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Library: How and why insurers should increase investment in Embedded Insurance 2.0

September 2022 featured report:

Embedded insurance (EI) was a theme of a recent China in Focus on The Digital Insurer, so it seemed highly appropriate for us to cover a report supported by Google, iptiQ from Swiss Re, and Ninety, looking at how and why insurers should increase investments in embedded insurance 2.0.

 The Digital Insurer reviews Embedded Finance & Super App Strategies’s Report on How and why insurers should increase investment in ‘Embedded Insurance 2.0

Embedded insurance 2.0 may be make or break for incumbents

The report distils opinions and experience from a peer group of senior executives from insurers, reinsurers and tech giant Google, but all participants have had their comments anonymised.

The latest thing…

So why is embedded insurance so important? Well, this report says that EI2.0 is a new way of “collaborating and innovating with third party brands of all types and sizes, to help them grow their businesses, create compelling new protection solutions for end customers and ultimately close protection gaps”.

It then goes on to say that EI2.0 will exploit digital technology and data in ways that haven’t been done in the past in order to improve customer experience, effectiveness of marketing, identifying and selection of risk, pricing and so on.

While EI2.0 is complementary to current existing affinity and partnership programmes, it differs in the following ways:

  1. Purpose – instead of distributing existing risk transfer products from a single provider, the focus is to enable brands and their customers to access a broader set of diverse and customised solutions.
  2. Technology – operating systems that can aggregate demand and manage supply from multiple providers requires a new type of infrastructure.
  3. Skills – digital sales and marketing, data science, open platform development and digital underwriting are all going to have to upskill in order for this to be a success.
  4. Monetisation – software as a service (SaaS) fees combined with recurring gross written premiums (GWP) and assets under management (AUM) revenue share.

There are four key factors that are driving forward the trend towards EI2.0:

  1. Technology sophistication;
  2. An increasing commercial demand, eg from the likes of Tesla looking to create its own insurance brand.
  3. A growing need from society – as demographics and working patterns are changing, we face the risks and effects of climate change.
  4. Investment imperatives – insurance investors are seeking a safe return as they shift more capital away from direct to consumer plays, considered risky, towards more sustainable B2B infrastructure.

New stack on the block

All this is creating a new ‘value stack’ in which the operating system becomes the key control point, say the report’s authors (see image 1).


With time, these operating systems will be able to bring together increasing amounts of data, numbers of brands and their customers in order to marry the right product to the right customer at just the right time, in just the right way.

And within five years, this new value stack is going to be mature, with those who run the operating systems reaping the greatest rewards, because these businesses are far less capital intensive than those carrying the risk.

However, incumbent insurers are not in this game, yet, because they simply don’t have the skills to develop, manage and grow these operating systems (see image 2).

Big money

The potential size of the EI2.0 prize within a decade could be massive. The report suggests it will deal with about 60% of non life (P&C, business, commercial) and 30% of life markets (life, pensions and annuities) and within that decade could account for about 16% of total global insurance distribution in terms of GWP. That amounts to $1.5 trillion.

The estimated totals for the US in five years time could be $150 billion, rising to $500 billion by 2032. Europe and China are estimated to reach $60 billion by 2027 and $200 billion by 2032. And this isn’t just cannibalising the existing market, says the report. Instead, it will add an extra $1 trillion of net new GWP by the end of the decade through digital platforms in emerging markets.

The vision the authors have identified is: “more and better protection baked into the everyday lives of everyone.” In simple terms, this means that insurance will play a greater role in helping to achieve the UN Sustainable Development Goals, which target financial resilience in order to reduce debt and poverty and recommend that incumbents now create “holistic and joined up strategies” through optimising the core business, while fast tracking the future. It then offers six specific next step actions (see image 3).

  1. leadership understanding
  2. initial strategy
  3. establish a true ambidextrous capability
  4. test validate and refine strategy
  5. stage-gated investment
  6. shareholder/analyst communication.

The report includes a couple of very interesting case studies where the authors outline the considerable commercial value Ant Group already receives from embedded insurance, while adding socio-economic value to the communities it serves. The other is Cover Genius and how it satisfies demands in its market.

What happens next?

These big brands with huge customer bases have already identified the benefit of incorporating financial services into their offerings. They want to find a new type of operating system provider that can satisfy what they need all in one platform.

The report provides an example of one of Europe’s biggest supermarket chains closing down its insurance company and bank and replacing it with a partnership with new embedded insurance and finance operating system provider to sell pensions payment protection insurance, car insurance loans and investment services to its customers.

It is up to the operating system provider to find the best suppliers and integrate them into the system and this leaves a lot for incumbents to do.

They have choices – create their own operating system, create new solutions that meet unmet demands, package core capabilities, issue new digital services, optimise their existing affinity and partnership programmes, go digital with their existing portfolio, resell third party solutions, etc.

But where does this leave them when organisational structures and skills remain the number one barrier ahead of legacy technology, market adoption, leadership mindset, and regulation.

This is because they are set up to support the existing business. Even when they’re involved in embedded insurance 1.0, the next iteration requires quite different skills and technology.

Will incumbents make the starting grid?

The way things are going now means that more than $5 trillion worth of GWP is likely to be distributed through non-insurance brands worldwide over the next decade.

This will be enabled by new embedded insurance, and these operating systems are another threat to incumbents unless they can move quickly to develop new solutions that slot into the value stack and get with the programme to optimise their core and fast track the future (see image 5).

They also say that creating a robust EI2.0 strategy can be done quickly and efficiently if a non-traditional entrepreneurial approach is taken.

The report says: “execution should also be governed in such a way that powerful internal assets can be complemented and supplemented by external digital skills and capabilities to create unique synergies between the two”.

In theory, that sounds fantastic. But it remains to be seen whether incumbents, already struggling with some of the conceptual and cultural obstacles they face in the race to digitalise their existing businesses, can get their heads around this rapidly developing new environment.

For more, see the full report.

Link to full report: click here

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