Many parts of the insurance sector, which have previously been marred by legacy technology, are now undergoing rapid digital transformation. AI, automation, and embedded insurance are just some of the technologies driving change in everything from underwriting and claims to customer engagement, leading many industry firms and leaders to rethink their approach.

As consumers turn away from traditional insurers for a variety of reasons, including speed and simplicity, incumbent players are left wondering how they can keep up with the digital changes. Previously, insurers provided policies, and consumers would come to them. However, the consumer-driven market we are now in means insurers that don’t adapt to demands for instant insurance will be left behind. Is it too late to change, or do traditional players still have a place in the sector, competing against embedded insurance?

Embedded insurance 2.0

Embedding insurance into people’s lives is much more than just making insurance offers at the point of sale, says Rory Yates, global strategic lead at EIS, the digital insurance platform. Looking at what more can be done, he said: “We need insurance that helps us mitigate risks and adapts to our ever-changing and increasingly complex lives. What I call Embedded Insurance 2.0.

“It includes everything from smart homes to connected cars, to life insurers using open banking to track my life and needs and shaping propositions that can grow and support me.

“EIS estimates the value of the Embedded 2.0 market to be about $3.5trillion. Potential value like that can’t be ignored, and yet we see very few insurers tapping into it.”

Exploring how traditional insurers can embrace this change, Yates said they must have “a shift in their foundations.

“They will need to rebuild around their customers and not around policies. They will need to move to systems that let them harness AI, but they must also control its use and consider how to intelligently orchestrate more multi-faceted products & services, which will require completely new highly adaptive core systems. No small ask, but vital if they want to unlock this value potential.

“Being able to inter-operate across a widening ecosystem will also create new business models, where partnership and harnessing combined propositions will also be vital. From selling dashcams in a car insurance experience to make claims processes better for customers, to more advanced offerings where the insurance is embedded into the car altogether e.g. Tesla’s recent move to become the underwriter as well as the service provider for their customers.”

Services must meet consumer demands

Traditional insurers looking to integrate digital offerings must be conscious of the region they’re in and ensure said offerings match consumer demands, explains Charles Clarke, group VP at Guidewire, a P&C insurance software and technology provider.

“Looking at this from a global perspective, different regions leverage varied approaches to online insurance offerings, driven by cultural attitudes towards digital platforms. What some call an ‘ecosystem play’ is often a mobile digital experience or a Super App that offers a variety of products, including insurance, under one roof, attracting a high volume of users.

“For traditional insurers looking to adopt this digital approach, they need to keep in mind the culture of their region and whether there’s public appetite for such services. Additionally, given the success of embedded insurance in Asian countries, there are several key lessons insurers can take on board. For example, having insurance products as part of online shops helps minimise the cost-to-customer acquisition, as well as making it easier to sell new products that customers might not have been previously aware of.

“The human brain is wired to avoid thinking of scenarios that could go wrong, and essentially, the type of insurance they would need. As a result, having those offers as part of day-to-day online shopping experiences would help further educate consumers on potential risks.

“Our recent research shows that customers are increasingly becoming comfortable with the idea of buying insurance from third-party companies like Amazon or IKEA when making another purchase from those brands. Those who are more digitally inclined are more likely to feel comfortable doing so – 66 per cent of people who would process a claim through a social media platform confirm they would be comfortable buying insurance via third-party companies.”

Easy integration

For Justin Hwang, COO and head of AI project at RNA Analytics, the insurance consulting service, traditional insurers can keep up with digital innovations by ensuring their services are easy to integrate.

“To stay competitive, traditional insurers should focus on building open, API-driven platforms that allow for easy integration with digital partners. This means offering flexible, modular products that can be tailored and embedded into third-party ecosystems.

“Insurers must also invest in digital customer experiences, simplifying onboarding, pricing, and claims processes to match the frictionless standards set by tech-driven platforms. Additionally, forming strategic partnerships with tech companies, insurtech, and distribution platforms can help insurers expand reach and unlock new customer segments.”

Establishing a place in the on-demand economy

With everything expected on demand at the point of sale now, Scott Thomson, insurance solutions director at FintechOS, the financial product management firm, explains that traditional players must be open to partnerships. “Traditional insurers need to rethink their distribution strategy fundamentally. The old model of selling insurance as a standalone product through agents or direct channels is becoming less relevant and more costly to acquire and retain customers.

“Customers expect insurance to be available at the moment of need, from travel insurance during flight booking to device protection during an electronics purchase and shipping insurance at e-commerce checkouts.

“To adapt, insurers must embrace a partnership-first approach. This means developing a robust API infrastructure that enables seamless integration with third-party platforms. They need to move from being product sellers to becoming invisible enablers, providing white-label insurance solutions that can be embedded into any part of the digital journey.

“The technical infrastructure is critical here. Insurers must invest in instant policy issuance and streamlined claims processing that works within embedded environments. Customers won’t tolerate being redirected to separate insurance portals or waiting days for feedback when they’re making a purchase decision or filing a claim in real-time.”