Why embedded insurance is the next step for fintechs

Today, more non-financial companies are realising that they can create significant profit opportunities by integrating financial services as an add-on to their existing offerings. Think Starbucks, Uber and TikTok Shop: these companies have used embedded payment capabilities to allow consumers to browse, select a service or product and pay for it all in one application. As a result, the global embedded finance market is growing fast and it is only expected to continue on this upward trajectory.

Embedded insurance is one segment of embedded finance that is contributing to the rapid market growth. The Embedded Insurance market is anticipated to reach over $175 million by 2030. It’s no surprise, therefore, that organisations are interested in embedded insurance to help them grow their businesses and revenues, as well as increase customer interactions and engagement with their brand. But why is it such a crucial next step for fintechs?

What exactly is ‘embedded insurance’?

In short, embedded insurance is the integration of insurance into products or services of third-party brands. This enables those brands to offer more compelling and often bespoke protection solutions for their end customers. Whilst embedded insurance isn’t new, especially Bancassurance which has been around for many years, there has been an increasing appetite for more seamless and sophisticated integrated solutions. Today’s consumers expect bespoke and easily purchasable insurance at the point of sale.

For fintechs and Banking as a Service (BaaS) providers, for example, embedding insurance means they can build a more complete financial services offering in an untapped market full of revenue-generating opportunities and extend the customer’s lifetime value.

Acquiring and retaining customers

While evolutions like mobile banking and open banking have enabled leading financial institutions to enhance their digital offerings and boost innovation across the industry, the market is always changing, and competitors are increasingly expanding their solutions to acquire and retain customers.

Real embedded insurance goes beyond just adding an insurance option to a product at the point of sale; it also encompasses integrating insurance into customers journeys. For example, when an individual opens a bank account and takes out a card, they are automatically protected. In other words, end users aren’t required to purchase an insurance plan separately, as it is bundled into the purchased service. This model is what drives more customers to buy a product and then stay with that company.

It is also about driving repeat purchases. For the end user, insurance is a key consideration that often requires additional time and effort. How many customers proactively think about insurance, rather than leaving it as a last-minute, more expensive decision? Even basic embedded insurance does the hard work for the customer, offering a seamless tick box solution. In turn, this creates customer advocacy, increasing the likelihood of those customers coming back and boosting their trust in the company.

Generating new revenue

Embedding insurance into their offering also enables fintechs to create new revenue streams by increasing customer touch points.

BaaS providers want to ensure their partners and the end distributors get as much time in front of their customers as possible. Embedding insurance solutions makes this possible by increasing ‘platform stickiness’, as adding this option into the point of purchase keeps each user on site a little longer.

What’s more, embedded insurance is a crucial element for fintechs looking to become ‘super apps’ e.g., one stop shops that enable the customer to purchase almost anything without leaving the app. To stand out from competitors and offer everything in one place, providers are focusing on developing super apps to drive more customers to switch to their premium offerings with embedded features.

The challenge for BaaS providers is to create these larger financial services portfolios which satisfy all the financial needs of the end-distributors they work with. Integrating insurance offerings with third-party brands can allow BaaS providers to leverage an insurer’s existing distribution channels of partner companies. They can then tap into new customer segments and reach new audiences, as well as gather valuable data from customer transactions to create more personalised pricing models and solution offerings.

Bolstering your offering as a fintech provider

Choosing the right partner to support fintechs in their embedded insurance journey is critical. With growing globalisation and the buying and selling of goods crossborders, the challenge for many is that different jurisdictions have different regulations. By partnering with the right embedded insurance providers that have the underwriting capabilities and licences to operate in multiple countries, fintechs can ensure their customers are covered globally and they’re not missing out on valuable opportunities.

Embedding insurance is how providers that already have an existing premium offering (such as a digital bank with a metal card) can provide that extra added value. Embedded insurance does the hard work for the customer and in turn it helps both fintechs and their partnered end-distributors to build trust, loyalty and subsequently, profit margins. The upside for embedded insurance is clear, but the capacity to leverage it properly will set apart the commonplace from the standouts.