Swiss Re out elephant hunting for embedded deals

Sebastien Bert, Swiss Re’s head of Strategic Partnerships US, tells Program Manager that he sees a lot of opportunity in embedded insurance, with the unit doing fewer of these deals compared with its insurtech partnerships but bringing in much higher premiums per deal.

Swiss Re formed its Strategic Partnerships unit three years ago to address the market need from all the new entrants coming in that were not traditional insurance companies.

“We were seeing in the alternative distribution space an explosion in the number of companies that look like insurtech MGAs,” said Bert. “The other big phenomenon we were seeing, and this is about embedded insurance, is non-insurance entities that are corporates with big customer bases that were saying, ‘We want to get more into the cross-selling of insurance and embedding that within our products and services.’”

The executive said the Strategic Partnerships premium mix is pretty evenly spread between the insurtechs and embedded deals, but the number of insurtech deals is much higher because they are smaller.

“We like to see more niche business for insurtech,” Bert said. “The books are usually between $10mn and $15mn. We call those singles and doubles.”

Swiss Re is also selective about the deals it pursues. Bert said that in the past three years it has seen over 200 insurtech opportunities.

“We treat it like venture capital, although we don’t do venture capital, we don’t invest in these things,” he said. “The hit rate is pretty low. I’d say it is about 10 percent but that is intentional.”

In contrast, the embedded insurance deals are more about “elephant hunting of the larger books”, the executive said.

“You have these platforms that are linked to customers and those can grow pretty large. But those take a lot longer time to bring to market for a couple of reasons. We have some deals that take one or two years,” he said.

Discussing the embedded insurance opportunity, Bert said the non-insurance companies are looking for bespoke products.

“The goal for us is to create new reinsurance clients and new reinsurance spend but also embed our solution,” Bert said. “We help these companies get to market.”

Swiss Re services the companies in a number of ways. The most obvious is through capital, by providing reinsurance.

But Swiss Re also provides access to external capability providers curated by the reinsurer. These can include digital MGAs, actuaries and third-party administrators.

“We have relationships with most of the carriers so we help orchestrate those partners that are needed to bring their products to market – I call it match making,” Bert said. “But also we make introductions to claims and policy admin.”

The reinsurer can also provide solutions such as data and analytics as well as product development. “We help level the playing field for these new entrants and give them operational leverage,” Bert said.

Marsh McLennan subsidiary Celent in May released a report in partnership with Swiss Re that explored the burgeoning embedded insurance market.

Celent believes that the amount of insurance distributed by embedded insurance partners (EIPs) will grow over the next several years. This growth will come from two sources: shifting premium from established distribution channels and new premium for policies reducing under-insured and uninsured exposures.

The report said that “a few years from now” existing premium shift to EIPs could represent $13bn to $39bn in premium, based on an EIP premium share of property casualty insurance net premiums written of 2 percent at the low end and 6 percent at the high end.

In addition, new business from closing the protection gap could represent $6.5bn to $19.5bn of premium, based on a low end of 1 percent and a high end of 3 percent.

“It is an opportunity that could be in the tens of billions of dollars but it could take five or it could take 10 years,” said Bert.

Examples of EIPs provided in the report included: Porch offering insurance alongside home maintenance services; Experian allowing customers to buy insurance while they build credit; Dealer Policy allowing customers to buy a car and insure it at the same place; Intuit QuickBooks offering liability insurance as part of small business products; and Ikea offering homeowners insurance as you shop for furniture.

The Celent report said an EIP has several options for how it could participate in the insurance stack.

Option one is as a marketing partner, accessing three insurance stack capabilities of marketing and distribution, data and analytics and technology. In this case, underwriting would be done by insurers, insurtechs, MGAs or business process outsourcers.

The second option is as a marketing, product and risk selection partner, which requires five insurance stack capabilities, adding pricing and product management and underwriting to the three in option one.

The third option is for EIPs to act as an MGA partner, which utilises nearly all of the insurance stack capabilities, including policy service and billing, claims management and compliance and reporting to the capabilities.

Bert cautioned that there are some risks for EIPs.

“If the embedded player doesn’t want to become a carrier themselves, they have to become flexible,” Bert said. “Insurance is a regulated space, and when they want to change that rate based on user experience it still has to be done within the construct of how insurance is regulated.”

Bert also suggested issues may arise if embedded insurance is viewed as purely about generating commission.

“There is a danger if it is about volume and not unlocking value for the customer and for the capital partners,” he said. “The insurtech space five or six years ago was kind of a frenzy of not very good deals. It would be terrible if the embedded insurance space fell into the same category, of just doing market share for the sake of market share but where there is not that complement.”

©2022 The Insurer

This article originally appeared in The Insurer on June 21, 2002.