Embedded insurance has made substantial gains in 2021, but the technology faces regulatory and other roadblocks that postpone its full potential, a panel of experts and industry insiders said during InsureTech Connect 2021 in Vegas.

“Regulation is a roadblock and it hurts the consumer right now,” said Meitav Harpaz, CEO and co-founder of Pattern, an embedded insurance startup that helps product or service providers integrate insurance or other products into their offerings.

Embedded insurance is the ability for any business that sells products or services to also sell insurance as if they were a carrier or agent themselves.

Harpaz, speaking as part of an Oct. 5 panel presentation, explained that some embedded offerings require multiple consumer signatures and other potentially excessive actions before a transaction can be completed, due to regulatory restrictions. This is something that he said can be prohibitive to efficient use of embedded insurance.

“It’s got to be something that really works for both sides,” Harpaz said during the panel discussion. “And the delivery value to the insured, has got to work for the insurer, who is kind of getting out of the way and is not as dominantly present in the transaction. It has got to work for the business as well.”

Panelist Sean Ringsted, Chief Digital Officer and Chief Risk Officer at Chubb, agreed that the regulatory and customer experience has to be better for some embedded products.

“This is not for all products … you are not going to do [it] for the middle market [or] upper middle market,” Ringsted said. “What we have the excitement about is if you think of a broader swatch of consumer products in the digital economy, is having to drive the change in [embedded] product. Part of that is regulation. Part of that is you have to design [insurance] products that are relevant.”

Panelist Mike Shim, CEO and co-founder of DigiSure, a customer identity verification platform, said technology is not where it should be yet to make embedded insurance and related transactions seamless.

“From what I see, technology is still a ways away, at least from what we hear when we talk to our customers,” Shim said. “We need more technology from our insurance partners, which is why we created our company.”

What Customers Want From Embedded Insurance

Shim said that some customers (such as those in the travel sector) see embedded insurance as an opportunity to create incremental revenue, but most want something more fundamental than that.

“The most basic thing they want out of embedded insurance is actually to lower their insurance costs,” Shim said. “They are looking for ways to reduce premiums, reduce friction, get value from their spend. Embedded insurance to me, the way I think about it, allows for all of those things.”

Shim said embedded insurance can help with a number of things, including reducing customer claims frequency, claims severity, and digital claims management.

Harpaz said he sees consumers winning in the end.

“We eventually get to the point where insurance is embedded and integrated into the product itself. You buy the phone, the phone is protected,” Harpaz said. “The clear winners will be the consumers.”

Winning is possible for insurers, too, because of the way embedded insurance addresses distribution, Harpaz noted.

“For insurers, one of the biggest challenges in the industry is the distribution,” Harpaz said. “Insurers waste about 50 percent of their income on distribution [and] it does diminish their role as a clear third entity [in embedded insurance] that is present. But of course they are the ones that produce products and protections and the underwriting and regulatory models. They also win in this scenario – it is a slight shift of the role that insurers play today.”

Ringsted said that embedded insurance carries some risk, but argued success is possible after mastering a few variables.

“The winners will be whoever can deliver the right product and services to consumers and figure out how to use the technology and data,” he said. “But it is a risky business and I don’t think we should lose sight of that.”