No matter what business you’re in, you’re constantly grappling with questions surrounding growth: how can I generate more revenue? How can I drive customer behaviour to create more value? How can I better engage with my customers and build a closer relationship with them?
The list goes on and on. Tackling these challenges might look different from business to business, but there’s one solution that can address them all, and that’s embedded insurance.
Whether you’re a bank looking to enhance the user experience and encourage customer to upgrade to paid plans ora car manufacturer looking to become a one-stop-shop for your drivers, embedded insurance offers a host of benefits for any business.
But while it can be a key asset in solving strategic problems and driving revenue, the name of the game is in the execution. And when it comes to implementing or upgrading an embedded insurance program,many businesses make decisionsthat end up causing frustration, wasting energy and costing more than anticipated.
Here are 3 classic traps companies fall for when establishing an embedded insurance program.
Trap 1:I can solve a global need through a patchwork of local players (or one major insurer).
If you’re offering the same customer experience or product to users across Europe, then you need to ensure that your insurance provider can offer the same experience for every single one of those users no matter where they are.
If you decide to work with a different insurer in each country, you’ll get a different user experience in each one.
And even if you decide to go with one major insurer,in reality, most ‘global’ insurance companies are a federation of local entities.To serve 32 countries in the EEA and UK, they've built 32 different insurance factories with different processes, different IT infrastructure, different P&L and so on.
So either way, you’ll likely end up with:
- Different service levels in each country – as the operations are managed locally – leading to variable customer satisfaction that’s hard to control
- The total cost of managing the insurance program exploding because you’ll have to coordinate 32 different insurance factories, essentially recreating the complexity and fragmentation of the insurance market internally
- One local entity pushing back at some point by asking to change the price or product, which prevents a unified insurance experience for you and your users
Many companies that choose to work with a large insurer in this way end up switching to an insurtech for one of these reasons, resulting in twice the setup costs and a massive loss of time and energy.
Trap 2:I don’t need an insurtech, I’ll go directly to an insurer.
Going directly through an insurer might seem like the better (and cheaper) option foroutsourcing an insurance program.
Butone benefit of an insurtech that doesn't carry the risk is that they know the market very well and are able to source offers from different risk carriers to find the best one. Plus, they often have more buying power if they do multiple deals with a particular insurer.
We often see clients reach out to several players (insurtechs and insurers) to get the best offer. The problem with this approach is that pitting these players against each other means they won’t act in your best interest.
Rather than competing with one another to offer you the best deal, they’ll see it as having less of a chance to win your business and thus put in less effort. And since risk carriers tend to talk, they might be even more discouraged from over-investing in your account. Worst case, they decide it’s not worth collaborating with you at all if their chance of working with you in the long run is too low.
If instead, you grant an exclusive mandate to an insurtech, they’ll be fully equipped to fight for you and find the best offer. Plus,once risk carriers know that you’ve given an insurtech an exclusive mandate, they’ll be more incentivised to provide a great offer in order to be selected.
Furthermore, insurance companies might change their strategy, risk appetite or pricing at any time. Not to mention that it’s hard to test the quality of customer service until the solution is already live – and by then, if the quality is poor, it might be too late to save your brand reputation.
At this stage, you’ll be forced to discontinue the program and switch to a different risk carrier, which is time consuming and extremely costly.
By partnering with an insurtech on the other hand, you could find the risk carrier that works best for your program. Of course, an insurtech layer will take a commission or service fee. But if you factor in the amount you save in switching costs, plus the fact that you’re getting the best market price, it’s more cost-effective in the long run.
Trap 3:I don’t need a tech orchestrator, I’m already a tech company (plus the insurer told me they have a full tech solution).
You might be a tech company, but consider this: when you need a video conferencing system, do you build it yourself or use Google Meet, Zoom or Microsoft Teams? When you need an IT infrastructure, do you invest in your own or do you use a cloud solution?
Then why would it be any different when it comes to insurance? Insurance iscomplex. It's hyperlocal, highly regulated and involves heavy lifecycle management.
Legacy players will tell you that their own tech solution is just as good as what insurtechs have.And maybe they’re right. But before signing with them, ask them the following questions:
- Could you connect your claims notification platform to our internal Slack channel so that our team can follow what’s happening? What about a dedicated channel to communicate with your team about integration and servicing?
- Could we meet through Google Meet?
- Can you show me a claims dashboard with real-time data? It’s important for us to understand how much value we create for our customers and whether the insurance premium we paid is the right one.
If they answer ‘no’ to any of the above, they might not be the tech player they say they are – and certainly not the one you need.
Bonus trap: The cheapest insurance price might not actually be the cheapest
Insurance is one of the few products that sells for a given price without knowing what the true cost will be; it’s all based on statistical assumptions and sophisticated calculations.
The insurer won’t have a good enough understanding of your business to give you the right price until several years down the line.Once they have that historical data, insurance becomes a commodity, and most insurers end up asking the same price.
That’s why companies shouldn’t focus on how much it costs – you’ll always end up paying the right price in the end. After all, insurance is a long-term partnership.
You don't beat an insurance company by paying less than what you should have paid. It’s about finding the right claims ratio and paying the right amount accordingly – a year-over-year balance of optimisation and prevention.
If you bounce from risk carrier to risk carrier looking for the cheapest price, insurers will eventually recognise this as opportunistic and decline to work with you. More importantly, an embedded insurance program is about creating value for your customers through a best-in-class experience, quality cover and seamless tech.
An insurer might try to reel you in only to increase the price later on to recover their losses or make higher margins. At that point, you might be stuck paying them to deliver poor service because the cost and complexity of switching are too high.
Instead, it's about getting a fair price, one that goes towards value creation for your customers instead of fuelling insanely high margins for insurers.
And insurtechs have a better track record than traditional players when it comes to having a customer-centric mindset; along with values that align with most modern businesses: being tech-driven, global and quick to deliver better insurance experiences.
