Embedded insurance is here. Is the industry ready?
EY’s David Connolly on the window of opportunity provided by embedded insurance.
Embedded insurance represents both a significant growth opportunity and possibly the greatest competitive threat that carriers will see in a generation, and that’s true for every line of business.
The embedded revolution is well underway for vehicle and commercial property insurance, with significant EY involvement in several initiatives led by non-insurers, what we call ‘insurgents’. Many more products, including those related to pricing climate risk, will soon shift to embedded models. EY research has found that embedded channels will capture nearly one-third of all insurance transactions by 2028.
Traditional insurers, or ‘incumbents’, can still capitalise on embedded opportunities. But they must act urgently to make the necessary operational and technological changes.
Those that do will be able to launch innovative products at speed, create new revenue streams and lower customer acquisition costs. They will learn to compete with insurgents that have distinct advantages, including strong brands, ample capital, closer proximity to customers and data, and the ability to move faster than incumbents.
Naysayer carriers that believe insurgents will fail because “the insurance business is really hard” will have an unpleasant awakening as they watch their books of business shrink.
Data-driven insurance for connected vehicles: Recognising what’s possible with loyal customers, advanced tech and data from connected vehicles, many auto manufacturers are building out their own insurance operations. The goal is to embed protection within tailored experiences that include payments, maintenance and other services. With new data sources, these manufacturers can offer protection pricing based on real-time, in-vehicle assessment of driver readiness, along with turn-by-turn directions that reduce accident risk and on-demand coaching to improve driver performance.
Data-driven insurance for commercial property: Today, insurance pricing for large commercial renters and building owners is based on building and location, business type, number of occupants and claim history. But widely available additional data from sensors and facility systems (e.g., heat, smoke, fire suppression, humidity, water pressure, security badge systems, weather stations, wind speed monitors) enables property managers to bundle insurance with lease agreements. And it won’t stop there; large real estate firms have more than enough data to offer workers’ compensation, general liability and business coverage.
What can incumbents do to retain – or even grow – market share in the embedded era? Core technologies must be modernised and new platforms adopted to get new products and capabilities to market faster. The EY Nexus platform, with 95 customers today, is helping companies innovate at increased scale and pace, with pre-built components and advanced application programming interfaces for partner integration and streamlined development processes.
Collaboration, design thinking, rapid prototyping and agile ways of working will be hallmarks of embedded insurance leaders. Expertise must be engaged to handle the myriad new data sources and convert them to data-driven insurance pricing. Business partnership strategies must recognise embedded insurance as more than another distribution channel. Ultimately, incumbents must prove they are a better alternative to insurgents going their own way.
In the end, customers will win, with more accurate, transparent and individualised insurance pricing for the assets they value. It is not too late for incumbents to pivot and win in the embedded era. But the window for change will not be open for much longer.
David Connolly is EY Global Nexus Leader