EXCLUSIVE: API-ification and Embedded Insurance – From Tesla to Amazon

Global eCommerce sales are projected to reach $5.4 trillion this year, with a further projection of $6.4 trillion by 2024. With this rapid surge in online shopping, customers are demanding more from sellers regarding ease, access and immediacy. The integration of API’s in the financial sector has been substantial. Even with the dismay of incumbent financial institutions, the popularity of embedded financial services online has been exponential for the likes of Chinese service apps like WeChat and AliPay. The former of which the ability to talk, shop, and order food are readily available to its billion-plus user base.

What embedded finance and open banking have shown us is that consumers are attracted to online services which are multifunctional and reliable. Europe’s implementation of the PSD2 regulation for online financial services advocates for the migration to open-sourcing and the free movement of customer data with third-party providers (TPP).

As we know, this regulation allows insurers to obtain a TPP license and gain access to customer payment information – with the consent of the customer. Such information can be used by insurers to personalise insurance policies and further enforce AI in the industry. What makes this important is that this move provides an ideal environment for the insurance industry to take advantage of, the use of embedded insurance (EI).

Through APIs, insurance can be integrated into the purchasing of a third-party service or product, at the point of sale. This makes purchasing and managing insurance a fundamental part of the buying process.

Tesla was an early adopter of the embedded ecosystem. A licensed insurer thanks to the State National Insurance Company Inc, Tesla sought to include insurance into its services as legacy insurers priced Tesla cars at an exceptionally high price, a disincentive for customers to purchase the car. By offering their insurance, embedded into the buying of one of their cars, Tesla generates more revenue through both product sales and insurance sales.

Motor insurers have been following this business model in concession, with OEM’s offering a range of insurer products. In 2020, Nationwide partnered with Toyota Insurance Management Services (TIMS) to offer usage-based insurance (UBI) exclusively to Toyota drivers. If drivers agreed to share their data, they would have access to UBI and be enrolled into the Nationwide SmartRide program, immediately receiving a 10% discount, which goes up to 40% upon renewal. Like the Tesla model, this brings an advantage to OEM’s by incentivising more people to buy the product and the insurance.

The use of embedded insurance stretches far beyond motor coverage. Cover Genius, one of the biggest sellers of embedded insurance, has opened its services to some of the world’s biggest online marketplaces. With their solutions XCover and XCover Go, the company provides cover and product protection for Skyscanner, eBay, Amazon, and various SMEs.

Using their product recommendation platform BrightWrite, XCover can classify insurable items, including anything from stock keeping units (SKUs) to merchant codes. The service boasts that it can complete 95% of claims within three days. Cover Genius is an insurer working in a market with the largest profit potential. The market size for P&C insurance is valued at $700 billion alone.

David Brune, president of the Americas for Cover Genius and former CEO of Munich Re Digital Partners, said “Everybody’s online, and [our studies show] they want the convenience of being offered [insurance] coverage online, as they buy the things that they care about. That’s it, and when you can back it up with the data and the technology to make sure that they’re offered the right product that fits what they’re buying, that’s a win-win.”

Although similar, embedded insurance diverges from warranty, as they differ in logistics and data. In embedded insurance of P&C, the retailer or manufacturer provides data to the retail platform to insure specific risks relevant to the customer. For L&H, all the information required to underwrite the risk is supplied and automated, no advisory intervention is needed. A fundamental element to making embedded insurance an actionable part of the buying process is product and service providers partnering with insurers.

“Embedded insurance is a digital sales channel where insurance is sold via digital partnerships – e.g. an insurance company and car dealer,” said Winni Eia Esbensen, the Marketing Manager for the embedded insurance provider, Penni.io.

“It makes it possible for insurers not ‘only’ to sell insurance to customers when they buy the product or service that they want and need to insure – e.g., their car. Insurers can also place their insurance in their customers’ research flow – e.g., when your customers research digitally on or read a blog post about the car they want to buy or when making an online booking for a service check at the local garage.

Embedded insurance is a way to make insurance a part of the end-customers everyday mindset and reach them with new and value-added insurance products.”

With the company’s core product Penni Connect, Penni.io acts as an intermediary for insurers to sell their insurance, integrating their core systems onto digital services platforms – without having to change their underwriting. Insurers can use Penni Connect and customise widgets providing their insurance, which can be scaled up to multiple distribution points. With the base of the product built with APIs, insurers can track and manage their customers seamlessly with AI.

The Danish-based insurtech has partnered with many insurers across Europe. Danish insurer Topdanmark teamed up with the largest retailer of consumer goods in Denmark to create a temporary digital insurance brand, Coopforsikringer.dk. Using Penni.io, the insurer developed a consumer website for online sales which can be reused across business areas and products.

A recent survey by Deloitte revealed an increase in M&A deal activity, especially with legacy insurers acquiring insurtechs. From their survey of 424 insurance executives, L&A respondents are more likely to buy an insurtech in 2022 (47%) than P&C’s (35%), who are already heavily engaged in insurtech investment.

Vikram Sindu, a partner at a global law firm and insurance specialist Clyde&Co explains how embedded insurance partnerships are more than M&A, but also a type of joint venture. Sindu said, “if a large technology company or a retailer wanted to go more full-stack [after forming a partnership and providing embedded insurance], they could then go into the insurance business themselves and become more of a traditional conglomerate.”

Sindu’s insight echos a business model found most profoundly in the financial services industry, but now emerging in insurance. People are attracted to services that can provide all possible needs, from products to insurance coverage. A global survey from Cover Genius found that a majority of consumers are interested in embedded insurance offers based on their transaction data, this includes 64.1% of UK bank customers. The respondents claimed their decision was decided by convenience and trust.

Presently, consumers are eager for more embedded insurance options from every facet of eCommerce, leading to the increase in the free movement of transactional consumer data. With more insurers adapting their policies to be more PSD2 compliant, both insurtechs and legacy insurers are taking big steps to offer a range of embedded insurance products to online service providers. Early last month, insurtech Bubble launched their embedded “insurance-in-a-box” offering, which allows real estate and mortgage companies to embed home and life insurance into real estate transactions. Like Penni Connect, Bubble’s product employs the use of APIs and widgets to integrate its insurance products into third parties.

The growing use of API and automation software, compounded by the availability of open consumer data, shows that embedded insurance products will become imperative to the insurance industry. Looking at the use of it with companies like Tesla and Amazon, such a product brings an advantage to insurers, both in its ability to specialise insurance policies and reach a wider customer base.