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Last weekend was pretty relaxed to begin with. I was not expecting to have to deal with something from work – something such as embedded insurance. So what happened? After a long week, there were only a couple of things we absolutely had to get done on Saturday, which meant having a lie in was our top priority. A good start to the weekend includes enjoying a hearty breakfast and, more importantly, a good cup of coffee or two.

But once breakfast was ready, things suddenly went downhill. All that was left to do was put the coffee on the table. A look into the pot revealed that it had not brewed and the water was still in the top of the machine. Several attempts later, we still had not had any luck in persuading it to heat the water, meaning we had to accept that our coffee machine had stopped working after more than ten years of loyal service.

After we had come to terms with the situation, processed the shock and done some research on the Internet, we decided to go to the nearby electronics shop to buy a new coffee machine. At the end of the consultation, the saleswoman asked us whether we wanted to take out additional protection for our new appliance, which would cover damage even if we were the ones who caused it. This is a nice example of an ‘embedded insurance benefit’.

So what is embedded insurance?

The special thing about the embedded insurance service is that the buyer – in this case the buyer of the coffee machine – does not feel as if they are ‘taking out an insurance policy’ at any time during the purchase process. At the same time, it is also not clear which insurance company is involved and who would process the claim if one were to be made.

By embedding insurance in the sale of a product or service, it becomes part of a customer experience. At the same time, it provides added value for the company, which can thus offer a more attractive product combination. This creates an ecosystem of different products and services, which enable added value for the customer when combined. The transitions are fluid, meaning that the customer does not see that these are different partners who are providing the service together. This combination works both online, for example when buying a new smartphone and taking out mobile phone insurance, and offline, for example at the electronics shop around the corner.

What are the requirements for embedded insurance?

First of all, concluding an insurance benefit at the point of sale, that is, directly after a product or service has been sold, requires collecting all the relevant customer data needed to be able to offer a personalised insurance benefit. In the next step, this data needs to be transmitted to the insurance provider and processed as efficiently as possible – otherwise the customer experience will suffer. In technical terms, this data is exchanged using interfaces called APIs. Open and lightweight interfaces allow the insurance provider to offer their services through partners’ systems and thus extend the provider’s service. The insurance policy comes directly to the customer, not the other way round.

An opportunity or a challenge?

I have already outlined the opportunities that using embedded insurance opens up. It gives the insurance provider the opportunity to communicate with and support potential customers in a personalised manner in a specific life situation. Customers benefit from a specific offer tailored to what they need in that moment and save time researching and taking out an insurance product. This ensures a high level of convenience. At the same time, the insurance provider’s sales effort is comparatively low. These are usually simple insurance products for which little consultation is needed, meaning the provider does not need to approach customers through a broker.

However, the flexibility of these products is also a challenge. The insurance product must be aligned to the needs of the target group in an agile manner, in short iterations and, if necessary, also recalculated in a highly price-sensitive manner. Insurance providers must not only be aware of what the competition in their own market is offering, but also of the price pressure exerted by large shops and platforms. Furthermore, these products pose challenges to insurance providers’ IT systems. They need to provide interfaces, which also need to be integrated into their core systems. Many insurance companies are yet to deploy modern architectures to unlock this degree of flexibility.

The future of the insurance industry with embedded insurance

In the future, the insurance industry will have to continue to change and adapt to the ever-changing market conditions. To be successful, companies will need to reduce their costs and find more efficient ways to assess and manage their risks.

The industry has recognised embedded insurance as an opportunity to open up additional touchpoints with customers and to enable an end-to-end customer experience by building ecosystems. There are a number of options available. In addition to the online shopping examples I mentioned earlier, insurance providers are also tapping into other ecosystems, such as through selling supplementary dental insurance as an add-on to buying a new toothbrush or situation-driven insurance offers, for example, when using a car-sharing service. To ensure that data is exchanged quickly and securely, open insurance initiatives, such as the Free Insurance Data Initiative (FRIDA), aim to create standardised interfaces and thus create a direct connection between insurance providers, third-party providers and customers.

I am following this new development with excitement, which we at adesso have been able to support on various levels for years now. And I can now have delicious coffee again thanks to my brand new coffee machine.

Would you like to learn more about this topic? Then why not visit the websites below, where we provide information about what adesso has to offer when it comes to implementing ecosystems and standardised, open interfaces in the insurance industry:

You can find more exciting topics from the adesso world in our blog articles published so far.

Picture Stefan Rogge

Author Stefan Rogge

Stefan Rogge is responsible for the Business Development of the Line of Business Insurance at adesso. The combination of more than 15 years of project experience as an IT architect and a strong interest in technologies that sustainably drive the digitalisation of the insurance industry helps him to continuously develop the portfolio and open up new areas.

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