Forecast to exceed $70 billion in premium by 2030, the risks and opportunities presented by the embedded insurance market are provoking active debate across the insurance industry. For some, the sector is rife with opportunities for profitability and differentiation while for others, concerns around data misuse and regulation call to mind the spectre of the PPI scandal.
For Luigi Alicante (pictured), co-founder of the Open & Embedded Insurance Observatory, navigating the challenges and taking advantage of the opportunities presented by embedded insurance is a matter of keeping up to date with the key trends shaping and reshaping the market. Unpicking his decision to join the insurance industry two years ago after 10 years as a university researcher, he highlighted his interest in how insurance responds to innovation.
“After I was introduced to the sector in a role as senior product owner with the digital platform builder Mia Platform, I was curious to know more about innovation in the insurance space and the most important trends and new technologies in the market,” he said. “And from looking at those trends, I think that most insurance companies today are quite old companies with good margins, who don’t yet feel the incredible winds of change that have arrived.”
Change doesn’t tend to happen quickly in insurance, he said, but he can see how factors including the COVID-19 crisis and the rate of natural catastrophes are putting pressure on insurer margins. This isn’t happening in isolation but rather in tandem with the expansion of the insurtech sector which has seen tech entrepreneurs create their own insurance businesses rather than taking on the challenge of trying to sell their technology solutions to traditional market players.
“The third important trend that I’m seeing is that companies like Tesla, Amazon and Google are trying to understand how they can exploit this market,” he said. “Tesla’s decision to sell embedded insurance and Amazon’s entrance into the UK business insurance market are just the beginning of the new wave of changes coming for the insurance industry.”
Each of these factors individually is creating increased pressure on insurance companies, he said, and the combination of all three at once is forcing insurers to move the dial faster when it comes to their own digital transformation. Alicante believes these three trends will define the direction of travel of the insurance industry over the next five years.
“What I’m seeing in my role is the importance of the right technologies in that transformation,” he said. “And the right technologies are the ones that understand and support the future strategies of insurance companies. Take embedded insurance, for example. Embedded insurance is a matter of strategy and a matter of integration with different companies. Insurance carriers, insurtechs and distributors have to work together in order to create an offering in this space.
“What is important to understand is the role the right technology and APIs have in creating these integrations. A survey carried out by the Observatory reveals that today, an integration between an insurance company and a distributor takes on average between nine to 12 months. When you see that, you understand that embedded insurance cannot happen without the right APIs. These APIs are the key to integrating faster.”
Some insurance companies are already making rapid inroads into this space, he said, and in the future, that will have to be the direction that the whole market takes. Underpinning this is that in Europe, EIOPA is now looking to define the open API standard. Once that definition is established and when it becomes mandatory for insurers to expose their APIs, he is confident that the sector will see a strong acceleration from insurers towards more innovative insurance solutions, including embedded insurance.
Fundamentally, Alicante said, this development is still at the embryonic stage and insurers today should be looking to keep abreast of all the changes and evolutions occurring across the market. His key advice for insurers looking to proactively engage with greater innovation and to invoke meaningful technological change across their organisations is simple – surround yourselves with the right people.
“I think the insurtech space is characterised by amazing people who have brilliant brains and the most fantastic technologies,” he said. “But moreover, they’re enthusiastic people that want to grow their companies and develop their ideas. So, my message to the insurance companies is this – please trust these people.
“Create an ecosystem where you can focus on your core business and on creating new products for your customers that satisfy your customer needs. But at the same time, invest in these insurtech startups of which there are so many and which are doing so many interesting things all around the world. These entrepreneurs have the energy to help take insurance companies through the digital transformation journeys that they have to make. My suggestion is to invest in these entrepreneurs and undertake those journeys together.”
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