Embedded Distribution: The Insurance Strategy That’s Helping to Differentiate Businesses
Every PIMA event produces a wealth of insights. At the 2023 Winter Insights Conference, keynote speaker Adrian Jones addressed the burgeoning topic of embedded insurance and its distribution. Jones, a partner at HSCM Ventures, the venture capital investment arm of Hudson Structured Capital Management, expressed excitement at the embedded insurance trends he’s seeing, as well as at the ways noninsurance entities around the world are embracing embedded distribution.
Why Embedded Insurance Is Having Its Moment in the Spotlight
One of the first items that Jones pointed out upon taking the stage was that embedded insurance distribution isn’t new. For years, companies have been dabbling with ways to embed insurance into their products. However, what’s different today is the innovative methods that startups and existing enterprises are using to leverage embedded insurance.
As we’ve written about before, embedded insurance can fall under three distinct categories.
The first is self-embedded insurance. In this model, customers must opt in to access the insurance being offered. If they don’t opt in, they don’t get the insurance. This is in direct contrast to the second type, hard-embedded insurance, which assumes the customer is opting in unless the customer physically opts out. The third type of embedded insurance is invisible in nature. That is, it’s part of the transaction and can’t be opted into or out of.
All three types of embedded insurance have the power to add real and perceived value to the business-buyer relationship. From the business’s end, it’s yet another touchpoint and product to build both loyalty and profitability. From the customer’s end, it’s a more streamlined method to get extra protection after an investment purchase.
Although embedded insurance has been most notable in personal lines products (such as auto, home, accident, and health) and inland marine products (such as pet and travel insurance), speakers, including Jones and others, reflected on many diverse use cases of embedded insurance distribution. Here are some of the use cases that emerged during the conference:
Use Case #1: Parsyl and Lineage Logistics
Parsyl is an insurer of perishable cargo, such as medicines and food. In January 2023, Parsyl announced a special relationship with Lineage Logistics. Lineage Logistics isn’t just the largest cold chain warehousing company in the nation. It also sits on a wealth of data about the flow of goods in and out of its warehouses.
According to the announcement, the partnership with Parsyl allows Lineage Logistics to embed insurance in all its customer contracts. Essentially, any client of Lineage’s can now be covered by Parsyl. The exchange has the potential to be seamless for the customer and might also help them save money on their insurance costs. How? Lineage is allowing Parsyl to access its data to tailor coverage to the risk.
The Lineage-Parsyl embedded insurance program is an example of an opt-in model designed to empower customers and feed both companies.
Use Case #2: Procore
A different example of embedded insurance distribution is that of Procore. Procore’s main business is construction management software and solutions, but it has now expanded its services to sell insurance as a brokerage.
Like Lineage, Procore has access to huge data pools. According to product demos on Procore’s website, its software tracks dozens of measures related to construction projects, how they work, who is on-site, injury reports, etc. By using Procore’s in-house data, it can broker construction insurance products and packages for users, leveraging data that other brokers might not have easy access to. Again, this is an opt-in style of embedded insurance for Procore clients.
Use Case #3: Ali Health
In China, medical supplier Ali Health now offers a liver-focused major medical protection insurance product called “Love Liver Insurance” in partnership with ZhongAn Online P&C Insurance Co., an insurtech firm. The coverage includes hospitalization allowances, medication, liver function tests, liver screenings, and consultations with doctors.
Consumers purchasing specific medical products might want to augment their healthcare insurance with more specialty products. The company, using its first-party information, can target customers most likely to need this innovative insurance product that’s outside of the norm — at least for now.
Use Case #4: ADP
ADP is a well-known payroll services provider. What many people don’t know is that it’s also one of the biggest distributors of small business insurance. According to its website, ADP has sold insurance for many years alongside its payroll services in a pay-as-you-go format. This is particularly relevant for coverage such as workers’ compensation, which is paid monthly by employers based on their payrolls (i.e., what type of workers they have and how much the workers are paid).
The winning recipe for the payroll provider is that, like the other companies mentioned, it harnesses actual data to inform premium rates and creates a simplified buying and audit experience.
Use Case #5: Carvana
Buying a vehicle and buying insurance can go hand in hand — car insurance is required to buy a car, after all. Carvana, which was founded just a little over a decade ago, offers a policy from insurtech company Root.
Carvana says that its goal is to take away all the friction points from the standard car-buying process. Its embedded insurance distribution is natively digital. Users can add insurance during checkout with just a few questions. Any future adjustments can be made through the Carvana app.
As with the other examples, Carvana has access to customers and the information needed to underwrite them. Because buyers need insurance to get a car, this product offering can solve a problem for customers who don’t already have it. Carvana, of course, knows what car is being purchased but might know other underwriting information, such as the customer’s credit profile and garaging address.
The basic framework of embedded insurance might not be changing substantially. Nevertheless, the way it’s being positioned and powered up by innovative, competitive companies is something to keep an eye on in the future.
Want to stay on the leading edge of industry trends? Attend a PIMA conference and learn from industry thought leaders like Adrian Jones.
Published on May, 22, 2023.
PIMA® (Professional Insurance Marketing Association®) is a member-driven trade association focused exclusively on the affinity market.
This article has been written by the PIMA staff, who is solely responsible for its content, as a summary of presentations at the PIMA Winter Insights conference. Adrian Jones’s remarks are subject to the disclaimers contained on page two of his presentation, available here. The examples in the article are intended to illustrate embedded insurance concepts and are not a recommendation for any particular product or service.
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