By Ron Arnold, founder 11eight

Embedded insurance is being hailed as a game-changer for the industry. Integrating insurance directly into the purchase journey for goods and services promises to remove friction, lower distribution costs and deliver a much better customer experience.

The opportunity for embedded insurance is significant: by 2033, it is forecast to reach $35 billion – 18% of the total Australian insurance market – and be valued at about $201 billion in gross written premium, according to PwC. A compound annual growth rate of 34% from 2024 to 2033 would far exceed the 4% rate projected for traditional insurance channels over the same period.

Most of the growth is forecast to occur in general insurance, with embedded distribution anticipated to rise from 1% to 12% of the market by 2033.

The concept of embedded insurance dates back nearly a century, with car dealers attempting to sell cover alongside vehicle purchases and banks offering insurance with loans.

These processes are still typically manual, not digital, require data rekeying, and often feel like an afterthought. Sometimes they simply involve a referral to the insurer. They also tend to be an expensive sales channel, with a commission or fee paid to the partner.

A more modern approach to embedded insurance significantly enhances the experience for customers and the partners selling the cover. Leveraging APIs, data, analytics and digital platforms, insurance can be offered instantly and contextually, with a high level of personalisation.

Customers can receive real-time offers, make immediate purchases and enjoy a smooth and hassle-free process. Additionally, these modern embedded insurance options tend to achieve higher sales conversion rates, improve customer experiences and reduce costs compared with the traditional model.

The power and limits of partnerships

A critical, often-overlooked reality is that only so many high-value partner brands with relevant customer touchpoints are available. Not every digital platform or retail journey is suited to embedded insurance. The best opportunities are those where insurance is relevant and enhances the core transaction, such as purchasing vehicles or home loans.

The limited availability of partnerships means competition will be intense. In the coming years, securing the most valuable partnerships and providing a seamless, trusted, embedded experience will be crucial differentiators. Insurers will target brands whose customer journeys align with their insurance products and whose standards for technology, compliance and brand values are complementary.

The embedded opportunity appears well suited to insurers already focused on this space, such as Allianz, QBE and CGU.

Indeed, Allianz is an early mover in the Australian market. It has partnered with carsales.com.au to integrate insurance directly into the online car-buying process.

This collaboration uses Allianz’s API technology to present cover offers to customers while they shop for vehicles. The goal is to create a smooth embedded insurance experience, making it easier for buyers to obtain coverage at point of purchase, whether from a dealer or through a private sale.

Although there are some sales through broker channels, Australia’s direct insurer brands such as NRMA, the Suncorp businesses (AAMI, GIO, Bingle and Shannons), the motoring clubs (RACV, RACQ, RAC WA, RACT and AANT), Budget and Youi dominate the market for motor and home insurance.

Products such as motor and home cover are well suited to an embedded-type offering – purchasing a car or a loan is a trigger point for insurance.

The challenge for direct brands

The rise of embedded insurance introduces a profound strategic challenge for direct insurer brands.

They have traditionally built their strength on direct-to-consumer relationships, investing heavily in marketing, brand equity, customer loyalty and control over the entire customer experience. The modern embedded model means ceding some of that control and relevance to partner brands, raising brand conflict and operational complexity:

• Brand dilution: when insurance is white-labelled or co-branded with a partner's brand, the insurer’s brand can become invisible to the customer, undermining years of investment in direct brand building. This may weaken long-term loyalty.
• Loss of customer relationship: in the embedded model, the partner brand may “own” the customer relationship, controlling the primary touchpoints and data – making it more difficult for the insurer to cross-sell, retain and nurture direct engagement with policyholders.
• Service delivery: partner brands are unsurprisingly protective of their brands and reputations. They will have high expectations of insurer pricing, product coverage and service delivery, particularly at the moment of truth – claims time. Even where the product carries the insurer’s brand, there is an implied endorsement. 
• Pricing and underwriting: to fully benefit from embedded, so the offer and purchase can be truly seamless, the insurer may have to trade off pricing and underwriting questions in return for higher volume and lower distribution costs.
• Margin pressure: embedded distribution typically involves revenue sharing in some form with partners, which can erode some of the model’s benefits.
• Different capabilities required: large direct insurers must enhance or develop new capabilities around partnership management, integration with partner technology platforms, compliance oversight across multiple channels, and shared data governance. This is a significant shift from the skills and systems needed for traditional direct sales.

Regulatory considerations

Australia’s regulatory landscape presents significant hurdles. The deferred sales model for add-on insurance, introduced in October 2021, requires a mandatory four-day pause between the sale of a primary product and the offer of add-on insurance. This pause is designed to give consumers time to consider their options and reduce the risk of pressure selling.

The anti-hawking regime, strengthened after the Hayne royal commission, prohibits insurers and their partners from making unsolicited insurance offers to retail clients via real-time communication (such as phone calls or in-person approaches).

The deferred sales model does not currently apply to certain products, such as home building, landlords and most motor insurance, due to a five-year exemption that began in October 2021. This exemption recognises the nature of these products, allowing them to be offered at the point of sale.

However, it will expire in October next year, at which point the government will decide whether to extend, modify or remove it.

The path forward

While Australia’s modern embedded insurance model is in its infancy, it is growing. It will be evolution, not revolution, and has the potential to reshape the insurance distribution landscape. It is unlikely to be the only channel, but it will be important. The winners will be those who:

• Recognise that the pool of high-value embedded outlets is finite, and act decisively to secure and nurture relationships.
• Rethink distribution strategies and tackle the brand challenges head on, with clear strategies that balance direct and embedded distribution.
• Forge deep, strategic relationships with partners that control the most relevant customer journeys.
• Surprise and delight when it comes to the insurance services provided.
• Invest in compliance and customer consent infrastructure.
• Look beyond the law’s intent to ensure customers do not get inappropriate outcomes from embedded purchases and learn from the mistakes made by some industry players with “add-on” insurance.
• Work to ensure the deferred sales model exemptions continue after October next year.

After a successful executive career in government and insurance, Ron Arnold founded 11eight to help organisations solve complex challenges and drive long-term success by delivering transformative strategies.

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