Embedded insurance involves abstracting the whole insurance value chain into digital form to enable any third-party product provider, in any sector, to seamlessly integrate insurance solutions into their customer propositions, either as complementary add-ons to their core offerings or as new, native components.
The Benefits For Consumers And Retailers
Every day retailers sell things to people – washing machines, jewellery, lounge suites, smartphones, travel packages, loans, funeral policies and more. For many of their purchases customers would like – or are required by law – to have some level of insurance, or an extended warranty. Yet their options until now have been drawn out and frustrating:
- Spending time filling out carbon copy forms with a salesperson in-store (as was the case with a major retailer, for whom we have since implemented Click2Sure’s SaaS); or
- Going home and painstakingly adding newly-purchased items to their existing insurance policy, via a busy call centre.
Now embedded insurance offers customers a faster, easier way of insuring their purchases. Meanwhile, retailers benefit in three ways:
Increased Customer Lifetime Value (LTV)
Embedded insurance overturns the decades-long traditional approach to insurance – buy now, insure later. By offering insurance up front at the point of sale, embedded insurance gives customers the cover they need in real-time, fast and effortlessly.
The outcome for the customer? They know the retailer understands their needs in terms of convenience of purchase, simplicity of product and peace of mind. The outcome for the retailer? First-time customers are likely to become repeat customers; existing customers will be more inclined to buy more from the retailer, and both groups are likely to increase their basket size during the online shopping journey. Research from PYMNTS suggests that 58% of consumers in the eCommerce space would be more likely to buy retail products, or spend more on them, if insurance was offered at the point of sale.
A new revenue stream
In further research, the higher the cost of a purchase, the more likely it is that consumers will opt for embedded insurance cover – consumers paying more than R15 000 for something are most likely to buy up-front insurance for it, with a 30% take-up. Retailers dealing in higher-ticket products like appliances; computers; jewellery; motorbikes and cars should take note. In the automobile space specifically, the take-up of insurance cover offered at the point of sale can rise as high as 85% (PYMNTS Retail Product Insurance Study, USA, 2020).
On the other hand, research suggests that putting embedded insurance on low-ticket items sold online, prompts increased buyer interest in those items – sometimes turning a possible purchase into an actual purchase.
So offering embedded insurance presents revenue opportunities at both the higher end of the market (high insurance take-up) and at the lower end (increased purchasing).
By far the most common type of insurance taken up at point of sale is the Extended Warranty; making this a logical focus area for retailers to begin with, in terms of embedded insurance offerings. In South Africa specifically, another significant opportunity lies in cover for funeral policies.
The premiums paid for embedded insurance cover mean that today’s retailers can start benefiting from a new revenue stream which, until now, flowed only to external third-party insurance providers.
Deeper insight into customers’ purchase behaviour
By switching on embedded insurance a retailer’s data becomes more integrated and rich across inventory, orders, sales and after-sales. This aggregation of “big data” enables the retailer to do various things: assess risk, predict future customer behaviour, or recommend relevant products and services to customers. This capability to offer more personalised engagement to customers can add further to customer loyalty, and ultimately the retailer’s revenue.
Are There Challenges To Implementation?
Embedded insurance is usually easier for online retailers to implement, because they are already digitally connected to their customers. However, with bricks and mortar retailers being prompted to become more digital due to changing customer preferences in the Covid-19 era, implementation is becoming easier for them, too. The main – but very surmountable challenges – of implementing embedded insurance are:
- Potential business disruption: Implementation is a little bit more complicated where a retailer is still using siloed and outdated “legacy” systems. While this means there is a degree of work to do internally, in terms of enabling holistic integration of the insurance product and uniting different departments on a shared platform, most of the work will lie with the technology partner, rather than the retailer. The solution can also be implemented in phases, meaning minimal disruption to the retailer’s day-to-day operations.
- Cost: Naturally there is a cost for implementation, but the return on investment soon becomes apparent in three ways. Firstly the embedded insurance is enabled through Software as a Service (SaaS), a subscription-based product incurring no up-front licence, so you don’t have to buy additional hardware to run the Cloud-based software. Secondly, all maintenance and updates are handled by the technology partner. Finally, once launched the embedded insurance becomes a perpetual driver to increase basket sales, and an ongoing revenue source thanks to insurance take-up.
A final point: for some retailers, the idea of embedded insurance is a very new one, and they may feel they need more time to mull it over. It’s human nature not to invest in something until you see lots of other companies doing so first, and successfully.
Yet being a bold early adopter is often the best way to leapfrog ahead of more timid competitors, when it comes to disruptive technology. Amazon, for example, has already invested significantly in the digital-only insurance space.
If you’re a forward-thinking retailer, this could be a great opportunity to outpace your competitors in 2021 and beyond. Get in touch with our team for more information: firstname.lastname@example.org.