Auto insurance market could see robust growth embedded sales – report

Traditional insurers could collaborate with non-insurance partners to incorporate coverage into initial transactions.

Embedded finance is poised to become a transformative trend in the financial services sector, even more so with auto insurance, according to Deloitte Insights.

This involves integrating substantial insurance and banking offerings at the point of sale, potentially disrupting established distribution channels over the coming years. 

This could also lead to novel partnerships with non-financial entities, some of whom might be inexperienced in the transactions they facilitate.

The impact of embedded insurance is already generating positive forecasts. 

Predictions for embedded property and casualty (P&C) insurance sales by 2030 range from $70b in the US to $700b globally. 

This trend, if 20% of the US personal auto market adopts it, could divert over $50b from traditional distribution avenues.

While the concept of embedding insurance in transactions isn't new, the scale at which it's happening is changing rapidly.

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Driving growth in auto insurance

The scenario of including significant insurance coverage, like auto or homeowners' insurance, in a sale (such as a vehicle or residence) could sideline traditional distribution, affecting insurance agents and direct-to-consumer sales.

To mitigate disintermediation, traditional insurers could collaborate with non-insurance partners to incorporate coverage into initial transactions. Being proactive in forming such alliances could offer competitive advantages in this evolving landscape.

The auto insurance sector could see significant changes due to embedded sales.

In 2022, US personal auto insurers wrote premiums totalling $267b, with a substantial portion coming through traditional direct-to-consumer sales and independent agents. 

A shift towards embedded sales could involve auto dealers and manufacturer websites, potentially bypassing traditional channels.

Early entrants like Tesla have already begun embedding insurance into their offerings, and other auto manufacturers are following suit. 

However, regulatory hurdles and customer relationship dynamics could pose challenges.

Auto dealers may need to become licensed insurance agents, and questions might arise about pricing transparency and customer pressure. 

Additionally, embedded insurance could alter customer relationships, with loyalty shifting towards ecosystem relationships rather than insurer product breadth.

Despite these challenges, the potential of the embedded market is immense. Playing it safe could be the riskiest strategy, considering the substantial growth potential and transformative nature of embedded finance.