Landscape
Cyber and AI threats are more prevalent with both major events (like CrowdStrike and CDK Global) and hundreds of smaller incidents in 2024 alone. Weather events have become even more extreme and on top of ongoing global conflicts, many countries have new elected leaders driving political and economic change.
These emerging risks are not only increasing the frequency and severity of losses, but also testing the industry’s capacity to provide adequate coverage to consumers. This is as much a challenge of risk appetite as it is on capital reserves – we think the soft market from 2024 is likely to continue into 2025 as capital continues to be available to invest.
Old risk models leave high levels of uncertainty in actuarial projections and solvency and capital requirements have increased. These have led to a tightening of appetite that leaves customers with more challenges to find coverage for genuine life changing risks that, somewhat ironically, would only be insurable if they are pooled.
Since insurance provides financial stability/certainty around uncertain events, when insured for major perils customers may feel more empowered to invest, experiment and take risks. The acceleration of customer demand may cause carriers to retreat to more familiar territory. As a result, the consumer may experience impacts from the changes, such as delays to valuable coverage in unstable markets.
We see some insurers struggling to keep pace with the increasing costs of climate-related claims, which are putting pressure on their capital reserves. Unpredictable extreme climate-related events such as hurricanes, wildfires, and floods are becoming more frequent and intense, leading to significant losses for insurers. The recent floods in Valencia, Spain, are set to be the biggest natural catastrophe loss ever in Spain but also highlight the importance of state-backed reinsurance for climate risks. Insured losses amounted to nearly €4.0 billion but the financial impact on Spanish insurers are minimal due to the Compensación de Seguros (CCS) that helped strengthen the Spanish insurance market’s resilience.
Geopolitical tensions are also creating new risks for insurers, including trade wars, sanctions, and cyber attacks. Insurers are facing increased costs due to trade disruptions, supply chain risks, and the potential for retaliatory measures. The industry is also grappling with the impact of sanctions on its ability to operate in certain regions.
When it comes to cyber attacks, they are becoming more sophisticated and frequent, posing a significant threat to insurers’ operations and their customers’ data. Insurers are facing increased costs due to cyber attacks, including the cost of responding to and recovering from attacks, as well as the potential for reputational damage. The industry is also struggling to keep pace with the evolving nature of cyber threats, which are becoming increasingly difficult to predict and mitigate. As customers’ business and personal activities continue to move online, there are significant gaps in coverage from a reduction of capacity and availability of cyber products that cover these risks.
All of these factors in the evolving risk landscape are putting pressure on insurers’ capital reserves, making it challenging for them to maintain their capacity to cover losses. Insurers are responding by increasing their premiums, reducing their exposure to certain risks, and investing in new technologies to better manage and mitigate these risks. The industry must continue to adapt to these emerging risks with technology and cooperation with external stakeholders to maintain its capacity to cover losses and provide protection to its customers.
Yuri: How can insurers adapt their distribution models to the growing prominence of embedded insurance, while preparing for heightened regulatory scrutiny and ensuring they deliver value transparently and fairly to end customers?
Angus: When embedded protection is done well, end customers enjoy excellent value from products with more appropriate coverage to their specific needs, delivered at a competitive price and with a beautiful user experience. The simplicity of buying relevant cover at the point of need from brands customers trust is transforming the insurance purchasing experience and closing key gaps in cover for consumers.
This model brings new challenges for insurers and distributors who need specialist capabilities and consumer focussed thinking to keep ahead of heightened regulatory scrutiny on consumer value.
While maintaining a simple purchasing journey, it is crucial to ensure transparency for consumers about coverage, exclusions and the extent of the value provided by a product so they can quickly make choices in line with their demands and needs. This is of particular focus for vulnerable customers who need to be identified (often via data in the Merchant Partner platform) and then appropriately supported.
Simplicity for customers is the key here.
What I mean by simplicity is that insurers should move away from legacy “one-size-fits-all” underwriting models that offer the same, overly complicated product to all customers regardless of the specific needs of each demographic. They should, instead, use technology and data to only offer up relevant, simple and personalised propositions appropriate to each customer group. This supports regulatory consumer duties on product design and helps customers quickly identify if they are making the best choice.
This leads to another set of challenges by many insurers around data and analytics capabilities needed to succeed in this model. Insurers need to invest in data around both the embedded sales channels and the customer experience feedback loops so they can continually improve customer satisfaction levels and conversion rates, a strong indicator that the products are appropriately designed and sold.
Integrating with new distribution channels, managing data and analytics, and ensuring seamless customer experiences can all pose obstacles for companies that don’t have the technology that allows them that flexibility. They also need to find a balance between the need for innovation and the need for regulatory compliance and transparency. These are all at the core of our insurtech business at Cover Genius.
Finally, we all need to engage more closely with regulators and share the latest trends as consumers move their lives online so that regulators find the optimal balance between protecting customers from bad operators and empowering them to make good choices.
Customers
Yuri: How can insurers enhance their offerings and digital experiences to deliver the seamless, instant, and competitively priced services customers expect—akin to Amazon and Netflix—while addressing the unique financial priorities of younger generations, who face inflation, student debt, and high housing costs, and tend to prefer spending on experiences like travel or dining out, or supporting causes aligned with their values?
Angus: All customers (particularly younger generations) are moving to models where they “consume” financial services like they do other aspects of their lives. Subscription models of insurance with shorter terms of cover and more bite-sized premiums that adjust regularly are where we see the biggest opportunity for insurers.
This will require partnering with digital players to offer the flexibility that is being demanded and create seamless, intuitive, and personalized insurance experiences. Cover Genius, a product-led insurtech, can leverage AI and machine learning to offer real-time recommendations, personalized product offerings, and predictive analytics.
Digital purchase or subscription experiences are only one aspect of the Insurance life-cycle that is changing – insurers also need to deliver this experience when a customer claims. You can’t sell what looks like a sexy smart phone but then only have old mobile phone technology capabilities when you actually need to use it!
Claims and customer support experiences need to take a significant leap forward to meet the needs of customers with real-time support all day everyday through chatbots, online claims and instant payouts on approved claims. The speed of new technology also provides the much-needed assistance to make and resolve customer claims quickly and conveniently.
As a leading insurtech and trusted partner, our goal at Cover Genius is to provide almost any line of insurance or other type of protection solution directly to the global consumers of the world’s largest digital companies. Through our platform, we’re able to work with insurers and underwriters to distribute these solutions directly in the purchase journey, enhancing the digital experience. Traditional insurers are playing catch up and having to invest substantially to reach this level with their digital distribution.
Gen Z will be the primary audience for many companies over the next ten years. We’ve noticed this generation has unique needs and wants personalized experiences with the products and services they interact with. Insurance is no different. Gen Z does not want a one-size-fits-all approach, so insurers will need to work with partners that can help them cater products specifically to them, their purchases and their lifestyles. For example, Cover Genius not only offers comprehensive travel insurance, but can also offer non-insurance offerings like eSIMS, gadget cover or refund protection. Insurers and underwriters also need to think about omnichannel experiences, including mobile apps, chatbots, and social media integration.
Gen Z is also price-sensitive but will invest in value-added services and experiences that are personalized. As such, insurers need to offer competitive pricing on their solutions. Working with an insurtech can allow them to offer bite-sized protection offerings to a global market tailored specifically to different needs.
Our global insurance and underwriting partners benefit from working with an insurtech because we offer them new avenues to insure digital customers that they would otherwise not have access to. Partnering with an insurtech also allows insurers to offer their solutions in flexible, digital-first ways, and not be limited to packaged, expensive policies.
By implementing these strategies, insurers can enhance their offerings and digital experiences to meet the evolving needs and preferences of younger generations and deliver the seamless, instant, and competitively priced services they expect.
Embedded propositions
Yuri: How will embedded insurance evolve in mature verticals such as travel, loans/mortgages, and device protection, driven by advancements in technology and user experience?
Realtime personalisation and presentation of relevant products at the point of need will continue to be the driver for evolution of mature verticals along with the ability to delight with predictive digital experiences.
The API solutions that are available from digital distributors allow insurers who are more experienced in embedded insurance to add targeted additional services and insurance products to differentiate their offering to customers.
In the travel vertical, one of the first adopters of embedded protection, insurers will get deeper into the value chain and be able to offer personalized insurance covers and also non-insurance services based on data about individual traveler profiles, including their travel history and destination-specific risks.
Realtime data available via API will allow insurers to create policies that automatically respond to events like travel delays, bad weather and disasters based on parametric triggers and payout immediately into consumers accounts without them needing to make a claim.
An area Cover Genius has been working on is creating unbundled and bundled offerings that combine travel insurance with other travel-related services, such as eSims, concierge support, booking, accommodation, or activities. By bundling, consumers can save on costs and benefit from additional value-added services that can enhance their travel. Should travelers want to extend their trip, they will also want to purchase insurance and manage their policies directly within travel or insurtech apps, making the process more seamless and convenient.
For banks and neobanks who offer loans or mortgages to a Gen Z demographic, they will need to make certain that the user experience of their embedded insurance provider matches the needs and expectations of their brand. They also need to identify emerging cyber risks and concerns that their customer base has and provide a seamless protected service. Not only do they need to integrate with digital mortgage platforms to offer embedded insurance products, such as mortgage protection insurance, directly to borrowers, but they also need to think about teaming up with insurtechs to offer additional protection solutions that cater to their lifestyle, like life insurance or travel protection. These cross-industry experiences should also be available in-app and online to ensure customers can manage their loan accounts and insurance policies directly within an app or online, making the process more convenient and streamlined.
When it comes to e-commerce, product protection is often overlooked by consumers until it’s too late — their item breaks or gets stolen from their doorstep. However, according to the Retail Protection Survey consumers are interested in purchasing product protection for a variety of their purchases, especially in categories with higher price points and quality, such as Personal Electronics (65%), Home Appliances (52%) and Luxury Goods (34%). Consumers are more inclined to invest in protection plans that safeguard their high value items, mitigating risks associated with product defects, damage or loss. As such, insurers will need to think about providing device protection directly with brands or insurtechs to offer bundled insurance products that combine device protection with other services, such as renewable device protection plans or extended warranties. They may also want to invest in the use of IoT sensors and machine learning to predict device failures and offer proactive maintenance and repair services.
Regardless of vertical, insurers and underwriters need to invest in digital transformation and work with insurtechs that can help them to enable seamless, omnichannel experiences and real-time interactions. This not only offers a better customer experience but helps with personalization and customer satisfaction. As technology continues to advance, embedded protection will become increasingly prevalent in mature verticals, offering customers more convenient, personalized, and cost-effective insurance experiences.
Yuri: Do you foresee greater integration of non-sales capabilities—such as embedded claims processing and automated underwriting—into embedded insurance propositions? If so, how and why do you think this will happen, and what impact could it have on the user experience?
Angus: Fundamentally, we want to ensure the customer is getting the best possible experience from end-to-end . So yes, integration of non-sales capabilities will grow in embedded offerings and be driven by artificial intelligence, automation and predictive analytics.
Consumers will enjoy significant improvements in two key aspects of their insurance experience: speed and accessibility. Claims settlement times will be cut in half for the vast majority of claim types with the latest process automation and parametric capabilities.
Cover Genius recently completed its first fully automated claim with the help of our technology and OCR (Optical Character Recognition). Digital claims management enables seamless, real-time claims processing and settlement. AI and machine learning will continue to improve and be used to automate claims adjudication, reducing processing times and improving accuracy. While we still believe human oversight is needed for more complex claims, technology helps prioritise the customer experience and provide a customer-centric claims experience that is transparent, empathetic, and efficient.
Underwriting and pricing of risks will be able to draw on new data sources and consumer profiles that will enable widening of underwriting appetite and the offering of richer, more valued products.
These non-sales capabilities will help improve the customer experience, reduce costs associated with manual processing, claims adjudication and underwriting. It will also increase accuracy in claims processing and underwriting, reducing errors and disputes.
Enablers
Yuri: Do you foresee investors continuing to support embedded insurance companies, and are we approaching a period of increased market consolidation driven by mergers and acquisitions?
Angus: Investors continue to look for opportunities for significant growth in the financial service sector and the embedded financial services sector remains largely untapped. That said, the access to significant investment remains challenging with tough expectations on growth and positive EBITDA being required. The growth dimension is (almost) a given with more of the world’s global digital companies leaning on the trusted expertise of insurtechs, for compliance, distribution, customer service and payments. I believe Cover Genius is poised as one of the rare insurtechs on the path to continued and exponential growth; and we’re excited to build on our past success.
Investors, in general, are looking to invest in insurtechs that are progressive, evolving and expanding their technology and AI capabilities. These insurtechs will have the biggest impact on the embedded business. Insurtechs that have strong foundations across a number of industries will be most attractive and they can lean on these capabilities to address the current challenges in the market.
Market consolidation of smaller insurtechs is possible over the next two years for those who have not yet found a scalable product-market proposition and access to capital. Traditional insurers have been keen on acquiring insurtech firms to help drive their embedded protection offerings but will still be bound to legacy systems that inhibit innovation. New governments, extreme climate fluctuations, work and travel mobility along with the integration of AI into our everyday lives are helping drive the need for flexible and innovative embedded solutions.
Traditional insurers and brokers continue to recognise the additional value that distribution via embedded insurtechs brings in both closing gaps in their tech capabilities and opening new distribution channels that they would otherwise not be able to access. There is a significant opportunity ahead to create entirely new insurance customers and increase the overall size of the market that we can all benefit from.
As we expand our partnerships and reach we’ll be there to help protect their customers from emerging risks.
