Many consumers are unaware that their home insurance often doesn’t cover high-value items, leading to unfortunate situations where stolen items remain uninsured. With UK consumers projected to spend over £15 billion on luxury items in 2024, increasing to £20 billion by 2028, most of these purchases are uninsured at the point of sale.

The prevalence of theft in this sector is alarming, with the value of stolen luxury watches in the UK surging to £1.5 billion and over 100,000 incidents of watch-related thefts reported in the past year alone. Robert highlights the potential of embedded insurance as a solution, integrating coverage directly into the purchase process to offer immediate protection and convenience. Regulatory considerations are crucial, with compliance required for frameworks like the UK Consumer Duty and the EU Insurance Distribution Directive.

Luxury retailers can benefit from partnering with Embri by offering embedded insurance solutions, providing peace of mind to consumers and creating additional revenue streams. For success, delivering an optimal user experience aligned with regulatory compliance is key. Retailers should collaborate with knowledgeable experts who understand regulatory requirements and have robust digital distribution systems to offer customer-focused and relevant insurance solutions.

Yuri Poletto: “My watch was stolen, and I wasn’t covered by my home insurance” is an all-too-common headline. Robert, thank you for taking the time to talk with the Open and Embedded Insurance Observatory about the insurance protection gap in the luxury retail sector. Can you tell us more about this significant issue in the luxury watch and jewellery market regarding insurance coverage?

Robert McCarthy: Absolutely, Yuri. This statement captures a prevalent problem. Many consumers are unaware that their home insurance often doesn’t cover high-value items like luxury watches or jewellery. This leads to unfortunate situations where, after a theft, they discover they aren’t covered. For instance, there have been instances of tourists having their jewellery stolen during a trip to London. Despite having both travel and home insurance, in one instance, a claim was denied because the theft wasn’t classified as a ‘violent crime.’ This highlights a critical protection gap in traditional insurance policies.

Yuri Poletto: That’s a significant gap indeed. With the luxury market growing rapidly, what are the current spending trends in the UK?

Robert McCarthy: The luxury market is substantial and expanding. In 2024 alone, UK consumers are projected to spend over £15 billion on luxury items, with expectations to surpass £20 billion by 2028. However, a majority of these purchases remain uninsured at the point of sale, leaving buyers exposed to theft and loss from the moment they leave the store.

Yuri Poletto: How prevalent is theft in this sector?

Robert McCarthy: Luxury item theft, especially of high-value watches, is increasing alarmingly. According to a Freedom of Information request by Watchfinder & Co, the value of stolen luxury watches in the UK has surged to £1.5 billion. The Watch Register, the world’s largest watch database, reports over 100,000 incidents of watch-related thefts in the past year alone. Aviva’s data also shows a 43% increase in high-value claims for jewellery theft. These figures underscore the growing risk and the need for better protection solutions.

Yuri Poletto: Given this heightened risk, what role does embedded insurance play as a solution?

Robert McCarthy: Embedded insurance has the potential to be groundbreaking for this sector. It integrates bespoke insurance coverage directly into the purchase process for the item, allowing consumers to protect their luxury items with just one click at the point of sale. This approach offers several advantages: immediate coverage, convenience, and enhanced security. It ensures luxury items are insured from the moment they are purchased, eliminating the need for consumers to seek separate insurance coverage. This seamless integration makes the insurance process more relevant and accessible.

Yuri Poletto: What are the regulatory considerations for implementing embedded insurance?

Robert McCarthy: The resale of insurance products is highly regulated. Implementing an embedded insurance solution requires careful adherence to regulatory principles like consumer duty and protection. Compliance with regulations such as the UK Consumer Duty and the EU Insurance Distribution Directive (IDD) is crucial. These frameworks ensure consumers receive clear, accurate information to make well-informed decisions and that insurance products are not mis-sold, or bought unintentionally. The IDD also mandates that the insurance offered with a product or service is optional, giving consumers the freedom to purchase the core product without insurance.

Yuri Poletto: How can retailers ensure transparency and trust in this process?

Robert McCarthy: Transparency regarding inducements and financial arrangements is essential. Retailers and intermediaries must be willing to be open about how they are remunerated, whether through inducements from insurance companies and/or commission income received from policy sales. A focus on transparency builds trust and ensures that consumers understand the financial aspects of their insurance purchase. This honesty about remuneration fosters a trustworthy relationship between retailers and consumers.

Yuri Poletto: What is the path forward for fully realising the potential of embedded insurance?

Robert McCarthy: Stakeholder collaboration with regards to regulatory conduct is key. Retailers must be confident that their insurance partners are knowledgeable and proactive when it comes to adhering to regulatory obligations. Embedded insurance  is a rapidly evolving landscape so engaging in dialogue with regulators and demonstrating the consumer benefits of embedded insurance will help shape a supportive regulatory environment. The introduction of the Consumer Duty in the UK exemplifies the growing emphasis on consumer protection, and Embri is committed to these principles. By working together, we can create a framework that supports innovation while safeguarding consumer interests.

Yuri Poletto: How can luxury retailers benefit from partnering with Embri?

Robert McCarthy: Luxury retailers can help customers close the protection gap by offering embedded insurance solutions. This approach not only provides peace of mind to consumers but also offers retailers an additional revenue stream through a revenue share model. A trusted partnership approach, leveraging embedded insurance expertise and efficient digital distribution systems, allows retailers to integrate customer-focused insurance offerings seamlessly. This means retailers can focus on their core business while providing their customers with the security they deserve. Moreover, the collaboration ensures that retailers don’t need to become experts in embedded insurance, as they can rely on their partners’ expertise.

Yuri Poletto: What are the key elements for a successful embedded insurance service in the luxury market?

Robert McCarthy: A successful embedded insurance service hinges on delivering an optimal user experience aligned with regulatory compliance. Retailers should work with knowledgeable partners who understand the regulatory requirements and have robust digital distribution systems. This collaboration ensures a full-service approach, where the embedded insurance expertise of partners complements the retailers’ core business. The focus should be on providing value-add insurance solutions that are customer-focused and relevant, reducing time to market and eliminating entry barriers.

Yuri Poletto: Thank you, Robert. This has been very insightful. Your expertise sheds light on how embedded insurance can bridge the protection gap in the luxury market, and we agree working in parallel with regulators and educating consumers and retailers alike will be critical to future growth and partnerships. 

Robert McCarthy: Thank you, Yuri. It’s been a pleasure discussing the potential of embedded insurance in the luxury market. I look forward to seeing how these solutions evolve and benefit both consumers and retailers.