Melbourne O’Banion
An estimated 41 million Americans say they need life insurance but have yet to purchase coverage. Despite this awareness among consumers, the Life Insurance Marketing and Research Association estimates a $12 trillion coverage gap, with about 50% of millennials planning to purchase coverage within the next year.
There’s latent demand for life insurance currently unaddressed by much of the financial services industry, and embedded finance can be the solution. It’s imperative for companies to consider product lines and partnerships to expand markets, create new revenue streams and provide added value to their customers.
Connecting consumers with products they need through channels they already know and trust is both a massive revenue opportunity and a social good, providing financial resilience to families at a time when they need it most.
Why bundle life insurance?
The concept of digitally bundling financial products in a packaged offering to a customer is certainly not new — but it is for the life insurance space.
Embedded finance uses technology and operations infrastructure to offer products and services through entities that may not be financial institutions at all. Think of embedded finance like on-demand shopping; customers benefit from both the transaction (buying financial protection for their families) and the convenience it provides (from whatever platform they are currently engaging with).
Similar to how Amazon saves shoppers 75 hours a year, bundling life insurance gives consumers back time in their day and can improve their financial health.
Embedded finance benefits banks and other fintechs. It even benefits legacy financial companies, such as banks and life insurers. By seeking portable solutions for high-demand products, companies can capitalize on the market opportunity without spending time and resources building entire business verticals.
For these reasons, analysts have gone so far as to say embedded finance is the future of fintech. Private-equity firm Lightyear Capital agrees and anticipates financial product bundling will generate $230 billion in revenue by 2025, up from $22.5 billion in 2020.
Where we see portable financial products
Embedded financial offerings are prevalent across industries, with many well-known companies venturing into the space or scaling their efforts. Tesla owners, for example, can now purchase the appropriate amount of coverage for their vehicle nearly instantly.
According to Tesla, the coverage provides vehicle owners with up to 30% lower rates because it “uniquely understands its vehicles, technology, safety, and repair costs, and eliminates fees taken by traditional insurance carriers.”
Apple surprised many when it first partnered with Goldman Sachs to launch a credit card optimized for the tech giant’s product suite. Building on the card’s success, which helped lead the tech company to historic earnings, Apple recently unveiled that card co-owners (often children) will be able to make purchases, enabling each party to build their credit score.
Insurtech bellwether Lemonade launched a white-labeled life insurance offering using the platform my company Bestow provides. By embedding life insurance into its ecosystem, Lemonade continues to deliver lifetime value by evolving its product portfolio to meet customers’ needs as they experience new life stages, such as going from renting to buying a home or having a child.
How embedded finance will disrupt life insurance
Digitizing the entire application and purchasing process for life insurance provides an enormous opportunity for the life insurance industry to expand distribution channels and modernize products to serve today’s customers.
As innovators mature and continue building cutting-edge solutions, this will drive enormous transformation across the industry.
Life insurance has had a slow adoption rate over the past several decades due to various reasons, including distrust and product misalignment. The process of obtaining life insurance also has been far too complicated.
Until recently, it took customers several weeks to purchase a basic term-life insurance policy and almost always required an offline medical examination. Now, with platforms like Bestow, users can buy life insurance from their smartphones in minutes instead of months, and nearly any business can leverage its technology.
As the life insurance industry broadly adopts modernized solutions, providers will be able to diversify their product lines and tailor coverage to serve individual channels and customer groups in a more sophisticated way.
The benefits of faster, better life insurance
With the increasing adoption of embedded finance solutions, the stage is set for consumers to purchase the coverage they need easily. Technology companies have an incredible opportunity to leverage their audiences to launch new business verticals without needing to navigate the technology, regulatory and operational hurdles necessary to develop entire financial solutions.
We will see embedded finance partnerships continue to surge this year, with companies bundling historically complex financial offerings like life insurance into their ecosystem. In the end, faster, better and more convenient life insurance will benefit all by providing needed financial resilience to millions of families.
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