Could bundling in insurance become a booster for channel margins?

Channel companies are always looking out for additional revenue streams, but few touch insurance beyond add-on vendor warranties or offers. Could they be missing a trick?

The embedded insurance market has been estimated as potentially worth $3 trillion (£2.2 trillion) globally, due to the rise of insurtech platforms that could allow insurance to be delivered more cost-effectively to individual customers.

Eddie Pacey, fellow of the Chartered Institute of Credit Management (FCICM) and "semi-retired" channel credit expert at EP Credit Management and Consultancy, says an embedded insurance offering might suit a subset of the channel in future.

"The way people buy equipment and insure it, like a Tesla car, for example, has changed. Companies have all sorts of different types of insurances that cover them, and the IT sector works with really long warranties," he says.

Pacey believes that vendors might take more of a lead on embedded insurance, though, depending on the product. Items with a shorter shelf life, including sparse-margin laptops, might not be worth insuring for a customer who might prefer to simply replace them every few years.

"At some point, the major resellers who basically have sound financial footing, and who are moving to selling their services on a subscription based model might benefit," he suggests.

Insurance bundling might work alongside critical services provided to end users, helping guard customers against particular losses to specific assets or operations not already covered by company insurance.

What about white labelling?

Private companies might look at working with brokers or purchasing white label insurance to on-sell to customers. Financing and credit insurance are often white labelled, Pacey says.

However, he adds that any margin would typically go to the insurance provider, rather than the reseller.

"Embedded financing works, but only to a degree," he says. "So it's still kind of questionable in the IT sector whether embedded insurance will work."

Janthana Kaenprakhamroy, chief executive officer of UK insurtech Tapoly, says part of what her company does is enable partners to offer embedded insurance to customers, the way that companies like Vodafone or Tesla bundle insurance in with a sale.

"Ideally, you need to automate the process so there's no touch. If you start having to speak to customers individually about the insurance before they buy, there would be no profit to make, basically. And that's why fully embedded insurance is all about using technology to provide insurance as part of something else," Kaenprakhamroy says.

"Banks are doing it. Fintechs are doing it. Retail companies are doing it, and software and hardware companies are doing cyber insurance that's embedded into a cyber security offering."

However, the practice still typically makes more sense at high volumes where premiums can be kept low and it can be cost-effective for the end customer, she says.

Embedding insurance could therefore be more suitable for larger technology suppliers to customers with multiple seats, such as in the public sector or large corporates, she tells Channel Pro.

Eventually, it’s likely that bundled insurance will become more useful to a wider range of suppliers, she says, but the industry is "literally at the beginning of that process".

Could embedded insurance evolve to cover insurance gaps, for instance due to COVID-19?

In places like India, determining whether current insurance covers business interruption caused by the ongoing pandemic has been an issue, Kaenprakhamroy notes.

Some kind of embedded insurance might be devised that could be bundled in with other business service-type products.

Insurance bundled with products can help build much-needed customer trust. "If you can get insurance, you probably have a good track record and history," Kaenprakhamroy says.

She warns also that insurance is highly regulated and has suffered through a series of financial crises; contracts with insurance providers can be volatile.

They may expire annually, for example, with due diligence required on any changes. Further, insurance company losses can be huge, with risk increased by Covid.

Commercial insurer Lloyds of London reportedly expects to pay £2.4 billion out in pandemic-related claims for the first six months of 2020 alone, with total insurance industry losses from Covid estimated to reach $107bn.

Kaenprakhamroy notes, too, that insurers may suddenly pull out of a market for balance sheet reasons alone, because they feel resources are insufficient to support more products.

It seems the channel would be wise to tread carefully should they be thinking of bundling insurance in with a sale.

Weigh up the drawbacks

Sibylle Fischer, manager for strategic venturing and startup scouting at Baloise, says the Switzerland-based insurer offers embedded insurance to end-user customers via furniture retailers.

Working out whether similar approaches might benefit both customers and resellers in technology-related sales of various kinds, however, is trickier.

"The question with these companies is what do they sell? Do they sell, for example, cyber-security insurance with their IT systems? Then it might be a good idea because this is becoming a bigger and bigger threat," Fischer tells Channel Pro.

She agrees that embedding insurance might be a better bet for larger players with subscription offerings.

Channel firms are unlikely to want to underwrite insurance themselves, which suggests the best option could be partnering with providers of API-enabled applications for straight-through processing, she notes.

Regardless, insurance is typically a difficult sell by nature. "People never wake up and want to buy insurance," Fischer notes.