Sizwe Mase, Business Development Lead at Insurtech, Root, explains how retailers like Amazon and Tesla are harnessing technology to make significant strides in winning insurance market share while also opening up access to insurance for new customers.

This blog was originally published as two articles in Fintech Finance News, and is re-published here with kind permission.

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From electric car OEMs to behemoth online retailers, big retail brands are diversifying their revenue streams and making headway into the insurance market by offering embedded insurance products.

Embedded insurance is an evolution in the sector, offering financial products at the point of sale, which presents significant opportunities for retailers to diversify their revenue stream and offer more relevant and value-adding products and services to customers, leveraging their existing sales infrastructure.

Why is embedded insurance a natural channel for retailers?

Retailers have an existing relationship and client trust, making penetrating the insurance market easier. For example, Amazon’s brand recognition and reputation for innovation give it an advantage over traditional insurance companies, as customers are more willing to trust a company perceived as forward-thinking and technologically advanced.

Retail players also have an advantage in insurance product design as they have rich and unique data on their customer base, allowing them to create personalised solutions and in many instances, offer better value than stand-alone insurance products available on the traditional market.

They can tailor solutions to meet the unique needs of their customers and leverage data on their existing client base/market to speed up the underwriting process, reduce waiting periods, and set policy features and benefits.

Tesla is an example of a company that leverages extensive data on its vehicles' safety and performance. For instance, Tesla's Autopilot and Full Self-Driving systems provide information about driving behavior and accident rates, which it can use to develop more accurate risk models and offer insurance policies tailored to individual drivers.

What are the essential elements to retailers embedding insurance?

Trust, transparency, and value are essential elements of embedded insurance success, and they play crucial roles in creating strong insurance propositions. Customers need to feel confident that the retailer and insurer will act in their best interests and have a strong reputation for transparency, honesty, fairness, and reliability.

Customers should also feel secure in knowing that their claims will be handled fairly and that the insurer will protect their personal information. They need to understand what they get when purchasing insurance through a retailer, including the coverage, costs, and obligations.

Customers want to feel they’re getting a good deal when purchasing insurance through a retailer. The policy should provide fair value in terms of coverage and price. Customers should also feel that they’re getting a policy that meets their needs at the right time and that they’re not overpaying for coverage they don’t need.

What about compliance?

The insurance industry is rightly heavily regulated, and compliance is crucial to ensure customer protection. There are different types of regulation across territories and classes of business. As such, complying with regulation of this sector was a barrier to entry for non-insurance brands.

Technology is lowering this barrier to entry – there are advanced embedded insurance platforms available that can automate key compliance and reporting requirements even for multi-territory, multi-class offerings.

Tech platforms dedicated to this space also provide a data-driven feedback loop into retailers, allowing for more accurate underwriting and ultimately more relevant insurance at reduced cost. There is also a strong trend for insurtechs partnering with intermediary product specialists including MGAs and brokers, to further streamline access to licensing in new territories and ensuring compliant product offerings.

In this way, embedded insurtech specialists can also serve as product engines for retailers who want to enter the market, assisting with embedded insurance product design, building, and launching simple products quickly and cost-effectively.

Technology is lowering the barrier to entry, and advanced embedded insurance platforms are available to automate key compliance and reporting requirements, even for multi-territory and multi-class offerings. Tech platforms also provide a data-driven feedback loop into retailers, allowing for more accurate underwriting and ultimately more relevant insurance at reduced costs.

Embedded insurance presents a significant opportunity for retailers to diversify their revenue stream, and they have the advantage of leveraging their existing infrastructure, unique data on their customer base, and brand recognition. Retailers can create personalised insurance solutions tailored to meet the unique needs of their customers, improving the customer experience and driving loyalty. As technology advances, it will become easier for retailers to enter the insurance market and offer more innovative products and services to their customers.

As a result, retailers are not only winning market share in the insurance industry but also building entirely new customer relationships. This, in turn, is forcing traditional insurance companies to adapt and innovate to stay relevant in the market.

Embedded insurance is a diversification tactic that retailers are leveraging to expand their reach, and insurtech is supporting this drive by pushing the frontiers of embedded insurance forward with compliance and fairness first.

Competition is a crucible for innovation, and the current dynamic is a hugely positive and vital step forward for the relevance of insurance in society.