2.0, 2.5, or 3.0? – Embedded Insurance Part 2
In our blog Embedded Insurance and its Importance: Part 1 we explained how context (or a change thereof) determines taking on insurance, and how making a complementary insurance cover conveniently available in the customer (digital) journey creates value for the parties involved – client, carrier, and distributor. We also saw that consumers are open to acquiring insurance products from trusted brands that embed them – making them readily available in their offers.
This new reality opens a huge potential for embedded insurance, which is estimated to increase in Europe, from $10,781.8 Million in 2022 to $28,525.5 Million by 2029.
While a debate is currently on as to whether embedded insurance is at its version 1.0, 2.0, 2.5 or 3.0 – see below – 2 things are sure:
1. Insurers need to reconsider their relationship with brands which they, until now, merely saw as distribution channels. Jointly they can create a proposition that is valued by the brand’s customers, that is profitable to all and that both want to push.
2. A substantial part of the potential of EI will come from new products created based on behavioural and real-time data collected in an increasingly integrated environment which requires modern systems and capabilities.
The peer group brought together by Simon Torrance – Founder and CEO of Embedded Finance & Super App – suggests that a new value stack that exploits digital technologies and data in new ways will render possible underwriting models that improve customer experiences, marketing effectiveness, risk selection, pricing and unit economics. New operating systems will appear that ingest an increasing volume of real-time data from the operations of brands, their customers, and other sources to optimize and match the right solution to the right customer at the right moment in the right place.
While examples of this new value stack are still rare to be found, the peer group points out that most of the innovation has come from a growing number of start-ups deploying a range of different business models. They go on to emphasize that the biggest winners will be those running the Operating Systems, as the latter are much less capital-intensive businesses than risk-carrying. Incumbents, therefore, need to skill up, develop, manage and grow such operating systems or risk being overtaken by insurtechs as they learn how to cover more sophisticated risks and offer adjacent services.
Brands with large customer bases that realize the benefits of proposing creative financial services in their product offering may ultimately look for a new breed of Operating System provider that can manage all their needs, beyond insurance, via one platform. This Operating System provider would then source a selection of financial services providers to integrate and have readily available on his platform, next to others ad hoc, to become a one-stop-shop.
Although the insurance industry traditionally works with data, it has been unable to integrate and work on an explosion of new datasets coming from new external sources. Collaboration with data-driven tech companies is necessary to skill up insurers and in turn improve the ability of the industry to innovate in collaboration with brands. The richer and more organized the information, the better protection gaps may be assessed, transferred and closed.
It is estimated that non-insurance brands may distribute up to $5 trillion GWP worldwide over the next decade. How much of it will be in collaboration with incumbents depends on the speed at which they skill up and adopt the necessary capabilities to, jointly with the brands consumers trust, create and distribute new products responding to real emerging needs.
As iptiQ – a technological insurer launched by the incumbent Swiss Re – says  : as every sector becomes tech-enabled, those insurers who learn to efficiently respond to the needs of brands and their customers will be best placed to generate new growth and value.
Embedded Insurance 2.0, 2.5, or 3.0?
Although we have not been talking of EI for so long, it has evolved from its original version (EI 1.0) which was an affinity-like program by which insurers partnered with other organisations or businesses to distribute products and services directly to groups of similar people, such as those in unions or fraternal organisations.
Not all refer to version 2.0 in the same form.
According to the peer group referenced above we are currently initiating EI 2.0 which is a new way of collaborating and innovating with third-party brands, of all types and sizes, to help them grow their businesses, create compelling new protection solutions for end customers and, ultimately, close protection gaps1.
Accenture argues though that version 2.0 started when consumers began to purchase more expensive items and seamlessly added on insurance while making a physical purchase – ex.: digitally purchasing motor insurance alongside a car at a dealer. We would then arrive at EI 2.5 when insurance started to be added online in complement of a web purchase – such as travel insurance when buying a flight on-line.
According to Accenture still, EI 3.0 is when insurance cover is designed and included in the background of a non-insurance product, where the consumer has no say in the choice of carrier, the level of protection or the cost – ex.: Volvo’s electric vehicle insurance in partnership with Allianz or Spot’s injury insurance being included in ski passes.
 In: Embedded insurance: a brief overview, 19 Aug 2022
 Composed of executives from Allianz, American Family, AXA, Ergo, Google, IAG, Liberty Mutual, Marsh, Munich Re, Swiss Re, and Travelers
 In: Europe Embedded Insurance Business and Investment Opportunities – Q1 2022 Update