Embedded Trends and Insurtech

Embedded Trends

Let's continue our less scientific but more informative blog post. Two weeks ago we launched our first attempt which was a short introduction to the Insurtech world, I wrote about what Insurtech is all about and a short insight into the technological trends with AI.

If you haven't read yet or just can't find it and want to read it again you can do so here: Insurtech 101

In today's post, I try to gather and share as much useful information and insights as possible on the use of embedded solutions. Okay, this was not completely voluntary, as you could vote for the next topic and you thought it was worth talking more about the embedded solutions in the insurance industry.

I think it's also worth starting from the basics and not just talking about the solutions available in the insurance market. If only because just as AI, in general, is one of the hottest topics, embedded solutions in the financial world are similarly game changers.

Embedded Finance

Let's look at that definition: Embedded Finance allows you to make purchases or use financial services online without having to enter your bank details.

Embedded Finance aims to simplify the financial process for consumers, making it easier for them to access the services they need. This can greatly increase customer satisfaction and experience. Simply put, embedded finance is using financial tools or services, such as lending or payment processing, by a non-financial service provider.

For example, with Embedded Finance, they can buy and get credit in one place, or an online shop can offer insurance as a service for goods sold in the shop.

Some of the best-known examples of Embedded Finance include Stripe, Klarna, and Afterpay.

By the way, the idea of providing financial services to customers in the sales process where it is most useful to them is not new. Just think how long it takes to tick off the box to get insurance for a car rental, or how many times we have gone to the customer service point to ask for extra guarantees on electrical goods we have bought.

What is new is rather the use of the online and digital world, which offers better personalization and a wider range of financial services.


What is needed for Embedded Solutions?

The basic setup, in my opinion, is that there are 4 stakeholders in this story.

  1. A customer who wants to buy a product or service online.
  2. A platform where they can do that.
  3. A service provider who can provide financial services in an integrated way.
  4. The legislator and regulator in the area who regulates financial services.

In fact, for Embedded Finance solutions to work well, these 4 players need to be in sync. Now that's a lot of risk with a lot of hiccups.

Relevant

Such a solution cannot be successful if we are talking about a financial product that is completely irrelevant to the customer on the given platform, I would definitely feel weird if I received a pension fund offer while buying a Guns N' Roses concert ticket.

Simple

The embedded offer should be easily accessible. A life insurance policy, for example, still requires a relatively large amount of information; I almost certainly wouldn't start filling in the form while buying a fitness pass ticket online. And I'm sure the platform operators would be pissed off if we asked them to redirect the customer to another process during the purchase.

Reliable

Of course, trustworthiness is guaranteed by regulators, and in the case of financial services, they are quite strict, understandably. However, the customer is usually also interested in the reliability of the financial service provider, which requires transparency and the provision of all necessary information. Much research has shown that customers are more likely to use integrated financial services if they are provided by a large financial institution.


If these conditions are met, it can be a real win-win situation. Online platforms can generate extra revenue from the sale of financial services, financial service providers can use a new channel to reach more and more relevant customers, and they can save on marketing activities and use this to improve product pricing, which in turn will result in more relevant and easily accessible financial products at lower prices for the end-users.

customer provider, insurtech, insurance, technology, data, better price, new revenue, more customer oriented

Technology

The popularity of Embedded Financial Solutions could explode because the technology finally supports them to work well in the digital space.

Here are a few technology buzzwords I must mention, these are the terms that come up most often when talking about Embedded Solutions:

Data

Data, data, data. I don't want to shoot the cliché that data is the new oil. Anyway, I prefer crude oil in this case, because it's not worth much without processing.

Big Data plays an important role in embedded financial solutions, as the huge amount of online and offline data available can be used to create more personalized offers and of course, machine learning is needed to do this, to name just another buzzword.

However, I think Big Data and Machine Learning deserve an article, so I will not go into this in-depth but rather highlight the importance of basic digital data in embedded financial solutions. Because, as I said earlier, one of the pillars of this solution is that it has to be simple and seamless. The offer data should be loaded into the sales process where it is most relevant to the customer, and the customer data should be processed so that this offer is immediately created and displayed to them. This requires continuous data communication between the interfaces and the financial service providers, which is how we get to the API.

API

APIs, which stands for Application Programming Interface. This technology actually helps systems and applications connect and communicate easily and simply.

API is nothing more than messenger itself, in most of the videos on Youtube, the technology is compared to a waiter who takes our order from the menu and delivers it to the kitchen, then serves us the finished meal. It helps you to get your requests to the right place and get them answered. The simplest real-life example of this is at aggregator sites.

Think for example of airline ticket comparison and booking sites. On these platforms, once you fill in the search criteria, the interface automatically communicates with the airline databases and loads the relevant offers for you. There is an API connection between the interface and the airline's database, and requests and responses travel between the two systems.

So in summary, API helps us to connect and exchange data between systems and devices in the digital space.


But for whom and why? First of all, it makes development easier, the Interfaces and platforms don't need to store so much data on their own systems, and these solutions don't need to run locally on their own servers, so the challenge is really just connecting two systems. So embedding and connecting financial services with API endpoints to interfaces is cost and time efficient.


Embedded Insurance Solutions

Okay, I think that probably explains how Embedded Finance Solutions can be applied and what the benefits are, and now let's move on to how the insurance market can take advantage of this opportunity.

Embedded Insurance provides cover linked to the product or service at the point of sale. This function is normally performed by agents in Traditional Insurance.

Embedding Insurance in the purchase cycle benefits sellers, buyers, and insurers by providing better coverage, lower prices, and higher profits.

Let's look at some examples of implementation:

  • The issue of travel insurance: In this case, we are talking about a form of insurance that is mostly occasional, which makes it very relevant to look for these occasions and at this point offer the customer self-care. For example, booking a trip abroad where travel insurance is already included in the total price or a flight ticket which may include cover for flight disruption and lost luggage.
  • Ordering an e-scooter online: In addition to the extra guarantee, the price includes insurance that if it is stolen or I have an accident in the next 1 year, it will be covered by an Insurer.
  • Bankassurance: Where you can get insurance offers based on your finances. Think about how our finances change over the course of our lives, but our life insurance may not track those changes. Giving access to our finances can lead to customizable, dynamically changing insurance and savings.
  • Car insurance: Which is spreading quite well, Tesla is already actively offering insurance for its cars.


TESLA | CAR INSURANCE


These examples show how obvious it is to link these insurances to the product and services, rather than redirecting the customer to a new insurance process that makes them lose interest. In addition, thanks to the embedded insurance, customers can get a much more personalized offer and can even complete the entire purchase process in one payment.


I hope I have succeeded in raising interest in the services of Embedded Insurance. If I were you, I would definitely see the Insurtech market as cooler after all this :)

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Ádám Ferenczi