How embedded insurance raised the technology stakes for insurers

Embedded insurance is helping to drive a rapid transformation in the insurance industry. It is revolutionizing the integration of insurance into everyday products and services.  

“The rise of the insurtech and access to data has allowed non-insurance brands to enter the market and offer insurance as part of their offering, adding value to their customers and generating new revenue,” explains Nikola Djokic, Managing Director of Insurance at SAP Fioneer. 

As a result, the insurers of the future will look dramatically different. Businesses will move increasingly faster towards embedding insurance products in non-insurance ecosystems. Evidently, leaders across the industry are leaning into the trend. 94% of insurers view embedded insurance as a critical part of their future strategy, supported by shifts in consumer preferences globally. According to our 2024 Insurance Buying Report, 18-34 year olds are 54% more likely than those over 35 to prefer buying embedded insurance over standalone insurance. 

Yuri Poletto, Founder of the Open and Embedded Insurance Observatory, highlighted in our recent webinar, “This shift entails the need for traditional B2B2C and affinity distribution to adapt and look to [partner] brands to distribute their products.”  

Embedded insurance has changed the industry’s value equation 

Embedded insurance isn’t just a change in the distribution model. It’s a shift in the way customers think about insurance generally and its role in their lives, providing more power, flexibility and control. Winning in the market requires considering consumers’ evolving needs, lifestyles and purchasing models of customers, while also leveraging new technology. 

Making this a reality will therefore require a technology-led approach combined with a strategic vision to: 

• Expand into potential markets: As insurance moves from a vertical product to a horizontal product, insurers need the ability to integrate products into external customer journeys.  
• Improve customer experience: With a broader range of target markets, insurers must adapt to consumer needs and anticipate how changing behaviors will create new product opportunities. 
• Integrate front and back-office: Delivering high-quality consumer experiences at scale requires rethinking back-office processes to match front-office demands. 
• De-risk transformation: The pace of change will pressure internal technology teams to reimagine core systems, potentially increasing development costs and transformation risk. 

Creating growth opportunities with digital transformation 

To address the priorities in an embedded insurance-driven landscape, insurers must focus on the following with an eye toward growth and innovation:  

1. Embedding into new business models  

Insurance now supports the value creation across any industry that can benefit from safeguarding and risk management. 

API-powered integration of insurance products opens the door to adding insurance to the customer journey across verticals. Examples include: 

• Smart homes: Insurance bundled with Internet of Things (IoT) devices, covering risks like theft and damage. 
• Automotive: Integrated vehicle insurance at purchase, personalized through telematics data to create products that evolve with use. 
• Healthcare: Insurance embedded in wearable devices and health apps, providing real-time coverage for medical expenses and wellness programs. 

These opportunities open up new markets where adding insurance becomes the default choice, not the exception. This requires a more dynamic approach to product development and customer engagement.   

2. Delivering personalization and customer experience at scale 

In a consumer-led market, ‘one-size-fits-all’ won’t cut it. There is an expanding range of potential use cases and markets in which to embed products. This means, therefore, that insurers need to make sure that their products can adapt. 

• While legacy insurance systems forced insurers into broad-brush underwriting strategies, AI and real-time actuarial calculations now enable instantly personalized policies. Consumers actively seek this tailored approach, with 94% of 18-34 year olds considering switching to providers using advanced data analytics for personalized policies. 
• Integrated systems also allow insurers to meet customers through various channels, from online platforms to mobile apps and traditional agents. In fact, 69% of consumers agree that the availability of a digital platform is crucial when choosing an insurance company.

3. Modernizing core systems 

Front-office development can deliver new revenue and retention potential. But there are also commercial opportunities in process optimization and incremental margin growth.  

Especially with increasing competition and tightening margins, new technology can play a major role in enhancing back-office performance and improving profitability through efficient, automated processes. This includes:

• Cloud-based core systems: Adding a layer of cloud connectivity to core systems can enhance scalability and flexibility, offering new channels, data and products without ripping and replacing legacy infrastructure.  
• Process automation: Scaling efficiently requires reducing manual processes to preserve margins. By using AI-powered tools for policy generation, risk assessment, customer service, and claims management, insurers can reduce per-customer overhead as they grow their portfolio. 

4. Investing in partnerships 

In the race to innovate, legacy systems are a major risk factor. Rebuilding core systems specifically is resource-intensive and risky. The nature of embedded insurance is that insurers can win through collaboration and partnership, both in their distribution through ecosystems and in their approach to technology. 

Working with technology partners such as SAP Fioneer enables insurers to monetize their existing data and systems by accessing flexible infrastructure to connect to new markets, add new capabilities, and scale their operations efficiently. 

Embrace the future with embedded insurance

The future of insurance hinges on its seamless integration into the consumer journey. By embedding insurance into everyday transactions and harnessing advanced technology, insurers can meet evolving customer expectations, tap into new revenue streams, and drive industry innovation.  

The stakes have never been higher, but the opportunities for growth and transformation are boundless.

Embedded insurance – insurance everywhere

Take a deep dive on embedded insurance and learn how to adapt and thrive in the new insurance world order. Watch our webinar on-demand.