The Status of Embedded Insurance - Part 1

Recently I was asked by a leader of one of the companies pioneering Embedded Insurance about the status of the market. "Are we at '2.0' today? What will '2.5' or '3.0' look like? When will it happen? What do we need to offer the market to drive faster demand? How do we create a winning position?"

My response was that we are still very much in the early stages of a market opportunity which has very significant potential but which is still very poorly understood, not only by non-insurance companies but also by insurance incumbents themselves.

On the one hand, commercial leaders at non-insurance brands (large and small, across all sectors and geographies) have very limited awareness and understanding about the possibilities and commercial benefits of incorporating new types of 'protection' components, products and solutions into their customer propositions.

On the other hand, the cautious nature of the incumbent insurance industry, with its traditional organisational structures, mindsets, skillsets and metrics, is holding it back from collaborating in new and productive ways with other industries to create new growth and value for all.

This is partly because the incumbent insurance industry is in a pretty defensive frame of mind at present, wrestling with macro-economic instability and the persistent poor productivity of its traditional business model. Trying to create new markets for new growth and value is not the top priority at the moment.

Yet a new growth market is already right here, in plain site.

It's called the 'Insurance Protection Gap' - the gap between what insurance cover consumers, businesses and society need and what they actually have. And it's getting bigger and bigger every day.

The economics department at Mapfre - a large Spanish insurer - publishes an annual assessment of 'Insurance Protection Gaps' around the world.

In 2021 they stood at $7 Trillion ($4.7 Tn for Life and $2.3 Tn for Non-Life insurance), growing at 5% per annum. 78% of this figure represents the situation in emerging markets, and 22% ($1.54 Trillion) in mature markets (including the 'advanced economies' of USA and Germany, for example).

It turns out that that $7 Trillion gap between supply and demand is, in fact, almost exactly the same as the size of total spend per annum on insurance worldwide today (which is also...$7 Trillion)!

So, we are spending $7 Trillion on insurance every year, but we should be spending $14 Trillion to be safer and more resilient in a world of increasing - and increasingly complex - risks.

Why is the incumbent insurance sector missing the potential to double its size?

Primarily because, under current business models, the task is perceived as 'too difficult' - too expensive to reach new customers, too hard to create affordable products that meet profitability criteria, too dangerous to underwrite new risks with limited historical data.

Embedded Insurance ('2.0') is one of the best ways of addressing this dilemma because it helps shorten the distance - close the gap - between supply and demand.

It's about collaborating in new ways with a myriad of third party organisations who have richer relationships and more frequent interactions with large numbers of people and businesses, to co-create personalised and affordable solutions to managing the risks inherent in everyday activities: generating an income, staying healthy, running a business, travelling, owning or renting a home, saving for the future.

Non-insurance brands, of all sizes, in all sectors and geographies, have the possibility today to offer new levels of 'peace of mind' to their customers related to the products or services they offer, and in so doing increase loyalty, generate new revenues and attract new customers.

Embedded Insurance 2.0 is different to traditional insurance affinity or partnership programmes in that its focus is not about trying to re-sell the existing insurance products that already do not address the world's protection gaps.

There are not many sectors in the world with gaps in the market worth $7 Trillion.

There is a golden opportunity for brands, insurers, entrepreneurs and investors alike to grasp this opportunity.

In my next article I'll propose 10 key elements of value that those enabling Embedded Insurance should focus on, to accelerate the progress of this market.

In the meantime, do take a look at my recent in-depth report on Embedded Insurance 2.0 Strategy, based on an Peer Group I ran recently with some of the biggest insurance groups in the world, and another I co-authored benchmarking 46 pioneers in the market.