Dominating seed rounds and VC funding, the fintech sector is the past decade’s success story.
But, as more fintechs mature and explode in growth, they’re increasingly looking for new features and services to attract and retain customers and become users’ primary banking app.
One such feature is embedded insurance, where an insurance product is bundled in with the purchase of another product or service. Global VC investment in insurtech startups is booming, with investment in the sector growing from $1.8bn in 2016 to $10.5bn in the first three quarters of 2021 alone.
Why all the interest? Put simply, buying insurance is not something most consumers can be bothered with. According to research by the Swiss Re Institute, the protection gap — the gap between the amount of insurance that is socially beneficial for people and organisations, and the amount actually purchased — doubled between 2000 and 2020.
So, how are fintechs using embedded finance to close this gap? And what does the future of fintech and insurtech look like? We asked the experts.
More than just another revenue stream
Embedded insurance works by seamlessly placing insurance into customer journeys, offering more personalised, affordable and relevant coverage when they need it most. This insurance can be embedded in either a customer journey — when buying a bike, for example — or, in the case of most fintechs, it can be embedded directly into a card or plan. The latter means that the end customer doesn’t have to worry about their insurance plan as it’s seamlessly built into the purchased service.
Quentin Colmant, chief executive and cofounder of Qover, which offers digital insurance solutions to unicorns like Deliveroo, Revolut and Monese, says embedded insurance can be more than just another revenue stream — it can be a strategic asset to reach your goals as a fintech.
“The naive thing as a fintech is to think ‘I’ll upsell insurance to my customers to make a bit more money’,” he tells Sifted. “What you should be thinking about is how insurance can build your customer acquisition and retention strategies.”
For example, Qover partners with Revolut to embed purchase protection insurance into the neobank’s subscription plans, offering customers a year’s cover against theft and accidental damage on all purchases. This drives both subscriptions (acquisition) and customer behaviour (retention), argues Colmant.
“If you’re a Revolut customer, the next time you buy a phone, will you use your regular bank card or your Revolut card? Most likely you’ll use Revolut to get the built-in protection, which pushes you to use them for more transactions,” he says. “Before you know it, Revolut is becoming your primary bank.”
What you should be thinking about is how insurance can build your customer acquisition and retention strategies
Providing embedded insurance also enables Revolut to build on their superapp ambitions of becoming the one-stop shop for a customer’s financial services, as well as expanding into travel booking and stock trading.
“Embedded insurance allows customers to have a product and coverage before they know they’re at risk,” says Balázs Gáti, Revolut’s global head of insurance. “This means Revolut can protect some of our customers’ financial losses as part of our financial superapp proposition and support them when they’re most in need.”
Superapp ambitions
According to Dealroom, embedded insurance is projected to account for over $700bn in premiums by 2030, or 25% of the total market worldwide.
But the power and financial clout of fintech giants means there’s a danger startups will try to build insurance products in-house. Qover’s chief revenue officer Parker Crockford says they should think twice about the specific complexity of insurance.
“Fintechs have built successful financial services so they think they can do insurance too. But it’s a new set of processes and new expertise that needs to be built up,” he says. “It’s about the full life cycle. What happens when someone makes a claim? How do you make it work? How do you provide a good experience if the claim has to be rejected? You need the full infrastructure.”
Embedded insurance allows customers to have a product and coverage before they know they’re at risk
A further challenge is the siloed nature of insurance offerings. Different countries require different regulations and offer different products — with the added complication of language. Traditional insurers may operate across countries, but fintechs are digitally native, one-tech products, providing the same experience across multiple regions.
In order to overcome this logistical challenge, fintechs require partners willing to handle cross-border regulations, helping to cut back on the red tape for companies and clients alike.
“Partnering with Qover has taken the difficulties of working with 32 countries and multiple insurers away from Revolut, managing all policy development, translations, claims handling and getting the right insurers lined up for our products based on their diverse appetites,” says Gáti. “I would estimate that this relationship has cut our insurance build from more than three months to just six weeks… and contributes directly to the revenue growth from the subscriptions. We are working on continual coverage improvements and enhancements, with the next set rolling out in Q4 of this year.”
Colmant adds that in the race for fintech superapp supremacy, it’ll come down to picking your battles — why waste time and money on building your own embedded insurance product when you can partner with the experts?
“When building a superapp, choose your battles. There are things that you can build to go faster and get more market share, but insurance is specialised and complicated. Doing it yourself is just a dream.”
