Acquiring ultra-preferred risk in the embedded insurance age

Acquiring ultra-preferred risk in the embedded insurance age
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Key Takeaways
  • Insurers are struggling to keep up with digitization of processes like distribution and customer acquisition
  • Auto insurers should consider moving toward an embedded insurance model, a $3 trillion market opportunity
  • Insurance Qualification Lens(IQL) is one scalable, AI-powered solution that moves insurers in this direction

It’s no secret that auto insurers large and small are being pressured to digitize more, from accurately acquiring better risk to streamlining claims experiences and more. Going digital isn’t just an option, but a necessity - it’s inevitable.

In fact, “since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist as a result of digital disruption.” With nearly two-thirds of the personal lines auto insurance industry’s market share owned by only ten Fortune 500 insurers, incumbents run the risk of getting disrupted by consumer-centric innovation.

True, personal lines auto insurance has been at the forefront of digitization in the industry. But there’s still plenty of room for further improvement through increasingly available, cost-efficient, scalable AI-powered solutions. And that’s particularly true when it comes to costly, outdated customer acquisition tactics.

“’s insurers are operating in an entirely different distribution paradigm, one where data science, artificial intelligence, and real-time communication systems are all counted as part of their formidable 21st-century financial services arsenal.”

- Baloise Group, 2020

Here’s why insurers might consider taking steps toward embedded insurance: it’s a $3 trillion market opportunity that’s “part of a broader movement towards embedded finance”. The key to this opportunity  is “getting more affordable, relevant, and personalized insurance to people when and where they need it most.” 

But before we get into this increasingly popular customer acquisition strategy, let’s dive a little deeper into how we arrived at embedded insurance in the first place.

The journey to embedded insurance: Effective, quick & personalized buying

Traditional advertising doesn’t really influence buying decisions

Top auto insurers spend billions per year on advertising. In 2020, Progressive spent $1.95 billion, 17.5% more than in 2019; Geico spent $2.26 billion, and State Farm spent $1.17 billion.

But a 2018 insurance advertising study featuring consumer survey data from J.D. Power and Associates found “that all the advertising dollars have a distinct, but ultimately limited impact on consumers.” 

More specifically, the market is fluid, auto insurance has become a product that can easily be bought or swapped based on price, and billions of dollars in ad spend largely affects brand awareness and recall for big players - without having much effect on consumers’ buying decisions.

“(Our results reveal) that advertising primarily affects awareness and has no discernible effect on consideration and choice.”

— Yi-Lin Tsai, University of Delaware, and Elisabeth Honka, University of California, Los Angeles

Price wins over brand names

What’s more, price remains a stronger influence over brand recognition during the pandemic era. According to a 2021 J.D. Power US Insurance Shopping Study, auto insurance customers shopped around for new policies in 2020, but “few cared about specific brands.” Ultimately, they were looking for a good deal.

While some customers were influenced by the financial effect of the pandemic, this underscores a 2019 J.D. Power analysis in which nearly 72% of customers said that they would be willing to switch insurance carriers for any amount of financial savings.

Better digital buying experiences are needed

All of this is not to say that the experience in purchasing that optimal deal isn’t increasingly important. According to a 2018 Bain Customer Behavior and Loyalty in Insurance report:

  • Insurance customers globally “value quality and ease of use,” 
  • The few insurers that offer both of these earn customer loyalty, but many lose out in this area,
  • Customer use of digital channels is rising rapidly, but incumbents are struggling to create delightful digital experiences
  • Insurers that excel “make customer-centric innovation a top priority.” 

In addition, the study found that in many major markets, more than 80% of millennials are open to switching to another provider, even those outside the insurance industry, for better experiences.

“Incumbents that don’t manage to delight their digital customers at the episode level run the risk of being disrupted by insurgents that get it right. Insurers face pressure to show that digital can be as easy and personal as—or even better than—a human touch, especially for relatively simple transactions.”

- Bain, 2018

Enter: Embedded insurance

Of course, consumer demand for better, faster digital experiences in auto insurance is known across the industry, even with this recent pandemic as a catalyst. As McKinsey reported back in April 2020, “This crisis will increase the momentum already underway for carriers, agents, and consumers shifting to digital channels.”

What’s sprouted from this shift is the revolutionary insurance model, embedded insurance.

“As economies, technologies, and market dynamics continue to evolve, an incredible opportunity has emerged for insurers – one that promises to turn that old maxim forever on its ear and revolutionize the way insurance is bought and sold. Enter embedded insurance.” 

- Baloise Group, 2020 

What is embedded insurance? 

Embedded insurance bundles coverage or protections within a purchase of a product, service, or platform. The insurance product is not sold separately to customers but rather is offered as an embedded or native feature. For example, “your car share membership comes with mobility insurance included [or] your new camera is covered for theft and damage right out of the box.” 

Embedded insurance is completely transforming the insurance distribution model, providing both carriers and their customers “a seemingly limitless number of unique and niche value propositions offered in real-time or at the point of sale.” 

It’s also improving the online buying experience, making it faster, easier, and more personalized for policyholders while also offering a more cost-effective and scalable customer acquisition strategy for insurers. If completely adopted by the industry, gone would be the days of navigating directly to an insurer’s website and filling in your details for a quote.

The opportunity is huge, and by 2023, the market could be worth up to $3 trillion. In Property & Casualty insurance alone, embedded insurance could account for over $700 billion Gross Written Premiums by 2030 (that’s 25% of the worldwide market).

The embedded insurance pioneers

A number of well-known companies have already adopted the embedded insurance model. Airbnb has embedded a host protection insurance and host guarantee in properties on its platform, right when people sign up to host. These offer additional coverage apart from hosts’ personal, renter’s, or homeowner’s insurance.

Tesla offers auto insurance at the point of sale online, or when buying a car at a showroom (you can purchase insurance in less than a minute).

More recently, in August 2021, Carvana, the leading e-commerce platform for buying and selling used cars, and Root, Inc., the parent company of leading insuretech carrier Root Insurance Company, announced a partnership to develop integrated auto insurance solutions for Carvana’s platform. 

“We look forward to introducing our customers to Root’s seamless insurance process and believe that this integrated offering will deepen and extend our customer relationships between transactions.”

- Ernie Garcia, Carvana CEO 

A step toward fairer, lower-cost customer acquisition

For those not quite ready to invest in a fully embedded experience like Tesla and Airbnb, there are readily available, scalable solutions that help insurers take a digital first step in that direction. 

Without entirely reinventing their distribution model, they easily offer fairer, quicker, more personalized auto insurance, better direct ad spending, and also manage to cut CAC costs while providing better digital experiences. 

Insurance Qualification Lens

The Insurance Qualification Lens (IQL) platform, for example, helps insurers fairly and efficiently acquire ultra-preferred risk. Through digital ads shown directly on relevant mobile apps, targeting only users they want to acquire, insurers can offer personalized quotes to safe drivers based on their actual driving behavior. 

The solution leads to a win-win scenario: insurers find and qualify the best drivers (preferred risk) through a one-month test-drive period, and drivers get access to more fairly priced, behavior-based insurance (and not solely on factors out of their control, like age and gender). Policyholders can save up to 40% on their premiums.  

Features and benefits of IQL

Some of the top features of the IQL platform include:

  1. Highly predictive risk scoring: Insurers rely on either Zendrive’s industry-leading score or can choose to use their own risk score, to target, qualify and acquire the best drivers.
  2. Accurate data: The platform relies on proprietary AI and ML algorithms trained by over 200 billion miles of data generated by hundreds of millions of drivers.
  3. Flexible, scalable go-to-market options: Insurers define their own targeting criteria based on predictive risk signals like location, mileage, driver score, etc. They can also reach new audiences, with access to tens of millions of drivers through an expansive partner network.
  4. Data privacy: Driver IDs are anonymized, and the IQL platform aligns with GDPR compliant user privacy practices.

The IQL platform, therefore, helps insurers benefit from:

  1. Lower customer acquisition costs, with the lowest costs per lead. 
  2. Fairer, behavior-based/usage-based pricing for customers
  3. A quicker, more personalized buying experience for policyholders, leading to higher customer satisfaction and retention (and increased LTV). 
  4. A first-mover advantage - insurers can get ahead of the curve, acquiring preferred risk before the rest while getting access to the largest lead bank.

Learn more about how IQL works here or book a call with one of our experts below to get started.

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Acquiring ultra-preferred risk in the embedded insurance age
Meara Hamidiani
Senior Content Marketing Manager
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