Embedded Insurance: The Beginning of the End of Insurance?

Embedded insurance has quickly become the darling of the insurance world. Both incumbent insurers and start-up insurtechs are racing to get into the game. The attraction is the ease with which customers can purchase embedded insurance with other products they are buying (stuff way more interesting than insurance).

Travel insurance products are top of mind for embedded insurance suppliers. If you have bought travel related products online lately, then you can’t miss it. Airline tickets to vacations all offer Trip Cancellation, Trip Interruption, Medical Insurance, Baggage Insurance or All-inclusive travel Insurance. There is embedded insurance for almost any type of consumer electronic product that covers everything from loss to accidental breakage to product warranty.

Technology has made this painless for the consumer and has a high rate of acceptance, a benefit for both the seller of the good and the seller of the embedded insurance. Embedded insurance (or warranty) can increase customer engagement as well as Customer Lifetime Value. E-tailers value these insurance products as they, unlike regular goods, offer renewable revenue streams.

Now auto manufacturers are jumping into the embedded insurance game. Auto insurance represents approximately 10-15% of a vehicle’s TCO (total cost of ownership). So, not surprisingly, auto manufacturers are looking at the potential of adding auto insurance to increase their average Customer Lifetime Value. McKinsey & Company found new connectivity business models that include data-connectivity services (this includes embedded insurance) could increase automotive revenues by $1.5 trillion by 2030.

Looking beyond embedded insurance, can non-insurance brands start to exploit the tremendous brand value they hold with customers that will never be matched by insurers or brokers? Has embedded insurance opened Pandora’s Box?

Beyond Embedded Insurance

It remains extraordinarily expensive to market insurance. In 2019 alone, State Farm and Progressive each spent over $1 billion on advertising—and GEICO almost reached $2 billion. Automotive manufacturer brands have tremendous brand recognition, thus an advantage over traditional insurers in having to spend much less in advertising.

In “To Convert More Customers, Focus On Brand Awareness” – (Oct 22, 2019 – Revecka Jallad – Forbes) it states that when it comes to purchasing decisions, studies show that the brands consumers recognize most are more likely to be included in their consideration sets. In fact, 75% of shoppers said they are more likely to purchase from a company that knows their name and purchase history.

From an insurance perspective, according to the J.D. Power 2019 U.S. Insurance Shopping Study SM, success in driving new customer acquisition comes down to having a strong brand and meeting customer expectations of convenience and competitive price.

“Unaided brand awareness critical for attracting insurance shoppers: Insurance shoppers obtain an average of three to four quotes when shopping, making it critical for insurers to be top-of-mind to make it into the consideration set. Brands recalled on an unaided basis are twice as likely to be considered and quoted than brands that are only recognized on an aided basis.”

J.D. Power 2019 U.S. Insurance Shopping Study

Consider that 9 of the top 50 brands (determined by brand value) world-wide are automotive brands and that only 2 are insurance brands (both are European). The 9 automotive brands have a total brand value of $227 Billion and the 2 insurance brands (ranked #45 and #48) have only $24 Billion in brand value.

Does the brand recognition for insurance purchases have to be an insurance company brand? Of those 9 automotive manufacturers more than half are already “embedding” automotive insurance in their products.

There is no reason for automotive companies to stop at car insurance. You will likely see many of them start to wield their popular brand value to encompass more of the insurance pie. This is going to be interesting as non-traditional insurance players start to eat the insurance premium pie.

Lifestyle Brand Insurance

In fact, why wouldn’t other popular brands (non-automotive) enter the insurance market to increase their CLV and customer engagement? Even Budweiser is getting into lifestyle brand insurance. Technology is increasingly making this more possible and just as Covid-19 has accelerated the change in consumer buying behavior it may become very appealing to purchase insurance from some of your most trusted brands (which are not insurance brands).

The confluence of technology, customer preferences and insurance industry weaknesses including both high-cost and resistance to change are going to challenge traditional insurance models more than ever. Embedded insurance just kicked open the door.