Industry Voice: Embedded insurance
Ido Hertz, Vice President of Products for Pattern Insurance, speaks to Michelle Royle about how embedded insurance will make things easier for customers
Embedded insurance works by harnessing consumer data and leveraging technology, to present customers with an insurance offering that is perfectly tailored to the core experience or service they are buying. This protection could even be event-based parametric. The right type of embedded insurance offers a simple, high-value customer experience that works seamlessly with their primary purchase.
In the travel sector, embedded insurance needs to have customers’ needs and experiences as its top priority. Here I explore how insurance providers can ensure they exploit the full potential of embedded insurance for their customers, creating a product that simultaneously values end-user simplicity.
Why embedded insurance?
The embedded insurance model allows insurance products to meet consumers when and where it makes the most sense, delivering highly personalised protections relevant to their needs. It transforms the traditional insurance model, transitioning it from a third-party (insurer) selling model to a first-party (consumer) buying from a second party (business) that’s providing the cover. Its implications for businesses and consumers are vast.
Embedded insurance in the travel industry is a familiar idea. For many years, travellers have purchased flight delay insurance with their flights or cancellation cover alongside a holiday booking. However, embedded insurance as we know it today is much smarter, utilising all the information available on the product purchase to distribute relevant insurance coverage when and where consumers are interested in buying it. The cover itself is much more sophisticated and personalised. It provides a convenient, friction-free user experience where clear and transparent insurance protection is arranged in real-time – all within the travel company’s website, app or in-store.
Embedded insurance needs to have customers’ needs and experiences as its top priority
When embedded is fully primed, the benefits are high attach rates, higher conversion rates, happier, more loyal customers and competitive advantage. A recent study found that over 60 per cent of online shoppers say relevant insurance options offered at checkout would increase their odds of making a purchase. This, combined with the news that 45 per cent of travellers would prefer to book their entire trip through one website, is a strong case for embedding insurance into travel bookings.
Listening to customers
One of the most important elements of making embedded insurance seamless for customers is listening to and understanding their needs. Consumers seek flexibility, they want to know that they can change their booking, return goods or cancel them altogether before purchasing. The challenge for many businesses is convincing customers that they are in control and reassuring them to complete their purchases.
Consumer confidence is a crucial driver when it comes to booking travel. Following the onset of the Covid-19 pandemic, insurance purchases from booking agents grew by more than 25 per cent. Travel businesses that don't sell insurance products as part of their customer offer are missing out on a valuable income stream. The good news is, embedded insurance solutions that allow any company to sell insurance are becoming much more widely available.
A key area of development in this evolution is parametric protections
Convenience is key
For the insurance industry to address the existing gaps and frustrations people feel when purchasing trip protection, it must look at how best to increase customer convenience. In the travel industry, that means using data to create products that meet the customer’s immediate needs. Embedded insurance has the potential to truly transform the insurance landscape.
What's next for embedded insurance?
To continue creating ease and simplicity for customers as their wants and needs become ever more sophisticated, embedded insurance must keep evolving. A key area of development in this evolution is parametric protections. These are insurance covers that are triggered by an objective event. This factual event is measured by a third-party data source which measures something quantitative, and the insurance is automatically triggered if the quantity crosses a predefined threshold.
Parametric insurance is increasingly popular with consumers as the need to file claims is wholly removed as compensation is delivered automatically. This unlocks more upselling opportunities for providers, as policies are even more tailored to circumstance. Alongside this, consumers can protect themselves against loss for specific trips.
For example, Pattern has developed parametric insurance products that protect against bad weather, specifically designed for companies who sell camping trips. The policy benefits customers by providing peace of mind that they won’t be out of pocket if their trip is a washout and consequently offers upselling opportunities for the travel company.
While parametric products have been used in the insurance sector for many years, we are only at the start of realising the applications for parametric products in the wider insurance industry. As detailed data and technology solutions become more accessible, the scope and innovation of the covers available are constantly increasing.
Still, as product availability grows, parametric insurance will no longer be viewed as the latest innovation but instead become something consumers seek out. With that consumer demand will come much more widespread adoption for various insurances, from personal lines to commercial covers and beyond.
By meeting customers where they are, insurers can provide a better customer experience and seamlessly integrate embedded insurance into their purchases. The first step is always to understand customers’ needs, as it’s the only way to design insurance products that create ongoing loyalty and add value.