The Growing Impact of Embedded Insurance on the Industry: A Deep Dive

In recent years, we’ve seen a notable rise in insurance products being offered alongside consumer purchases, from cars to vacations to the latest mobile devices. Major companies are embedding insurance options at the point of sale, a trend known as embedded insurance, which is gaining traction as an effective way to prompt customers to protect their purchases. In this post, we’ll explore how embedded insurance works, its potential to close the insurance protection gap, and what it means for agents and the broader insurance landscape.

How Does Embedded Insurance Work?

Embedded insurance, or built-in insurance, is typically offered in one of two ways. First, customers may be given the option to purchase a policy at the point of sale. Alternatively, the insurance could be automatically included in the cost of the product, making it seamlessly part of the overall purchase.

You’ve likely encountered embedded insurance already, whether you realized it or not. Consider the last time you bought an airplane or concert ticket. At some point during the transaction, you were probably asked if you’d like to insure your ticket for an extra fee. This is a classic example of embedded insurance where the customer can opt-in. In many cases, you’ll only get this chance during the initial purchase, while other times, you might be able to add it later.

The genius behind embedded insurance lies in its timing. Offering insurance when the consumer is making a purchase—when they’re most concerned about protecting their investment—can significantly increase uptake. Think of it as the insurance equivalent of “Would you like fries with that?” when someone is already ordering a meal. It’s a small additional expense that feels like a major benefit in the moment.

Timing is everything. Just as a customer is unlikely to return days later to buy fries, they are less likely to seek out insurance weeks after making their purchase. By making the offer right when the product is being bought, and creating a sense of scarcity (“You can only buy this protection now”), companies can effectively motivate customers to secure coverage right away.

Embedded Insurance and the Protection Gap

One of the most exciting areas where embedded insurance can make a real impact is in closing the global insurance protection gap. The protection gap refers to the difference between the value of insurable assets and the actual insurance coverage that individuals or businesses have. When this gap exists, people are left exposed to significant financial risk in the event of a disaster, be it a natural catastrophe, a health crisis, or an unexpected loss.

This gap has widened considerably over the past two decades, driven by the increasing frequency and severity of natural disasters and global health events like the COVID-19 pandemic. Despite these rising risks, insurance coverage has not kept pace, with the current protection gap now estimated to be twice what it was 20 years ago.

Embedded insurance, while not a silver bullet, offers a practical solution to help close this gap. By integrating insurance into the purchasing process, consumers are more likely to protect their assets—whether it’s home, auto, or life insurance—because they’re reminded of the need for coverage at the most relevant time. Rather than ignoring or delaying their insurance decisions, people can quickly and easily obtain coverage without the hassle of searching for it later.

For example, many individuals forgo necessary insurance because they aren’t actively thinking about it. Embedded insurance brings the option right to the consumer’s fingertips when they’re already engaged in a buying decision, making it an easy choice. It also simplifies the insurance-buying process by eliminating the need to shop around for coverage, offering a pre-chosen policy that is tailored to the product being purchased.

What Does Embedded Insurance Mean for Agents?

At first glance, the rise of embedded insurance might seem like a threat to insurance agents. After all, if consumers can buy insurance directly at the point of sale, why would they need a licensed producer? However, embedded insurance is primarily effective for straightforward products with clear terms—such as travel, gadget, or auto insurance—that don’t require much guidance.

More complex policies, like those for businesses or multi-line coverage, still necessitate the expertise and personal touch of an insurance agent. Business owners, in particular, are unlikely to feel comfortable purchasing insurance online without speaking to a professional. In this way, agents remain vital in the insurance ecosystem, especially for policies that demand in-depth knowledge and personalization.

Embedded Insurance Enhances the Agent-Client Relationship

Far from eliminating the need for agents, embedded insurance has the potential to strengthen the relationship between agents and their clients. The key advantage of embedded insurance is its speed and convenience. Consumers can obtain simple insurance coverage at the time of purchase without involving their agent, freeing up agents to focus on more complex and lucrative policies.

At the same time, embedded insurance can drive clients to their agents when they have questions or want to explore alternatives. For instance, a consumer might decline the embedded insurance offer at the point of sale, then call their agent to ask about similar coverage options or to find a more personalized policy. In this way, embedded insurance opens the door for agents to have more meaningful, advisory-based interactions with their clients.

By removing some of the simpler transactions from agents’ plates, embedded insurance gives agents more time to focus on delivering expert advice and building long-term relationships with clients who need more tailored solutions.

Limitations of Embedded Insurance

While embedded insurance seems like the future, it comes with limitations. For one, not all types of insurance products can be effectively embedded into the purchasing process. To be suitable for embedding, the product must be relatively simple, with clear terms and a straightforward claims process. This naturally excludes more complex and high-value policies.

Another drawback is that embedded insurance lacks the personalized guidance that consumers might need, especially for complex products. Without a licensed agent to consult, customers may not fully understand the terms of the policy or how to navigate the claims process. This challenge is particularly relevant when trying to balance a low-touch purchase process with the need for compliance and transparency.

For now, embedded insurance tends to be limited to low-cost policies that cover specific, easily understood risks—such as travel insurance or gadget protection. More sophisticated products will likely continue to require a higher degree of human interaction and expert advice.

The Future of Embedded Insurance

Although embedded insurance is not a new concept, it is rapidly evolving as more high-profile companies like Ford and Amazon begin to integrate it into their offerings. With technological advancements enabling more seamless insurance integration, the U.S. embedded insurance market is projected to surpass $70 billion in the next few years. And it’s not just for consumers—embedded insurance is increasingly finding a place in commercial insurance, as exemplified by Ford’s partnership with Pie Insurance.

As the embedded insurance market grows, those carriers and MGAs that invest early in developing embedded products will be positioned for success. And, while embedded insurance can streamline the purchasing process for consumers, DOXA is here to remove the roadblocks at your agency, carrier, or MGA/MGU. Learn more about how DOXA can help you stay ahead of the curve in the rapidly changing insurance landscape.