Blair Baldwin is the cofounder and CEO of Boundless Rider, an insurance startup focused on motorcycles, e-bikes and powersports vehicles.
It seems like everyone is talking about embedded insurance these days, and for good reason—there’s a lot of buzz around the market potential and business opportunities. In fact, a recent report by Conning predicted that embedded insurance could exceed $70 billion in premiums by 2030, with “major growth potential across the personal lines market and for standardized small business insurance coverage.”
Nearly all of us have encountered embedded insurance at some point in our shopping history. If you’ve had the option to add on travel insurance when booking a flight, or if you’ve seen an offer for event insurance when buying tickets to a concert or game, then you’ve seen embedded insurance at work. A more recent example is adding on renters insurance when signing a lease on a new apartment—it may be required by the landlord or municipality in order for the tenant to receive the keys, which means an immediate purchase is necessary.
All of these instances have a few things in common. First, they represent specific moments in time when customers need to buy insurance but don’t want to spend a lot of time and energy on research. Second, the policy being offered is relatively low-cost, so it isn’t as necessary to shop around for a better deal. Third, the transaction is low-friction and doesn’t require much additional information from the consumer. Lastly, the coverage tends to be standard, so there’s not much variation among providers.
On the surface, it might seem that embedded insurance wouldn’t work in situations where the price is high, there are a lot of choices and flexibility in the coverage, and the application is long and complex. It’s certainly true that these variables make it much more challenging to implement an embedded insurance product successfully; there are numerous factors for underwriting to consider, and therefore, it is more complicated to provide an immediate offer.
Despite the challenges, the opportunity for embedded insurance for “big ticket” items—like houses, cars and various types of motor vehicles—is massive if executed properly. Take, for example, cars, motorcycles and powersports vehicles, all of which are big purchases that come with complex (and costly) insurance requirements. Like renters insurance, car and motorcycle buyers are a captive audience that needs a real-time insurance purchase in order to take their vehicle off the lot. This means they are highly incentivized to complete the transaction with an embedded insurance provider. But unlike renters insurance, insurance for cars and motorcycles is fairly expensive, and the underwriting is complex.
In some cases, the manufacturer can supply data on both the vehicle and customer behavior in order to create a lower-friction application process and offer better rates than a third-party insurance carrier. Tesla and GM both offer their own insurance to car buyers and determine rates based on driving behavior. Both offer rewards for safe driving; in Tesla’s case, a driver’s safety score at the end of the month determines their next month’s premium. An embedded offering in such situations makes a lot of sense.
An embedded offering also makes sense when a transaction is primarily completed online. Dealers like Carvana have been successful with an embedded strategy, as they offer the opportunity for car buyers to purchase insurance with Root directly on the Carvana site. Since data can be obtained based on previously submitted information, the steps in the purchase journey are minimized, and the transaction can be completed quickly.
But what about a more traditional use case, such as buying a new or used vehicle from a dealership? To reach its full potential in a more typical, in-person setting, I believe that embedded insurance must accomplish three critical tasks.
1. Insurance providers must reduce as much friction as possible for the consumer by providing prefilled forms and minimizing choices that need to be made.
2. They must underwrite in real time; asynchronous processes won’t cut it for a car-buying situation that requires immediate results.
3. The insurance offering must be priced in a way that feels like a good buy to the consumer and doesn’t make them question whether they can find a better price elsewhere.
Once there is a solution that solves the in-person vehicle buyer, the opportunity is massive. An increasing number of consumers are signaling that they are ready to buy insurance at the point of sale, and providers are eager to implement solutions. While building out an embedded insurance experience is not easy, the results can outweigh any bumps in the road to get there.
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