The future of insurance distribution
Embedded Insurance is part of a trend towards Embedded Finance and is about getting more affordable, relevant, and personalised insurance to people. What moments can you get in contact with people? When they are buying or using a product or service. Embedded Insurance is to a large extent about integrating insurance in a 3rd party’s ecosystem.
“Buying insurance from a third party, also known as ‘embedded insurance’, is far from new. Some examples that you might be familiar with are unions tailoring coverage for their members or an extended warranty you purchase in addition to a new computer or phone. Although the practice is old, the intensity and speed that insurance companies are battling for customer ownership in this domain are unprecedented.”
Line Dalsfort, Head of Nordic Innovation Discovery team
And the development goes faster and faster largely due to the emergence of new digital ecosystems and digital transformation of physical products that create opportunities for embedding insurance to the product or service. In a report by Rainmaking the total market value related to Embedded Insurance is estimated to be staggering $3 Trillion.
Embedded Insurance Strategies
Penni.io, a Danish Insurtech, identifies three embedded Insurance strategies: Related, linked, and bundled.
Related embedding
Offer insurance to the customer at a digital space in the partner’s own digital universe. Insurance can get a digital placement where there is a related value bridging from the core product to insurance.
Linked embedding
Is about turning the partner’s point of sale into an insurance sales channel so the end-customer engages with the insurance product as an add-on to your partner’s sales flow.
Bundled embedding
Here you share customers with your partner 1:1 and sell insurance when your partner makes a sale, as the insurance is bundled with – or included in – your partner’s product or service.
A great space for startups?
Same for all strategies is the crucial need for a new tech stack for insurers to succeed with Embedded Insurance. This, in combination with a large market opportunity makes startups come in to fill the need.
That is also why startups in the space, according to Dealroom, raised almost $800M in VC funding in 2021. We will properly see a higher number of deals in the future. Why? For the simpel reason that most startups working with embedded insurance was only founded in the last 5 years. They are now entering their scaling phase and in addition will new startups join in.
You can find a link to an overview of 60 Insurtech startups at the bottom of this post.
As the largest non-life insurance company in Scandinavia, Trygs Innovation team, Nordic Innovation, is also shifting focus on how to create new digital touchpoints with tailormade value propositions and better customer journeys.
We are all experiencing the same shift towards a digital future. The number of apps on our phones is growing and social media is taking up more and more space. We can buy our new car online and we can even have a consultation with our doctor over Zoom. The Corona pandemic has also pushed our consumer behavior towards digital transactions, removing the need for shopping malls and flagship stores.
Line Dalsfort, Head of Nordic Innovation Discovery team
New digital ecosystems are emerging which creates a new set of demands that affect the traditional insurance business model. To remain relevant, insurers must constantly stay in touch with the products and distribution points that our industry relies on. Insurance is becoming something you buy in combination with another product or service.
But how to engage with a new ecosystem and find the best co-creation partner? We asked Line Dalsfort, Head of Nordic Innovation Discovery team how they work.
How to enter a new ecosystem as an insurance company?
From our experience, when you want to join a new ecosystem or digital platform that is outside your core business it can be wise to have the following information.
First, to successfully co-create a third-party platform within a new ecosystem, it’s important to join forces with those who have experience with a specific place in the ecosystem’s value chain.
Second, when Tryg explores a new value chain we always see a diversity of players that is not limited to one industry or one product. Since the entire value chain will indirectly become a part of the insurance product it may have a significant effect on our risk assessment. This detail is important to understand to offer the right value proposition, customer journey, and customer approach.
Third, in a new ecosystem, insurance becomes a value-added, or service offered in a platform’s existing business model where we do not know the end customer (BtBtX). That is challenging for us to manage because our core business model is designed to set a price for the risk of the end-customer. Even though we know the risk from our direct channels, there can be big differences in the risk when our products are tied together with other value propositions. This requires a new mindset and data access then we have been used to.
How do you find the best co-creation partner?
We look at whether there is a mutual understanding of each other’s value propositions. We need to be able to see several angles where we can complement one another. This also facilitates the understanding of processes and barriers, for example, special legislation or data management.
The team is important, especially when it comes to testing and scaling. If you cannot gather the right team with the right mindset for co-innovation, each party will be focused only on selling its own existing value proposition/solution. In this area, we also look at whether the company has a realistic growth strategy and can attract the right talent to handle scaling.
Cultural fit is also important. Diversity can illuminate many blind spots but understanding the “industry culture” can create a common language that may accelerate the process. It’s important to have a balance between diversity and understanding the way of working in the industry.
It is particularly important for a heavily regulated financial industry such as ours. Among other things, this is one of the reasons why Tryg has its own co-working space The Camp, because working side by side with startups and entrepreneurs creates a common understanding of each other’s differences.
Co-innovation is never a straightforward process and there must be capacity and understanding for this from the start. In addition, the appetite for scaling and investment can quickly tip the dynamics between two co-innovation companies. For example, it may have a serious impact on the legal agreements between parties or understanding performance and KPI’s. Both parties must find a balance where one finds value in the process itself and does not fall back on supplier and subcontractor relations.
Tryg Nordic Innovation
You can learn more about and get in touch with Nordic Innovation here: https://thecamp.io/contact/tryg-nordic-innovation/
Further reading
If you want to read more about Embedded Insurance:
Rainmaking: https://discover.rainmaking.io/hubfs/Embedded%20Insurance/Embedded%20Insurance-2.pdf
Penni.io: https://penni.io/embedded-insurance
Penni.io white paper: https://penni.io/whitepapers/embedded-insurance-index-part-2
Dealroom: https://dealroom.co/blog/embedded-insurance-ready-to-take-off
Dealroom insurtech overview: https://app.dealroom.co/lists/19590?_ga=2.67613333.527637607.1663850245-55464375.1661840841
