The future of banking and Fintech: embedded insurance as a game-changer
In the ever-evolving world of fintech and banking, there's a new trend that's not just knocking on the door but causing a significant disruption: embedded Insurance.
What does embedded insurance look like in practice? Imagine booking a flight and being presented with a travel insurance option that's tailored to your journey. Or, envision purchasing a new laptop and instantly receiving an offer for gadget protection insurance. Embedded insurance is all about offering the right protection at the right time, simplifying the decision-making process for consumers.
Embedded insurance provides a seamless experience for the end-user, often making the purchase of insurance more contextually relevant. As customer expectations evolve, insurance providers are finding innovative ways to offer their products seamlessly, enhancing the overall user experience.
Embedded insurance in the customer journey
Let's explore the three distinct methods in which insurance is incorporated into the broader customer journey:
Insurance Offer Integrated as Part of Added Service Value (66% of global offerings)
- This approach ensures that insurance is automatically included as an inherent part of a product or service. It offers customers peace of mind without requiring an explicit decision to opt-in. It's about embedding protection directly within the service itself, thereby enhancing the overall value proposition.
- Example: Many premium credit cards include travel insurance as an added service. The cardholder doesn't have to purchase this insurance separately; it comes integrated as part of the card's benefits.
Insurance Offered Voluntarily at the Point of Sale (54% of global offerings)
- Here, insurance is presented as an optional add-on at the moment a customer makes a purchase. While it's not automatically included, it is positioned contextually, offering the customer a choice to protect their purchase or investment.
- Example: When purchasing an airline ticket online, a pop-up might appear offering travel insurance against flight cancellation, loss of baggage, etc. The customer can choose to add this to their purchase or decline.
Insurance as a Complementary Add-On to Other Offerings (48% of global offerings)
- This approach is about leveraging existing customer relationships to offer complementary insurance products. It's a way to enhance the existing product portfolio and provide customers with holistic solutions, but the insurance isn't necessarily directly linked to the primary product or service.
- Example: A bank might offer home insurance at a discounted rate to its mortgage customers. While the insurance is complementary to the mortgage service, it's not directly tied to the home loan's purchase process.
The integration of insurance directly within financial products or purchase journeys is redefining how consumers interact with financial services.
- A significant 81% of financial executives believe that embedded insurance will soon transition from a "nice-to-have" to an essential offering.
- 74% of executives from banks and fintechs see embedded insurance as a trust-building tool with their customers.
- This is unsurprising given that a majority of consumers (56%) express a willingness to purchase more insurance, particularly if it's conveniently embedded within their routine financial transactions.
Benefits of embedded insurance
Embedded insurance provides a wide range of benefits, including improved user experience, greater transparency, reduced time-to-market, and better decision-making. Financial institutions that already introduced embedded insurance into their offerings are reaping significant benefits:
- Helps build trust with customers (74%): Embedded insurance instills confidence from your customers by offering them protection and peace of mind. By providing a comprehensive insurance solution that aligns with their needs, you demonstrate your commitment to their well-being and establish trust in your brand.
- Improves customer satisfaction (65%): When customers have access to embedded insurance, they feel supported and reassured. This leads to higher customer satisfaction as they perceive your product or service as more reliable and dependable. Satisfied customers are more likely to become loyal advocates for your brand.
- Helps attract new customers (61%): Offering embedded insurance can be a unique selling point that sets you apart from your competitors. It demonstrates your commitment to customer protection and positions your business as a trustworthy choice. This can attract new customers who prioritize security and value-added services.
- Leads to new revenue streams (49%): Embedded insurance opens up opportunities for additional revenue streams. By offering insurance as part of your product or service, you can generate revenue through policy premiums or commissions. This diversification can contribute to the overall growth and financial stability of your business.
- Helps retain current customers (41%): Embedded insurance can be an effective tool for customer retention. By addressing their insurance needs within your product or service, you provide added convenience and value. This reduces the likelihood of customers seeking alternative insurance solutions elsewhere and strengthens their loyalty to your brand.
Insurance offers are diverse, ranging from standalone products to value-added services like purchase protection on credit cards. This focus on integrated insurance as an added value service (endorsed by 66% of global survey respondents) is why many financial executives rank customer trust above direct revenue generation as the top benefit of embedded insurance.
Revenues and growth
The financial implications are clear. In just three years, more than half of the financial organizations aim to source 10% or more of their revenues from insurance. This contrasts with the mere fifth that derive revenue from insurance today.
To shed more light on the growth potential of embedded insurance, here's a regional breakdown of current revenues from embedded insurance and projections for the next three years:
- Latin America: Aim to generate 80% of revenue from embedded insurance
- Europe: Aim to generate 42% of revenue from embedded insurance
- North America: Aim to generate 31% of revenue from embedded insurance
Factors driving the growth
Several factors contribute to the projected growth of embedded insurance:
- Consumer Demand: Customers are increasingly seeking convenient and comprehensive insurance options integrated into the services they already use, leading to higher adoption rates.
- Digital Transformation: The shift towards digital services and platforms has created opportunities for businesses to seamlessly integrate insurance solutions, enhancing customer experience and loyalty.
- Partnerships and Collaborations: Businesses are forming strategic partnerships with insurance providers to offer tailored insurance products, leading to increased revenue streams and customer satisfaction.
The bottom line
As the lines between banking, fintech, and insurance continue to blur, embedded insurance stands out as a significant trend that's reshaping consumer experiences. It not only promises convenience but also fosters trust and opens up new revenue channels for financial institutions.
As financial organizations, both established and emerging, race to meet evolving customer needs, one thing is clear: embedded insurance isn't just the future – it's the present. This transformation doesn't just stop at enrollment but extends to claims and beyond.
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