The Rise of Embedded Insurance

Insurance and Car in One Click

Many car buyers have noticed that insurance now comes with the car. It’s so easy to buy insurance when you know you can get it with one click to ensure your car is fully insured from the dealership. Plus, that embedded coverage is tailored to your exact driving profile. You’d save weeks of comparing quotes and companies.

Embedded insurance is personal auto insurance that is integrated into the purchase, leasing, or digital checkout process of the vehicle. No more third-party agents means rapid expansion of embedded auto insurance. In this guide, we will go over the pros and cons of embedded insurance, how it works, and why it is challenging the traditional auto insurance agency model.

The Automancer Advantage: Telematics and Proprietary Data

The OEM (Original Equipment Manufacturer) has access to more telematics and proprietary data about a person’s driving ability and habits. Telematics refers to the technology used send, receive, and store info about a moving vehicle, such as:

• Fuel consumption
• Vehicle speed
• Doors
• Location
• Harsh driving events (e.g. collisions)
• Distracted driving

Telematics are used for not just individual cars, but also commercial fleets. They are becoming increasingly popular in the auto insurance world as there is now usage-based auto insurance.

Embedded insurance can use the telematics stored about your moving vehicle to provide you with the most suitable insurance quotes and coverage.

Unrivaled Data Access

Proprietary data is a huge part of the modern insurance industry. Traditional insurance companies, however, have a different approach to telematics compared to embedded insurers. This is because traditional auto insurance companies tend to rely on third party mobile apps or even OBD-II dongles to guess driving behavior. If you’re the automaker itself, you can obtain the real time proprietary data that comes from hardware integrated telematics directly from the vehicle sensors.

Granular Risk Assessment

A lot of insurance coverage costs depend on risk assessments. In the past, insurance companies did not have exact metrics, but could gather millions of data points to ease the calculation of risk and influence insurance premiums accurately.

Now, OEMs can adopt a new approach to the risk of a driver. They can evaluate your driving risk using direct metrics obtained through telematics, such as:

• Hard braking
• Cornering forces
• Late-night or early morning driving times

Smart cars have special features to improve safely. Autopilot and Advanced Driver Assistance Systems (ADAS) engagement hours may reward drivers when crash-prevention systems are active.

Real-time vehicle health diagnostics are also another factor for risk assessment systems to consider, such as your car’s tires, brake pad issues, and more.

Pricing Precision

Traditional auto insurance carriers need to gather data long-term, and the risk assessments take time. Underwriters cannot simply obtain all the real-time data and act on it.

An OEM’s experience will be different. Because an OEM will face zero data latency, they can offer more personalized options to their car owners. For example, they can provide Pay-As-You-Drive auto insurance policies that traditional insurance carriers simply cannot price competitively.

In addition, OEMs tend to have to deal with less fraud on their own, so they can price more leniently compared to auto insurance carriers that cannot offer embedded insurance.

Point-of-Sale Friction vs. The Traditional Buying Experience

Traditionally, in the old way, car buyers go to the dealership for the car. After making their choice, they have to call an independent auto insurance agent or fill out a bunch of long forms online, submit VINs, and wait for underwriting approval. The manual process of finding insurance can be stressful and time consuming, especially for first-time car owners. At the end of it, they would then have to send the proof of insurance to the dealership’s proper department.

Buying Embedded Insurance

There is almost no friction when it comes to buying auto insurance the embedded way, because the policy gets bundled directly into whatever you’re doing. It could be combo’d with your financing, leasing, or monthly subscription.

The convenience is a HUGE reason why people are switching to embedded insurance as it has become offered. New car owners don’t have loyalty to any other insurance brand. It makes sense that if they have already committed to a vehicle, they would feel happy to accept the insurance offered by the OEM at the dealership.

In addition, consider the cost of the premium. A car can cost thousands, or even over a hundred thousand, dollars. If you commit to that amount and then are told you can get embedded insurance tailored to your needs at a minor $100 or so per month, why would that money seem like a lot in that moment?

If you end up buying insurance with a broker, in that case the $100 premium monthly would feel much more significant because you are at a further distance to the cost of the vehicle itself.

How Does This Affect Conversions?

Customers who get their insurance embedded at the point of sale are usually considered converted and their choice captured. This is because once they have accepted the embedded quote while picking up their car, very few car owners end up shopping around for third-party coverage going forward. It is a notorious hassle for car owners to find good insurance, so they may stick to the same embedded insurance until the vehicle no longer is theirs to drive.

Threat to Traditional Agencies and Independent Brokers

So now you know that automakers are starting to lock in auto insurance for their consumers during the actual sale of the car. They’re offering individualized prices and coverage based on what they know about the driver who’s coming to buy the car. Easy and clean and profitable, but what about independent brokers and car insurance agencies?

As a result to embedded insurance entering the market, many independent car insurance carriers and brokers are noticing that they are getting fewer commissions. They lose out on that crucial touchpoint of connection that drives personal auto insurance purchases. They are forced to adapt or else they will be pushed out eventually of the market.

Multi-policy auto insurance policies

Interestingly, independent insurance brokers also often offer multiple lines of diverse insurance products to their consumers. A single family may own several policies introduced by the insurance broker, with auto insurance as the anchor product that leads them to homeowners, renters, and umbrella policies (which often are more profitable than the initial auto insurance policy).

If automakers and car buyers end up all shifting to OEM-provided embedded insurance, this can be a huge challenge for insurance agents who lose out on their primary client acquisition funnel.

Margin Squeeze and Commissions

You may have heard that traditional insurance agencies come with high commission overheads. This amount could range from 10 to 15 percent per policy that they sell. Consumers know this too—as a result, many car owners or buyers get frustrated that they feel pressured to buy a car or insurance policy.

On the other hand, embedded insurance that gets sold runs on far, far lower distribution costs for the OEMs themselves. The dealership doesn’t need to worry about the typical concerns of an insurance agency (e.g. commission for the broker). The platforms for embedded auto insurance are driven by APIs and very easy for the OEM to offer each individual car buyer who visits their dealership.

Motivations for OEM to Offer Embedded Insurance: Recurring Revenue & Repair Parts Control

An OEM wouldn’t start offering embedded insurance for extra resources if it didn’t get them anything in return. It makes sense for the car owner to accept embedded insurance, but why would a manufacturer that has never offered insurance before start entering the market now?

High Margin Revenue

Typically, cars are purchased every 5 to 7 years. Automakers can expect revenue to come in waves, and they take longer for the same customer to come back for a new car, if they come bcak at all. However, auto insurance operates on a monthly or annual basis. Automakers can actually start accruing monthly revenue, which means more high margin revenue that they can easily work towards just from offering their own insurance products at the checkout point.

Repair Loops

Think about car accidents. If an embedded policy car driver gets into an accident, the OEM's insurance branch can help route the vehicle directly to its certified collision network. This is different from independent insurers who may be partnered with OTHER collision networks or shops that they would route the car driver to.

With the OEM’s own embedded insurance, they become in control of which parts get used in repair shops because they choose the collision network assistance options. This allows them to avoid aftermarket components or shady stores, and thus can drive long-term parts sales for the original manufacturer.

Car manufacturers are often concerned with staying in control of what parts are sold or repaired where. This gives them control over the parts. Smart cars and electric cars also have special parts that they do not want to be available outside of licensed shops.

Electric and Smart Cars

Some cars are harder to insure outside of their own ecosystem. For example, when electric cars like Tesla first entered the streets, insurance companies did not know how to accurately or affordably insure them. Tesla learned that the digital, point of sale insurance policies they offer are a great way to provide insurance coverage to their drivers.

Industry Counter-Strategies & Agency Survival

So what happens to the insurance brokers and agencies now that OEMs are adopting embedded insurance more widely? The traditional insurance agencies of course need to adapt and strategize in return. Chubb, Allianz, Nationwide are currently acting as white label underwriters behind OEM embedded insurance programs instead of fighting them.

Agency Pivots

Independent insurance agencies are starting to shift their focus towards commercial fleets and products, or more specialized auto insurance policies that have more robust coverage than regular embedded insurance. For example, high-net-worth individual auto insurance coverage is generally purchased through a reputable independent insurance broker.

Anyone who has complex risks or goals when buying a car will also still benefit most from human advice. For example, what if you are buying a vehicle for special company or film purposes? What if you are buying a vintage car? Human advice can’t be overlooked.

Data Privacy and Regulatory Concerns

OEMs are facing state level insurance licensing requirements, strict rate-filing laws, and regulatory challenges. There has also been consumer pushback over how much data should be collected by vehicle-linked embedded insurance.

Conclusion: The New Distribution Era

Embedded insurance is quickly challenging traditional auto insurance agencies. It’s tearing apart and rebuilding how auto insurance is bought, priced, and offered. Any auto insurance agency that relies only on standard auto policies will face severe disruption as automakers bundle insurance policies with their vehicles.

Stay up to date on the best auto insurance policies to ensure you’re always getting the most relevant, best coverage for your buck.