In a nutshell
- Embedded insurance can be a key asset in solving strategic problems and driving revenue, but many companies make the same mistakes when it comes to execution.
- The first is thinking you can manage a global insurance program through a network of insurance factories (which is what most major insurance companies are in practice).
- The second is going directly through an insurer rather than working with an intermediary to source the best offer.
- The third is trying to build the tech yourself, or trusting traditional insurance companies when they say they have a full tech solution that’s just as good as the InsurTechs’.
No matter what business you’re in, you’re constantly grappling with questions surrounding growth.
- How can I generate more revenue?
- How can I build a unique value proposition for true market differentiation?
- How can I reduce customer acquisition costs?
- How can I increase customer retention?
- How can I drive customer behaviour to create more value?
- How can I better engage with my customers and build a closer relationship with them?
Tackling these challenges might look different from business to business, but there’s one solution that can address all of these questions – and that’s embedded insurance.
Whether you’re a neobank looking to encourage users to upgrade to paid plans and use their cards more – thus boosting transactions and reducing customer acquisition costs; a bike retailer looking to give your customers greater peace of mind – thus creating more brand loyalty and generating more revenue; or any other business in the mobility, gig, or ecommerce sector, embedded insurance offers a host of benefits for any business.
Embedded insurance can be a key asset in solving strategic problems and driving revenue, but the name of the game is in the execution.
And when it comes to implementing and optimising insurance infrastructure, most businesses make decisions that end up causing frustration, wasted energy and more cost than anticipated.
In my first column, I talked about the ‘emotional side’ of embedded insurance, but now we get down to the nitty gritty, i.e. how you can avoid the common mistakes many companies make when creating an embedded insurance program.
So here are 3 classic embedded insurance traps companies fall for.
Trap 1: I can solve a global need through a patchwork of local players (or one major insurer).
If you’re offering the same customer experience or product to users across Europe – such as a multi-country FinTech – then you must absolutely ensure that your insurance provider can offer the same experience for every single one of those users, no matter where they are.
If you decide to work with a different insurer in each country, you’ll no doubt get a different user experience in each one.
And even if you decide to go with one major insurer, in reality, most ‘global’ insurance companies are a federation of local entities. To serve 32 countries in the EEA and UK, they built 32 different insurance factories with different processes, different IT, different P&L and so on.
So either way, you’ll likely end up with:
- Different service levels in each country – as the operations are managed locally – leading to variable customer satisfaction that’s hard to control
- The total cost of managing the insurance program exploding because you’ll inevitably have to coordinate 32 different insurance factories, essentially recreating the complexity and fragmentation of the insurance market internally
- One local entity pushing back at some point by asking to change the price or product, which again prevents a unified insurance experience for you and your users
True story: one of our big partners was working with a global insurance brand that was organised locally. This partner was active in France, Germany, Belgium and the Netherlands. The contract was extremely profitable on a global level, but unfortunately the product resulted in a loss for the insurer in France. So the local French entity wanted to either discontinue the product or increase the price and reduce the benefits.
Both solutions were totally unacceptable for the business, which was looking at a global embedded insurance experience. In the end, they switched their entire program to us, which resulted in paying setup costs twice in one year – a massive loss of time, energy and money.
Trap 2: I don’t need an insurance intermediary, I’ll go directly to an insurer.
Going directly through an insurer might seem like the better (and cheaper) option for outsourcing an insurance program.
But one benefit of an insurance intermediary is that they know the market very well and are able to source offers from different risk carriers to find the best one. Plus, they often have more buying power if they do multiple deals with a particular insurer.
We often see clients reach out to several players (insurance intermediaries and insurers) to get the best offer. The problem with this approach is that pitting these players against each other means they won’t act in your best interest.
Rather than competing with one another to offer you the best deal, they’ll see it as having less of a chance to win your business and thus put in less effort. And since risk carriers tend to talk, they might be even more discouraged from over-investing in your account.
Worst case, they decide it’s not worth collaborating with you at all if their chance of working with you in the long run is too low.
If instead, you grant an exclusive mandate to an insurance intermediary, they’ll be fully equipped to fight for you and find the best offer.
Plus, once risk carriers know that you’ve given an insurance intermediary an exclusive mandate, they’ll be more incentivised to provide a great offer in order to be selected.
You might be tempted to check directly with the insurers themselves. But even with the same claims data or insurance risk, some insurance companies price up to 5x more than others.
Furthermore, insurance companies might change their strategy, risk appetite or pricing at any time. Not to mention that it’s hard to test the quality of customer service until the solution is already live – and by then, if the quality is poor, it might be too late to save your brand reputation.
At this stage, you’ll be forced to discontinue the program and switch to a different risk carrier, which is time consuming and extremely costly.
By partnering with an InsurTech, on the other hand, you could easily switch risk carriers every year without upending the other aspects of your program.
Of course, an insurance intermediary will take a commission or service fee. But if you factor in the amount you save in switching costs, plus the fact that you’re getting the best market price, it’s more cost-effective in the long run.
Pro tip: be sure to partner with a tech-oriented intermediary that insources customer care and claims. Because they’re more focused on customer service and automation than traditional players, you’ll benefit from higher customer satisfaction and lower operating costs.
And speaking of tech…
Trap 3: I don’t need a tech orchestrator, I’m already a tech company (plus the insurer told me they have a full tech solution).
You might be a tech company, but let me ask you this: when you need a video conferencing system, do you build it yourself or use Google Meet, Zoom or Microsoft Teams? When you need an IT infrastructure, do you invest in your own or do you use a cloud solution?
Then why would it be any different when it comes to insurance?
Insurance is complex.
I’ll defer to what Warren Buffet said about building your own insurance solution: ‘Various companies have tried it. I would say that the success … of the auto companies getting into the insurance business is probably about as likely as the success of the insurance companies getting into the auto business.’
I would change ‘auto business’ to ‘any business’. Whether you’re a new mobility player, FinTech, marketplace or any other tech player, I invite you to try building the tech yourself (and we’ll talk again in a couple of years).
Of course a lot of legacy players will tell you that their own internal tech solution is just as good as what InsurTechs have. And maybe they’re right. But before signing with them, ask them the following questions (or what I call ‘the acid test’):
- Could you connect your claims notification platform to our internal Slack channel so that our team can follow what’s happening? What about a dedicated channel to communicate with your team about integration and servicing?
- Could we meet through Google Meet?
- Can you show me a claims dashboard with real-time data? It’s important for us to understand how much value we create for our customers and whether the insurance premium we paid is the right one.
If they answer ‘no’ to any of the above, they might not be the tech player they say they are – and certainly not the one you need.
Bonus trap: The cheapest insurance price might not actually be the cheapest
Insurance is one of the few products that sells at a given price without knowing the true cost; it’s all based on statistical assumptions and sophisticated calculus.
The insurer won’t have a good enough understanding of your business to give you the right price until several years down the line. Once they have that historical data, insurance becomes a commodity, and most insurers end up asking the same price.
That’s why you shouldn’t focus on how much it costs – you’ll always end up paying the right price in the end.
After all, insurance is a long-term partnership.
You don't beat an insurance company by paying less than what you should have paid. It’s about finding the right claims ratio and paying the right amount accordingly, a year-over-year balance of optimisation and prevention.
If you bounce from risk carrier to risk carrier looking for the cheapest price, then eventually insurers will recognise this as opportunistic and decline to work with you.
More importantly: make sure you’re creating value for your customers through a best-in-class customer experience, quality cover and tech.
An insurer might try to reel you in only to increase the price later on to recover their losses or make higher margins. At that point, you might be stuck paying them to deliver poor service because the cost and complexity of switching are too high.
That’s why, at Qover, we developed a unique pricing approach to guarantee the right price and make sure that the money you pay goes towards value creation for your customers instead of fuelling insanely high margins for insurers.
The best way forward? Embedded insurance orchestration
While many legacy insurers provide embedded insurance for traditional businesses – embedded insurance isn’t new, after all – they’re not prepared to do so for those that are digital-first, global and tech-oriented.
Insurance regulations are inherently local, and legacy insurance companies follow suit by being locally organised with no cloud or centralised capabilities, and often have a bad rap when it comes to customer experience.
All of this calls for an entirely new way to access insurance: embedded insurance orchestration.
This unique, modular platform allows companies to launch and maintain insurance programs – or integrate and overlay existing infrastructure for the best customer experience.
Whether you need a full-stack solution or only a few insurance components – we can help. Get in touch with our team to learn more.