Mar 17, 2023

What is embedded insurance? A guide for benefits software and insurance carriers

Embedded insurance represents a $3 trillion market opportunity for the global insurance industry. Here's an overview of the benefits, drawbacks, and future outlook for benefits software and insurance carriers.

Mary Cvetan

As employers seek ways to adapt their benefits program to engage a hybrid post-pandemic workforce, the need for flexible health and life coverage is more vital than ever. Meanwhile, insurance carriers who can partner with brands outside of the life and health sector will gain unprecedented access to relevant customer data. More robust data means more precise risk analysis and, thus, more accurate — and competitive — pricing.

When individuals can easily purchase coverage, relevant to their needs, at the right price, they are more likely to do so. That’s also true when their insurance company rewards them for reducing risky behaviors. Enter embedded insurance, a concept representing a $3 trillion market opportunity for the global insurance industry.

To help our partners understand how embedded insurance applies to employee benefits, here’s an insider’s look at how it works, as well as an overview of the benefits, drawbacks, and future outlook for benefits software and insurance carriers.

What is embedded insurance?

Until recently, insurers have sold coverage via two methods: As standalone products or through brokers and agents. When insurance is embedded, the customer purchases coverage for a product or service as part of the online buying process.

As an insurtech strategy, embedded insurance has grown rapidly with the advent of cloud-based platforms, APIs, and automation. In fact, this innovative approach is expected to create market value in excess of $70 billion in the US by 2030.

How does embedded insurance work?

Insurance companies offer embedded insurance at the point of purchase in three ways:

  • Opt-in. A customer is given the opportunity to add an insurance product to their cart at the checkout. For example, a customer buying a plane ticket online sees prompts to add coverage for travel delay or lost baggage.

  • Opt-out. In this scenario, customers must complete an action to remove insurance when purchasing a product or service. Extended warranties automatically “baked into” the shopping cart flow are a common example.

  • Non-optional. The customer pays for the coverage, often without knowing, as part of the shopping experience. For example, when individuals book transportation on a rideshare app, they buy coverage for themselves, other passengers, and the driver as an embedded percentage of the total cost.

How can embedded insurance be used for health insurance?

To date, property and casualty carriers make up the majority of insurers adding embedded insurance to their product suite. That’s because life and health coverage tends to be complex and highly regulated. One key regulation, The Health Insurance Portability and Accountability Act of 1996 (HIPAA), forbids health care providers and insurers from disclosing a patient’s health data without their consent or knowledge.

This type of coverage is thus more difficult to transition from traditional distribution models and legacy platforms. However, there are many ways the life and health sector might embrace the opportunity over the coming decade.

One early adopter is Beam Benefits, whose members may opt to track dental care behaviors via a proprietary smart toothbrush. Groups who collectively meet the requirements for good oral hygiene may earn discounts on policy pricing.

Bubble pairs the purchase of home and life insurance via a speedy, highly customized online tool. Real estate and mortgage companies partner with Bubble to embed digital homeowner's and life insurance seamlessly into real estate transactions.

3 potential applications of embedded insurance for health and life

  1. Collecting and using an individual’s health data within the confines of HIPAA through wearable devices. These offer an opportunity for policyholders to opt-in to this kind of data sharing. When connected to API feeds from a customer’s wearable device, health carriers can use customer data to reward positive behavior, suggest medical testing, and help a customer lower their risk of obesity, falls, sleep-related disorders, and other adverse events.

  2. Decision support embedded into the employee experience using individual variables and AI. As benefits administrators know, employees spend an average of 18 minutes researching and enrolling in their employee benefits each year. As product designers find new ways to integrate API feeds with major medical and voluntary health insurance products, “benefits 101” support could be embedded into the employee experience. For example, AI prompts could guide an employee’s research and decision-making based on individual variables, such as health risk factors, job-related risks, literacy, past purchases, UX preferences, gamification, and more.

  3. Partnerships with integrated delivery systems and employers. Integrated delivery systems, comprising hospitals, other providers, and insurance subsidiaries under one umbrella organization, are a common model in the US. These entities could partner with employers that do not offer major medical insurance and embed the sale of voluntary health coverage, such as accident or short-term disability products, into the onboarding process for targeted audiences, such as uninsured retail, temporary, or contract workers.

What companies offer embedded insurance?

China’s Ping An Insurance Group offers an intriguing illustration of health insurance connected to, and embedded within, an ecosphere of services. The company operates a wide portfolio of interconnected businesses, from telemedicine to hospitals to healthcare information technology services, and integrates its data and insurance offerings among these platforms.

In the US, the majority of brands use embedded property and casualty coverage. For example, Tesla offers insurance (with underwriting partner State National) that covers its vehicles in several US states. Tesla cars monitor the driver’s behavior and adjust insurance premiums based on that data.

UK-based Cybersmart offers another illustration of tracking and rewarding lower-risk behavior. The company administers cyber security training and certification. Individuals and businesses who earn the certification are invited to purchase Cybersmart coverage against cyber threats.  

As the general public has embraced smart home technology, companies like Hippo smart home insurance have made the next logical step. Hippo monitors tech-equipped homes for hazards such as water leaks and smoke. The company offers premium discounts to home insurance policyholders who agree to monitoring.

What are the technology requirements for embedded insurance?

Embedded insurance is supported by technology platforms that use application programming interfaces, known as “APIs.” APIs allow software applications, servers, platforms, and devices to seamlessly communicate with each other.

APIs push and pull data among a variety of data partners, from airline baggage feeds to electronic health record providers to rideshare apps. APIs connect, or embed, insurance data into the purchase of a third-party service or product.

What are the benefits of embedded insurance?

For insurers, the promise of embedded insurance is significant, as reflected in the $70B market prediction. That’s because the technology offers unprecedented opportunities to create new revenue streams, lower distribution costs, and seamlessly collaborate with partners who offer large customer pools.

Insurers seek ways to work more effectively in a customer-first, digital-first market. Embedded insurance helps carriers to gain richer, more accurate customer data and offer more tailored  pricing.

That leads to higher customer engagement and satisfaction. 

What are the downsides of embedded insurance?

The insurance sector has been slow to innovate for a reason. When bringing new products to market, insurers must consider all legal and regulatory requirements across states and countries. As they experiment with this expansive technology, carriers will need to work within about these restrictions.

Many organizations are still transitioning from legacy to cloud-based platforms. Embedded insurance offers lightning-fast convenience to the customer because it runs within a speedy, streamlined technology ecosystem.

For that reason, more than ever, insurers must be vigilant about the quality of their data and their technology providers. In addition, the industry is also seeing a rise in new technologies like Noyo that deliver an API platform to connect insurance ecosystems in near real-time. With quality data and connections, group benefits experiences can be embedded in new ways.

Clean, trusted data is a must

As the rapid adoption of embedded insurance reveals, better data leads to better products, better software, and new possibilities. Noyo is the leading data platform connecting the group benefits ecosystem in near real-time.

As carriers seek to expand connectivity with HR and benefits software, Noyo delivers a single, safe platform to clean, structure, and transmit benefits data so it can be used and understood in new ways.

Our API technology is enabling a future where modern benefits experiences can be embedded in the software employers and employees use everyday.  

Curious what powerful automation and clean, trusted data can do for you? Reach out to our team for a demo today.

If you do benefits, you need Noyo

The future of employee benefits is faster, easier, and more automated. Are you ready?