While product design—including technology and architecture capabilities—is foundational for carriers to play in the embedded insurance space, strategically leveraging the agent will exponentially increase the likelihood of an embedded product’s success. We believe agents could play a major role in embedded insurance distribution, driving sales and capturing opportunities to cross-sell and upsell.
In our last post, we provided an overview of the evolution of embedded insurance as it expanded from “version 1.0”—purchasing life insurance at the airport before a flight—through “version 2.0” and “version 2.5” in which technology and online commerce pushed embedded insurance towards its current iteration, “version 3.0.” We define “version 3.0” as insurance that is sold as part of another commercial transaction. Buying auto insurance from an OEM or home insurance through a real estate brokerage are examples we would consider to be embedded insurance 3.0.
In this post, we’ll highlight why we believe agents are critical to achieving more with embedded and outline the potential implications for carriers, embedded distributors and agents themselves.
The relationship between customers, agents and embedded
Within an embedded insurance transaction, there are two products present: the primary product, which is the original product or service that the consumer sought to purchase, and the attached product, which is the insurance product sold within the primary product or service transaction. Ideally, the customer interacts with both the primary and attached product through a single unified experience.
Currently, most embedded insurance transactions are conducted through digital/direct rather than agent-led distribution channels. We believe this is a result of three market dynamics:
- Consumers prefer to consult an agent as a trusted guide for a majority of personal lines products. Consumers worry about the “risk of being wrong” when it comes to the type or quality of coverage they purchased. Meta found that 65% of auto insurance and 71% of property insurance purchases are still happening over the phone or at an agent’s office. They also found that though 32% of buyers discovered auto insurance options online, 40% turned to an agent to determine which product was right for them.
- Embedded insurance has a larger share in lower-cost products, where agents don’t typically get involved. The more valuable the insured items are, the more customers want to consult with an agent who can provide personalized recommendations. Most embedded insurance offerings provide policies that don’t cost a lot and tend to cover things with limited value or come in where state-specific coverage includes some level of consumer protection.
- Primary product providers usually have a strong desire to control the customer experience. This tension between the primary product vendor and the carrier offering the attached products inevitably results in slower development of embedded offerings as changes to the attached product are negotiated or the primary product provider makes the decision to create their own insurance product. Primary product vendors have resolved this by developing their own insurance product (like Tesla) or forming an exclusive partnership to offer insurance to customers—as is the case with online used car marketplace Carvana’s insurance offering built with Root Insurance Company.
As carriers have pursued embedded strategies, these market forces have created barriers to adoption and successful activation of embedded insurance. These obstacles have also led to slow progress educating and upskilling agents to seize the opportunities embedded creates.
Understanding where agents fit in embedded distribution
Where the vendor of the primary product is focused on selling their offering and controlling their customer experience, the agent can act as an advocate for the attached insurance product, boosting conversions. A potential use case is renter’s insurance (the attached product) sold through the property rental process (the primary product). Leveraging embedded rental insurance has the potential to allow the carrier to capture additional customer segments and grow overall market share.
Rental insurance is a product that’s relatively simple in nature, with low costs and low margins. However, it interacts with other insurance products that the customer might own (e.g. auto or pet insurance). As an embedded product, it creates significant opportunities for cross-selling at any point in the customer journey. In this way, embedded rental insurance can act as a gateway for new customers—particularly a younger demographic who are more likely to rent—to learn about and purchase additional insurance products from the carrier.
While the embedded partner (the rental broker or property management company) may clearly have an incentive to market and sell the attached insurance product, it is at best adjacent to their core business. The carrier is then responsible for marketing the insurance product and ensuring sales are happening along a customer journey they may or may not be in control of. This is where the agent comes in.
We believe that inserting an agent within the primary product will lead to a more effective sales funnel. Because a product like renter’s insurance interacts with other products, it creates the need for advice around a complete risk profile: how the coverage will protect the customer and where there may be gaps or overlaps in coverage. The agent is uniquely positioned to capitalize on the interactions between various insurance products. Though the commissions on the attached product might be low (as would be the case with renter’s insurance), cross-selling and upselling potential would incentivize the agent to guide customers to buying a suite of products that meet their needs—which could ultimately lead to higher commissions overall.
The distribution strategy for embedded products is highly flexible and needs to be tailored to the primary product it’s attached to. It’s important for carriers to assess where and when it’s appropriate from the customer’s point of view and profitable for the business to leverage an agent.
For example, warranty and replacement insurance for a simple e-commerce product like a VR headset could be offered at the point of sale without agent assistance. Because the primary product is a straightforward purchase, customers also aren’t likely to need guidance from an agent and there are fewer cross- and upsell opportunities. Such a product might be marketed via digital channels and targeted at a digitally-native millennial audience. Carriers can take advantage of the retailer’s digital channels and partner with the retailer to create a seamless experience between the brands. We see this type of model as a defensive play with less of a focus on growth. With the right placement, carriers can reach new customers they may not otherwise have captured.
Key considerations for placing the agent in embedded
To see growth through the embedded insurance channel, carriers must pay attention to the relationship between agent and embedded as a core part of their strategy development. When determining where agents fit in the embedded strategy, key considerations include:
- Are your building embedded insurance products for defensive (growing share) or offensive (preventing share erosion) purposes?
- Do you understand customer purchase preferences for different types of products?
- Will customers need to understand how the product interacts with other insurance products they may own?
- What segments of the market is this new embedded product designed for and how does that fit with your current customer base?
- Will the product be marketed only to “new” opportunities at point of sale, or will existing customers of the primary product vendor be marketed to as well?
These considerations will help carriers determine where and how to deploy agents to support customer experience and sales through the embedded channel. Thinking about how the agent propels the customer journey from the get-go will enable carriers to develop embedded insurance experiences that truly stand out to customers.