The Strength Of Embedded Insurance

Svein Skovly, Head Of Innovation, Fremtind Forsikring

Bank assurance is a success in the Nordics and especially so in Norway. In order to keep and enhance success, bank assurance companies must adapt to the rapid digitalization of banking. The insurance companies have been good at this, and there are definite lessons learned that are relevant for all insurance distribution.

The traditional approach to buying insurance is to contact an insurance agent or an insurance company to get advice and an offer. In order to prepare the offer, the agent will ask a lot of questions to determine the right level of cover. Another set of questions is needed in to get the price right. This process is time-consuming for the potential insurance buyer and costly for the insurance company. Even worse, going through this process with two different agents will most often result in different advice and offers. As with everything where people have to exercise judgment, there will be differences. One of the problems with this is that the judgment is limited by the knowledge and competence of the individual agent rather than the overall knowledge and competence of the insurance company.

Using a customer-centric approach, insurance companies can handle this better.

First of all, the reason we all have insurance is that we want to protect ourselves against a financial loss. This may seem obvious, but is worth remembering when we discuss how and when insurance is sold. This also means that people are not interested in insurance products; they just want to be protected financially. Actually, I do not know anyone not working in the insurance industry, who is interested in insurance products.

Triggers for buying insurance

If insurance is bought to protect against financial loss, the relevance of getting, or terminating, insurance occurs when there is a change to an individual’s financial risk exposure. There are many such changes, but the majority is too small to affect the insurance needs. Luckily for the bank assurance companies, many of the major ones involve interaction with the bank. Examples of these are buying a home (getting a mortgage), buying a car, change in family status, and more. By being present in these transactions, the insurance companies can offer the right insurance cover at the right time—fully automated.

"One of the problems with this is that the judgment is limited by the knowledge and competence of the individual agent rather than the overall knowledge and competence of the insurance company"

Fremtind in Norway has successfully implemented these kinds of solutions, and the results are beneficial in many ways. The most significant solution is the insurance offering embedded with a mortgage offer:

When a bank customer applies for a mortgage, they also provide a one-time consent to use the application data and data from other sources to provide a relevant insurance recommendation. When the mortgage offer is given to the customer, they will also receive a tailor-made insurance offer based on the consequences of this financial transaction. The offer is relevant in timing and content. The offer consists of a combination of P&C products, e.g. insurance for the house and contents and personal risk products. If there are multiple parties involved, they will each receive an individual offer.

And just to be clear; all of this happens in a 100 percent digital process. The mortgage application is entered online, the mortgage documents are signed online, and the insurance offer is accepted online. There is no doubt in my mind that these kinds of processes are the future of insurance distribution, either in bank assurance or as a part of other processes where data about transactions are available.

The advantages are clear. The customer receives a relevant offer at the right moment. The insurance company is able to use a cost-effective distribution model where the company competence is used to provide the best advice. Compliance-wise, this is also a major improvement. The company can document exactly why a customer has received a specific recommendation, and there is a log of the information a customer has received. Given everything exactly the same, two customers will receive the same insurance recommendation no matter where and when they get in touch with the bank.

Embedded insurance and bank assurance above all give benefits in:

- Access to a high-volume marketplace

- Timing and relevance to optimize sales

- Compliance through documented process and logging

My best advice to the Insurance CIOs: Make sure that the entire insurance value chain is digital, modular and prepared for self-service. You will need it shortly.