim) e.g. #airlines selling #travelinsurance or #tradeassociations offering professional indemnity cover

💡Commissions are typically around 20%, but can get up to 80%, so commercially it’s theoretically attractive to brands. It’s just the customer experience and value proposition has been poor

💡But now new experiences are being created which are much more attractive to
a.) end customers (cheaper, faster, fairer, more convenient) and
b.) brands (supporting more aspects of their business strategies)

💡And, no longer just big brands. Any size of company can benefit from leveraging insurance to improve their customer propositions

💡A new breed of embedded insurance and finance ‘operating systems’ will increasingly orchestrate insurance and financial product supply and capabilities and natively enable integration into brands who will aggregate demand and manage customer engagement

💡A broad spectrum of touchpoints are emerging:

Websites, Apps, POS add-ons, Bundled Value Added Services, Bundled Components, Invisible Enabler, Hook and Glue (e.g. various embedded insurance products within a “super” app)

💡New Results: The new, highly digital ‘Embedded Insurance 2.0’ propositions from the specialist startups in this space are generating significant new value, compared to the traditional approaches to B2B2C and affinity partnerships. Find out more about the studies listed in the report!

👉 If you are a brand, insurer, insurtech, VC, entrepreneur, regulator or advisor, I suggest you follow Simon and check out the (paid but worthwhile) report [Read]!

5. Takeaways for insurers or MGAs in the Embedded Space

Two takeaways for insurers or MGAs in the space from a post of Florian Graillot [Read]:

1) Focus on understanding the key business priorities of your B2B partners and be ready to create solutions for their main business problems/opportunities rather than just offering your off-the-shelf products.

2) Moreover, be able to offer/orchestrate third-party products and services and thus reduce complexity for your business partners esp. in highly competitive tenders to move away from pure commission argument.

6. KASKO CEO & Co-Founder Nikolaus Sühr on Embedded Insurance on the Ecosystemizer Podcast

We talked about current trends in the insurance industry, the role of artificial intelligence, the future of embedded insurance and integrated insurance solutions, the impact of ecosystems in and outside the industry, and much more!

Podcast available on:
📌 Spotify: https://lnkd.in/erbQMptD
📌 Youtube: https://lnkd.in/eynw3qgE

Tune in to keep up with the latest trends in the insurance industry!

👉 Read the key takeaways from the episode here: https://lnkd.in/etaXZFPw

7. Embedded Insurance Partnerships - Allan Pedersen

Allan Pedersen points out that it is hard to look behind the shell of APIs and sales collaterals. Therefore, he suggests taking a more in-depth approach for any distributor in selecting the right embedded insurance partner. Conversely, as insurers do position yourself clearly across these dimensions:

  • Product Management
  • Partner Management
  • Operations & IT
  • Economics & Long-Term Stability

We have pulled together the key elements from Allan above, made a few minor adjustments and also shamelessly added how we can help :-)

However, the summary really doesn’t do the paper justice, so make sure to spend 20–30 minutes to read it in full and share with your colleagues. [Read]

8. Why we’re excited about embedded insurance in 2021 - Jessica Bartos

Jessica L. Bartos from AlbionVC shares her reasons for being excited about embedded insurance and here are our key takeaways:

  • Corona has shown that customers are willing to make even high value and complex sales online (see online car sales).
  • At the point of need, risk and thus insurance is top of mind.
  • Tech platforms control four relevant assets equipping them well to offer insurance, namely 1) customer journey, 2) data, 3) trust and 4) communication reducing friction.
  • Insurance offers a high margin revenue stream to distributors.

As a startup, what is the best way to enable and benefit from this trend? We believe that providing an independent product, distribution and policy admin stack that connects distributors as well as modern or traditional insurers is the best way forward. [Read]

9. Embedded Insurance: Where insurance is bought, not sold - Harry Simon

In his recent article, Harry Simon brings together industry insights on embedded insurance and whether it is the future of insurance distribution:

  • Embedded insurance is when a digital non-insurance entity distributes an insurance product, allowing for a short, targeted sales funnel, and an easy purchase experience for the customer.
  • Two primary types of companies are active in the embedded insurance space. 1) API-driven product providers (usually MGAs or digital agencies [but also full-stack insurers] that enable other software businesses to plug-in and 2) verticalized platform companies with customer access where insurance is a secondary business model. [There actually is a third-category serving both, namely “Insurtech as a Service” providers offering the technical infrastructure for any product provider or brand to design and scale digital insurance propositions].
  • Some of the pros of embedded insurance are lower CAC, better customer data, lower distribution costs, better quoting and underwriting and increasing the market for insurance.
  • The risks that have to be taken into account are a possible winner-take-all dynamic for (API-driven) embedded insurers once vertical markets mature and embedded insurers will have to figure out how to up- and cross-sell products.

We recommend checking out the full article to find out more on what embedded insurance is, the different forms API-driven embedded insurers take on and how the market may shake out. [Read]

10. Insurance: to Embed, or not to Embed

Another great comprehensive report by Robin Merttens, the InsTech London Team and Simon Torrance, looking at the history and concept of embedded insurance, the problem it solves, the magic ingredients, how insurers/MGAs make the most of this opportunity and some insights from the frontline:

  • On top of giving customers a better, more convenient digital buying process, providing access to new products and distribution opportunities and enabling a simpler claims process, embedded insurance helps to match supply and demand more efficiently and has the potential to help close the protection gap.
  • The three main ingredients needed to effectively provide embedded insurance are 1) The right technology platform, 2) A good distribution partner and 3) The right products to do it with.
  • Apart from overcoming the constraints of legacy systems through developing an API framework to play in digital ecosystems, insurers also need to up the game with respect to data and the ability to leverage data analytics at scale to enable real-time customer insight.
  • Another challenge, which is greatly underestimated outside of the insurance industry is the balance between providing a low-touch consumer journey and making sure that the legal and regulatory requirements are met.
  • To make the most of the Embedded Insurance opportunity, you can 1) Build it yourself (Tips from Wakam: with the right technology, quick and slick onboarding process and the right culture), or 2) Partner with platforms or technology-enabled MGA’s.
  • Looking at China, Ping An’s platform ventures have become the dominant channels for originating and maintaining customer relationships representing 40% of all new insurance sales and 500 million users.

Definitely check out the full report for lots of insights from embedded insurance players and the movers and shakers in the space featuring over 60 companies — including us at KASKO :-) [Read]

11. Avoiding the next beartrap: What open banking means for insurers

Really good article by Christopher Sandilands from Oxbow Partners and a cautionary tale about playing in the new embedded insurance paradigm that goes a bit like this:

  • As super gatekeepers aggregate customer demand, they also decide the “standard” data package that insurers receive to quote the business.
  • Pricing and business models need to be attuned to compete in a commoditised market.
  • Profit margins will decline.
  • Look at UK motor and home insurance and how insurance players have adopted their pricing and models to compete. [Read]

We generally agree but challenge the premise that super gatekeepers require a comparison on a per-product basis. Rather, insurers need to win via “bundling” such as:

  • Offering various products via one API (incl. third party products from other insurers or beyond insurance providers to make it harder to be replaced).
  • Invest in after-sales advisory driven sales personnel to improve customer wallet.
  • Support non-insurance entries to set up and maintain regulation for insurance intermediation.

12. Our Reinventing Finance Podcast with Simon Torrance and Jean-Charles Velge

Additionally, we also wanted to highlight two episodes of our Reinventing Finance Podcast with a focus on embedded insurance.

In second episode, embedded finance and insurance expert Simon Torrance shared his thoughts on the following topics:

  • Embedded Finance/Insurance: How do you define that topic and why is it so important?
  • What are the societal and commercial benefits of this market opportunity and of closing the protection gap?
  • What are examples of positive societal aspects in this area and should regulation speed up?
  • What is the big buzzword “financial wellness” exactly about and how are companies helping people manage their financial wellness?
  • Do you think that partnering up with a large digital distributor will actually drive down the cost of distribution from an insurer perspective or will it be more difficult, having to deal with more powerful distributors?
  • Putting yourself in the position of a board member/CEO of an incumbent insurer, what is your advice and what would you say are the key steps to capture this market opportunity?[Listen or Watch]

For the fourth episode Jean-Charles Velge, Co-Founder of the Belgian Insurtech startup Qover, talked about the two business models of Qover, how the startup creates pan-European insurance solutions, the advantages of the MGA versus the full-stack model, what we can expect from Qover in the next few months, the role of VC funding in accelerating the embedded insurance market, and where Jean-Charles sees the market in the long run. [Listen or Watch]

13. Recent funding announcements in the embedded insurtech space

Finally, we have put together the recent B2B2C funding announcements to see the activity in the embedded insurtech space:

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Nikolaus Sühr
KASKO
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Written by Nikolaus Sühr

34 Followers

CEO & Founder of InsurTech KASKO. We enable insurers to create cost-effective customer-centric services via our InsurTech as a Service platform.

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