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Would you like pet insurance with your juvenile ball python, Ma’am?

Until relatively recently, that kind of additional purchase came only after settling the scaly friend safely in its new terrarium at home. But with the growth of e-commerce, insurance decisions at the point of sale are becoming the norm, making this type of question at your local pet store an imminent reality.

Today’s consumers, and particularly younger ones, are looking for seamless digital experiences that offer add-on goods and services—including what is known as embedded insurance—with the main transaction. Encouragingly, they increasingly see insurance as part of the purchase and appreciate the convenience and more personalized coverage that embedded insurance offers.

Evolving technology and consumer expectations

Technology has helped continue to shape these changing preferences. Digital platforms and APIs can integrate insurance into purchases across multiple industries, while advanced data analytics and AI allow for real-time risk assessment and personalized offerings, creating more relevant and frictionless customer experiences. At the point of purchase – the exact moment when customers are most receptive to considering protection – insurance providers are now able to make instant underwriting decisions. What’s more, integration costs and complexity have fallen dramatically, making embedded insurance economically viable for a broader range of partners and use cases.

The model is a significant shift from the e-commerce joint ventures and partnerships insurers previously forged. These often provided a less-than-satisfactory customer experience and involved re-direction to separate sites. Embedded insurance does it all in one user experience. While the mainstays are travel insurance, mobile phone coverage and appliance warranties, embedded insurance is now expanding across personal lines to segments including on-demand gig-economy-type policies, health, and employee benefits. Certain types of non-complex commercial insurance are also in scope.

Ernst & Young predicts embedded insurance transactions could account for 30% of the total by 2028, while Deloitte recently cited expectations for embedded gross written premiums to reach $700 billion globally by 2030.

Threat or opportunity?

Previously, much of the discussion around embedded insurance has focused on the potential for insurers and brokers to be pushed out of the picture—being cut out of the transactions. Their main challengers are auto manufacturers and technology companies. In the former segment, with the growth of software-rich autonomous and electric vehicles, insurance coverage provided by manufacturers as standard is the biggest threat. In the tech sector, cyber coverage, for example, often accompanies cloud computing services. The medical devices and pharma sectors are other areas vulnerable to manufacturer encroachment.

However, today, these insurgents are neither underwriters nor knowledgeable intermediaries, and in reality, the growth of embedded coverage represents a tremendous opportunity for insurance experts.

For carriers, the embedded model typically delivers higher conversion rates because insurance is offered when the buying decision is imminent, and the convenience is difficult to resist.

The new distribution channels available give insurers access to untapped customers at lower acquisition costs, which is particularly helpful when expanding into niche lines. At the same time, they benefit from contextual data that improves underwriting precision. Embedded insurance can also facilitate better loss ratio management by leveraging data gathered from sensors.

Brokers enjoy similar customer access benefits, at a lower cost. Embedded distribution also positions forward-thinking intermediaries as technology-enabled advisers, just when customers need them most.

The channels provide brokers invaluable data insights into customer behavior and preferences, enabling a more personalized service and timely interventions. Sophisticated brokers are using this intelligence to develop predictive models that anticipate client needs.

Additionally, embedded distribution channels allow brokers to expand their revenue streams beyond their current sales approach, creating a more stable and predictable income. As customer acquisition costs continue to rise in traditional channels, the embedded approach could potentially represent a financially sustainable growth strategy that aligns broker economics with evolving consumer expectations.

The obstacle is the way

There are several obstacles preventing brokers and insurers from seizing the embedded insurance growth opportunity, however.

These include organizational resistance to business model innovation, legacy platforms and compensation structures, and difficulty quantifying the return on investment of embedded initiatives. Additionally, product inflexibility, slow underwriting approval processes, and a technology talent deficit can impede successful implementation.

Regulatory responsibilities and compliance need to be front and center for insurance professionals looking to expand in embedded models to pre-empt concerns about pricing and transparency. The relevance of the product also needs to be clearly communicated to consumers. Particular attention should be paid to the post-purchase experience to ensure that consumers understand what they’ve bought and who to contact to amend the policy or make a claim.

The path forward

For insurers and brokers looking to unlock the growth potential of the embedded model, strategic partnerships with technology platforms, fintech companies, and industry-specific software providers that own customer relationships are essential. They should also cultivate relationships with API providers and insurtech enablers that can facilitate technical integration in a manner that meets their business objectives.

With the assistance of vendors, insurers will need to create API-first products, with real-time rating and modular coverage options that can be easily integrated into a customer journey. Real-time rating from a carrier is particularly vital for embedded insurance, digital distribution channels, and direct-to-consumer models, where consumers expect immediate responses.

On the broker side, intermediaries will develop the partnership strategy and compliance framework, with technology vendors handling real-time data exchange and quoting with minimal friction for the end consumer.

Today’s sophisticated tech providers may offer carriers rating, forms, and issuance API builds, as well as quoting APIs for brokers that can be embedded into the customer journey.

For successful implementation, balance sheet insurers and intermediaries alike need to be forward thinking and stay up on current trends. Modern data infrastructure and enhanced user experience design will be critical.

Of course, embedded insurance won’t supplant all traditionally underwritten products. This distribution model is unlikely to touch highly complex commercial lines requiring extensive underwriting. Nor is it appropriate for lines with significant regulatory oversight, such as workers’ compensation.

However, for other segments, the days when insurance buying entailed hours of research for customers and high acquisition costs for providers are over. The future of our industry lies in innovation, connectedness, and customer convenience.

Whether for exotic pet owners, Uber drivers seeking on-demand liability coverage, renters on real estate sites, or employees choosing benefits from HR platforms, embedded insurance is becoming an increasingly attractive option. The advantages for brokers and insurers are also clear. So too, are the risks of being left behind if our industry doesn’t adapt to market demands.