Embedding Insurance into Your Customers’ Lives: The Importance of User Experience
Understanding the needs and behaviours of your customers to provide them insurance when they need it the most.
Most of us dream about a new home, a new car, or a new phone, but no one thinks of or desires to own insurance. We all need and seek security, but it’s key for insurance providers to understand that customers feel more protective of things when they are new or when they feel exposed to risk.
“How strongly customers feel the need to buy insurance depends on their current context, their fleeting preferences, and how they feel at any given moment” Simon Bentholm
For digital insurers, the most convenient moment to tackle the customers' needs and expectations is when the users experience the excitement of buying a new product but also the fear about the risks it comes with it. Let’s have a closer look at embedded insurance to understand its value and why it’s disrupting the industry.
Defining embedded insurance
“Embedded Insurance means abstracting insurance functionality into technology in a way that enables any third-party product or service provider in any sector to seamlessly integrate insurance products and solutions into their own customer propositions and experiences, either as complementary add-ons to their core offerings or as new native components.” Simon Torrance
In other words, embedded insurance is a type of insurance that is integrated directly into a product/service provider platform, making it easy for customers to purchase their insurance coverage. It allows customers to buy insurance at the same time and place where they are buying a product or service, without having to navigate to different websites or providers.
With this approach, instead of insurance services being provided by specific insurance companies, embedded insurance uses companies not typically involved in financial services to provide these services at a lower cost in product/service provider environments. Additionally, these companies can provide these services in a way that is easy for people to understand and access.
There are multiple examples of other (not insurance) types of embedded services we see almost every day online, like embedded payments (such as Stripe or PayPal) or embedded security (encryption and authentication services).
Why is it trending now?
As Simon Torrance mentioned in a report, some factors that influence the trend for embedded insurance are:
- Technological advances allowed financial companies to be modularised and abstracted into software formats or APIs, so they can be accessed and creatively reconfigured by third-party developers and non-financial product managers, quickly and cost-effectively.
- Increasing commercial demand: Digitalisation is making companies change the way they do business due to the potential of offering digital financial services to make their own products/services more valuable and profitable. Some companies, like Tesla, are even starting their own insurance companies to have more control over their whole brand experience.
- Protection gap: The increasing demand for insurance coverage in society coupled with the gap between the coverage needed and coverage purchased can be addressed through the implementation of embedded insurance. This approach makes obtaining coverage more convenient and accessible by incorporating it into existing products and services, leading to greater coverage and usage among consumers. It also enables insurers to provide more personalized options, ultimately closing the gap between coverage needed and coverage obtained.
The Psychology of Embedded Insurance: Why Customers Opt-In
“Don’t think about an insurance product as a commodity that is bought simply on price; it must be a service solution that is bought based on perceived value to reduce risk and manage loss.” Simon Burtwell
Insurance providers should not assume that customers will automatically want to buy their product just because it is important. They need to find ways to persuade customers to buy insurance, but what’s the best way, and when? When selling digital insurance, the decision to purchase is often closely tied to the act of buying a related item, such as a car. Customers may be excited about the purchase but also have concerns about potential accidents and damage.
As mentioned in Simon Bentholm’s article, selling insurance effectively comes down to using two types of proximity: top-of-mind proximity and transactional proximity. They are both related to the timing and convenience of offering insurance products, but they refer to slightly different things.
Top-of-mind proximity refers to the ability of an insurance provider to be at the forefront of a customer’s mind when they are considering a purchase or when they are experiencing an event that may require insurance coverage. It is about being top-of-mind for the customer, making it more likely that they will consider the provider’s products when they are in need of coverage.
Transactional proximity, on the other hand, refers to the close relationship between a customer’s decision to make a purchase and their consideration of insurance. It’s about the timing of offering the insurance at the same point of sale, making it more likely that the customer will add insurance coverage to their purchase, and also making it more convenient for the customer.
In summary, top-of-mind proximity is about being the first option that customers consider, while transactional proximity is about offering insurance at the point of sale when the customer is most likely to be thinking about related risks.
Embedding Insurance for a Smoother Experience: Types and Real-life Examples of its Potential
“Today’s digital-first consumers expect their favorite online brands to embed insurance offerings for all kinds of valuable products and services that they now get online, from extended warranties for expensive electronic products to homeowners and renters insurance or integrated contractors insurance for gig economy drivers” (Darcy Shapiro, COO Americas, Cover Genius)
There are different types of embedded insurance depending on the nature of the relationship between the insurance product and the product/service it is being integrated into:
- Related embedding: It refers to the integration of insurance products into digital platforms where there is a connection or relevance to the core product. The insurance is offered as an option to the customer in a space where they are already shopping or engaging, such as an online retailer linking it to the insurance core product. This way the insurance product is offered in a relevant context, without being dependent on a specific transaction between the retailer and the customer.
For example, KLM Royal Dutch Airline offers related embedded insurance as an add-on service when customers purchase a flight through their website. These products are called KLM Cancellation Insurance and KLM Comprehensive insurance, and it offers plans for flight cancellation, medical coverage, or baggage coverage. This service is optional, and the insurance provided is Allianz but it is related to the product being purchased and it makes it more convenient for customers to get coverage when they purchase their flights.
- Linked embedding: The goal of linked embedded insurance is to integrate the insurance product into a partner’s sales process, making it a part of the customer’s purchasing experience. This allows customers to easily purchase insurance coverage as an extension of the product or service they are already buying, making the process more convenient for them.
For example, Apple offers linked embedded insurance as an optional add-on service when customers purchase a new Apple device such as an iPhone or iPad. The service is called AppleCare+ and it offers accidental damage coverage, technical support, and a warranty extension.
- Bundled embedding: refers to insurance products bundled together with a product or service. It’s presented as part of a package and inseparable from the product or service.
For example, as mentioned in this article, Uber provides at its own cost certain insurance coverage to its drivers — specifically, drivers are covered when they have their Uber app on and are available or waiting for a ride request when they are driving to pick up a rider, and during trips.
Wrapping Up: The Benefits of UX in Embedded Insurance
Embedded insurance is a service/product created to fit customers' needs by identifying the right risk protection options and presenting them in the most appropriate context. Insurance and product/service providers should aim to make the process of purchasing insurance as seamless and convenient as possible. Customers want relevant and personalised products and a better, simpler buying process matched to their time of need.
This is where UX teams can play a crucial role in the success of embedded insurance products. By conducting user research, and understanding customers’ needs, and pain points, we can design interfaces that are easy to navigate and understand. Additionally, by continuously conducting usability tests, A/B testing, and iterating based on the results, UX teams can help to optimise the embedded insurance product over time and ensure that it continues to meet the evolving needs of customers and adapt to its different contexts and markets.
By utilising their knowledge of the business proposition, customer needs, and principles from UX and behaviour science, UX designers can pinpoint the specific moments in the customer journey where users are most likely to consider purchasing insurance coverage. By enhancing the presentation and ease of purchasing digital insurance products, and ensuring they are presented in a relevant context, UX teams can increase the likelihood that users will consider purchasing coverage, thus keeping a specific product or service at the forefront of their minds.
