The rise of embedded finance: Why insurers will benefit from product diversification

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Highly regulated industries like insurance have faced an avalanche of regulation in recent years. New pricing rules for customers and premium finance transparency regulations have accompanied ongoing uncertainty around the practicalities of Brexit. These changes, coupled with increased burdens of climate events, inflationary pressure and changing lifestyle habits, brought on by the COVID-19 pandemic, have left many in the general insurance sector questioning how to continue offering customer value while meeting their commercial objectives.

Laudable regulations improved customer retention rates and kept pricing competitive, but teamed with rapid inflation and the growing cost of claims, insurers’ business models are under pressure to deliver shareholder returns.  

What’s the solution?

Like many other financial institutions, insurers must digitise, diversify and collaborate to cut costs and boost revenues. This means investing in technology to improve customers’ experiences and cut out labour-intensive processes, while partnering with institutions that can help them offer their customers greater value and a broader range of products.

The key steps insurers are taking to adapt to the new market conditions they are facing are:

  1. Diversification of revenue streams: by offering other financial services products, insurers can diversify their revenue streams and reduce their reliance on traditional insurance products. This can help them manage risk and ensure sustainable growth.
  2. Meeting customer needs through partnerships: customers are increasingly looking for convenient and seamless experiences when it comes to managing their finances. Partnering with financial institutions and technology platforms lets them offer products like loans or investments, meeting the evolving needs of their customers and improving customer retention.
  3. Improved customer experience: embracing digital services lets insurers provide their customers with a seamless and integrated experience. This can improve customer satisfaction and loyalty.

What that looks like in practice

Some big-name insurers have already started to embrace this approach, either by establishing single-tie referral partnerships with lenders or by underwriting their own loan products themselves.

Yet, these are legacy approaches in a fast-changing credit market that is seeing credit conditions tighten, resulting in customers potentially needing to shop around to find a lender that is offering appropriate products to them.

Declined credit applications will do nothing to improve customer retention or increase customer lifetime value, so insurers need to be able to offer customers a broad range of products from multiple lenders. Furthermore, the trend for increased personalisation and choice in financial services demands that customers are able to find the right product from the right provider, rather than making do with a sub-optimal product they have been shoehorned into or worse still, rejected from.

Enter embedded finance

This is where fast-evolving embedded finance technology comes in. By adopting a broad and deep marketplace with the embedded capabilities that Aro has, insurers have the ability to provide a breadth of lending options in line with policy renewals through an “always on” embedded digital presence and triggered-based promotional activity.

The Aro marketplace has the ability to provide policyholders with a breadth of offers that are personalised and tailored specifically to individual financial needs. On average, 9 out of 10 customers successfully access a relevant offer. This means that by looking for a loan product through their insurer, customers can gain access to the widest panel of lenders available for a range of homeowner and personal loan products without having to worry about failed applications damaging their credit scores.

Insurers are serious about delivering more for their customers and diversifying revenues, and the good news is that they can now easily diversify revenue streams and improve customer retention through enhancing the range of products they offer and delivering personal credit solutions 24-7. Embedded lending technology can let them do that within their own digital ecosystems, but any offering with a restricted product range is likely to see customers turn elsewhere in today’s competitive environment.

Author: Paul Bevis, Head of Growth

Want to find out more about Aro’s marketplace and embedded finance capabilities? Get in touch with our partnerships team today.

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