According to a recent InsTech report1, the embedded insurance market should grow to US$722bn by 2030 – a sixfold increase. This growth will be largely driven by China and the United States which, together, are expected to account for over two thirds of global market share by 2030.
Put simply, the concept of embedded insurance means coverage or protection is offered in real time or at the point of sale sometime during the customer journey. Certain solutions come pre-packaged with the product or service: for example, when buying a new phone, the choice package includes theft protection, or when buying a motorcycle there will be a real-time insurance purchase suggestion at the moment of sale.
These formats enjoy a distribution advantage because they can be purchased where the customers are, through brands that they trust. They could become (often salient) features of a product, instead of something acquired on the side. They could leverage distinct types of data relevant to claims and underwriting. And because they form part of a wider selection, they can delight the customer upon delivery.
Globally, the concept of embedded insurance affords a competitive advantage and allows players in the insurance market to prosper in the current B2B2C environment, bringing down purchase costs.
Embedding insurance in the customer’s journey also creates opportunities to grow the market. As the old adage goes: “Insurance isn’t bought, it is sold.” However, selling insurance isn’t easy. But when you buy insurance at the right time everything becomes clearer and simpler. To many customers the notion of purchasing a single insurance policy to cover a new asset may sound like a needless and cumbersome step. So, insurance that comes pre- packaged with other product purchases lets customers protect their buys without the need for (any) prior involvement, providing increased peace of mind.
Once technological channels have embraced insurance functionality, embedded insurance lets any supplier/ developer embed innovative insurance products in their customers’ purchase journeys in a quick, low-cost, and streamlined fashion. The final benefit is a stronger value proposition for customers, building up brand preference and ultimately securing customer loyalty.
But the transition to embedded insurance is not merely a simple switch to a different distribution channel. Many things need to change.
Embedding insurance requires a simple product supported by clear explanations. Descriptions must be written out in plain language, rather than complex legal jargon. And products must set exclusions aside to become more accessible and foster more customer confidence.
Some policies are clearly easier to embed than others. Products requiring more detailed underwriting – such as life insurance, where health and lifestyle factors go into the underwriting calculus – as well as those which require understanding of customers behaviours (like cyber, where customers play a key role in preventative measures) or where multiple exclusions exist, could be more challenging to embed.
Embedded insurance is the next logical step for the insurance industry if it wants to reflect the fact that insurance is becoming more about real-time experiences than merely about assets.
1 Source https://www.instech.co/insight/insurance-to-embed-or-not-to-embed
Embedded insurance has now arrived and looks set to play a major part in the future of insurance. MDS has also been developing solutions that embrace embedded insurance along with the whole customer journey, as the following case study with Honda clearly demonstrates. It also underlines just how important collaboration across all stakeholders in the customer journey is to success.
Rui Santos | Parterships Development Director, MDS Portugal
MDS | Broker
This product runs on an innovative underlying technology introduced by MDS. What was the construction process like?
Once we’d overcome the first challenge, developing the solution with the insurance market, we faced yet another major hurdle - how to design a simple, intuitive process that would allow people to buy insurance for Honda motorcycles whilst still complying with Portugal’s insurance distribution regulations. The solution was to use technology, and develop a digital tool based on a B2B2C logic: on one side there is MDS and the insurance solution and, sitting opposite, the end customer who has purchased a Honda motorcycle from an official dealership. Partnering with tech firm Think Future, MDS developed the app, Safe Go Premium, which enables the new owner to buy insurance for their Honda motorcycle – be that new or pre-owned- online, either at the time of purchase or at the annual inspection/maintenance at the official Honda dealership. The insurance documents are issued and delivered within seconds. As this is an innovative solution for Portugal, the success of the project lies with the perseverance of the IT teams at MDS and Think Future along with the entire team at insurer Lusitania, who in particularly deserve massive congratulations.
In terms of distribution, what initiatives has MDS developed to help this operation succeed?
The success of this operation rests with distribution, as the product is sold jointly with the motorcycle. To this end the sales team were brought into the fold right at the beginning of the project, as they would work with the partnership in the field. The outcome was very positive. The team got to know the entire process starting with the design phase, which now lets us keep up with, and assist all the needs of end customers, dealerships, and of course, Honda’s. We attend commercial Honda events, visit dealerships and assign dedicated managers to customers.
The results have been very satisfying. The partnership’s successful start is underlined by Honda’s enthusiastic push to promote the new insurance solutions – Honda Base, Honda Protection, and Honda Protection Plus - and to emphasize just how simple it is to purchase them.
Oscar Adraos | Client Manager, Munich Re
Munich Re | Reinsurer
What elements help this insurance product stand out? Is it coverage, simplicity, or something else?
The product developed by Honda, MDS and Munich Re brings together motorcycle buyers’ coverage needs with truly attractive terms of sale.
From my point of view, one of the product’s greatest advantages is how easy it is to insure a bike at the time of purchase and avoid any other processes, including those around buying insurance.
Additionally, it’s modular, which makes it flexible. Owners can buy the basic package or something more comprehensive. Finally, the seller quotes the price of insurance at the time of the motorcycle sale, in real time. That’s yet more convenience for the customer.
In terms of pricing, we’re looking at a flat rate. Can you explain what that’s about?
Of course. The answer is simple. If you consider Honda’s in-depth knowledge of the product to be insured (motorcycles), and how much MDS and Munich RE understand about the behaviour of insurance, we were able to design a product that will serve any customer buying a Honda product. What this means is, the insurance is designed around the bike, not the rider. That’s more flexible and innovative for the end customer. And it makes us more efficient at process level, which in turn impacts pricing. We monitor outcomes constantly, so that they will serve everybody – customers and insurance vendors.
Ana Isabel Carvalho | Director of Motor and Assistance Insurance, Lusitania
Lusitania | Insurer
What drew Lusitania to this business model?
We were attracted to the project due to the involvement of three prestigious companies: MDS/ Special-Insurance, Munich Re, and Honda.
In addition it would provide an opportunity to deepen our knowledge of a seemingly less desirable market segment, with apportioned risk and to tap into Munich Re’s knowledge of the business.
The business potential, brand association with Honda, the traits of their Portuguese customers and terms of sale locked it in for us.
What are the underwriting terms that make this insurance product so attractive to end customers?
The insurance underwriting model combines a presentation of coverage, risk acceptance, draft policies, and delivery of contract documents through a quick, easy process, at very competitive rates.
In practical terms, Honda can add motor insurance when a motorcycle is sold, providing the end customer with a highly relevant service.
José Luís Correia | Director of Motorcycles, Honda Iberia
Honda | Manufacturer
What are the advantages of selling a product with associated insurance?
Honda always tries to create the best experience for its customers, so we find it very important to offer the best solutions and services.
We know that it takes more than supplying a high-quality motorcycle to guarantee customer satisfaction and loyalty. We also need to meet customers’ complementary needs, whether during the purchase process or the time they will spend on their motorcycles. In this specific case, we believe it is very important to make insurance service available because we anticipate and facilitate a solution for a service that customers are legally obliged to purchase. In summary, the advantages are mostly experienced by our customers, who benefit from quality insurance tailored to their needs, offering a number of options and competitive rates, not to mention how easy it is to purchase cover through our dealerships.
What led you to MDS as a partner?
Honda is the largest motorcycle manufacturer in the world and a leader in the national market. It was all but mandatory to associate our image and strategy with a high-quality partner who could bring the scale, skill, and level of service we require to meet our goals.
The MDS group stands out internationally in the world of insurance and maintains a global presence. It specializes in numerous consultancy fields and leads the market in our country, so it was only natural to celebrate this partnership sustained by an excellent team of professionals who will certainly help us reinforce our leadership position in the motorcycle market in Portugal.
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