How Traditional Insurers Can Compete and Thrive in the Age of Embedded Insurance

Keeping Up With Embedded Insurance: How Can Traditional Insurers Adapt?

Many sectors in insurance have long struggled with outdated technology, but digital transformation is now changing everything. From underwriting to claims and customer engagement, AI, automation, and embedded insurance are driving shifts that demand new approaches. Consumers increasingly expect speed and simplicity, moving away from traditional insurers. This leaves incumbents questioning how to stay relevant when instant insurance is becoming the standard.

In the past, insurers waited for customers to come to them. Today’s market is consumer-driven, requiring insurers to offer insurance exactly when and where it’s needed. The question is whether traditional players can catch up or if embedded insurance will take over.

Embedded Insurance 2.0

Rory Yates, global strategic lead at EIS, highlights that embedding insurance means more than just offering policies at checkout. He calls the next phase "Embedded Insurance 2.0," where insurance adapts to complex, changing lives. This could involve smart homes, connected cars, or life insurers using open banking to monitor evolving needs and tailor products accordingly.

The market for Embedded 2.0 is estimated at around $3.5 trillion, yet few insurers have truly tapped into this opportunity. Yates stresses that traditional insurers must rebuild their foundations around customers, not policies. They need systems that support AI while maintaining control, enabling more complex and flexible products. Interoperability across ecosystems will also enable new business models through partnerships and combined offerings.

Meeting Consumer Demands Regionally

Charles Clarke, group vice president at Guidewire, points out that digital insurance offerings must fit regional consumer behaviors. Different cultures have varied levels of comfort with online insurance platforms.

Integrating insurance products into online shops reduces customer acquisition costs and makes it easier to introduce new coverages. Research shows customers are growing comfortable buying insurance from third-party brands like Amazon or IKEA during their regular purchases, especially those who are digitally inclined.

Easy Integration Is Key

Justin Hwang, COO and head of AI projects at RNA Analytics, advises traditional insurers to build open, API-driven platforms. These platforms allow easy integration with digital partners and enable modular, flexible products that can be embedded into third-party systems.

Investing in digital customer experience is critical. Simplifying onboarding, pricing, and claims to meet the frictionless expectations set by tech platforms is necessary. Forming partnerships with tech firms, insurtech startups, and distribution channels expands reach and accesses new customer segments.

Securing a Place in the On-Demand Economy

Scott Thomson, insurance solutions director at FintechOS, says traditional insurers must rethink distribution. The old model—selling standalone insurance through agents or direct channels—is becoming less effective and more expensive.

Customers now expect insurance instantly when they need it, such as travel insurance during flight bookings or device protection when purchasing electronics. Insurers must adopt a partnership-first mindset and develop strong API infrastructures for seamless integration with third-party platforms.

Instant policy issuance and streamlined claims processes suited to embedded environments are essential to compete effectively.

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