Embedding Value in the Insurance Market

Hello there, welcome to the Tech Means Business podcast. This is a series of podcasts where I talk to interesting people at that particular intersection of where business and technology come together. Today we're talking about a specific area of fintech, financial technology, which is embedded insurance. It's the sort of thing that you've probably come across before if you've, I don't know, bought a car or booked a holiday.

It's where the provider of the goods or service will offer you insurance against that purchase in some other form or other. And it's one of those transformative technologies that's really helping drive sales in all sorts of new sectors, not just those couple I've mentioned. And so you'll start to see this type of feature appear more and more. Our particular angle is, of course, the technology that underpins the system, and it's one that is formed up really of an API-first approach to development and open standards, details of which no doubt we'll get into shortly.

I'm delighted today to be joined by Nikola Jokic. He's from SAP Fionier, one of the leading providers of embedded insurance in this particular respect. Nikola, hello. Welcome to the Tech Means Business podcast.

It's traditional around these parts for guests to tell us a bit about themselves and how they ended up, in your case, at SAP Fionier. Well, it's almost 20 years in business, I would say. So I graduated business informatics and started with SAP as a technical consultant. But I must say I feel more married to insurance because I was changing jobs throughout my career.

But somehow I was always staying with the insurance industry. So from the early beginning, I saw inspiration both in technology and people. And somehow that also resulted in me having different roles. from consulting, project management, but also then managing people, building up offices in different places, and then also having global teams.

Years back, I ended up in a startup as co-CEO, and we had a dream. But then soon after we started, more or less, we were actually acquired by SAP Fionier. And here I am now with SAP Fionier. At SAP Fionier, I have a role of a managing director for insurance.

basically overseeing our product strategy and heading development teams. So typically I try to stay connected with our customers, watch out market trends, and then direct our product strategy depending on what they learn from either customers or analysts whatsoever. So in true sense, I'm something between entrepreneur and entrepreneur. I rather spend time with companies where we can create something from scratch, scale grow.

Or if I have been part of a corporate, I still want to be in a business unit where we can actually talk about some innovation and some growth. Thanks, Nicola. So I think we'd better start off by explaining to an audience of laypeople and indeed, this rather ignorant interviewer, what is embedded insurance? And what's the difference between embedded insurance and bundled insurance?

Embedded insurance means bundling insurance along with the main product or service during the purchase process when the customer needs it the most. Where and when? So in that sense, if you talk about embedded insurance, I was also reading some historical articles. Basically, they say embedded is there already for 100 years because 100 years ago, it was possible to buy car insurance along with buying a Chrysler vehicle.

And then I also read that 1940 at the airport counter, you could also buy travel insurance along with your flight. And there are more examples in bank insurance whatsoever. So embedded as a concept is not new, but the way how it is done is different. So there are definitions, for example, in Ben Insurance 1.

0, and there we talk about insurers only looking for new distribution channels with existing standardized, pretty complex insurance products. So it's basically meant only getting new partners who would already distribute redefined, standardized insurance products, and somehow insurers were still in the lead. So they were just leveraging another channel. And what we now see is emergence of what we call embedded insurance 2.

0, where products are much more innovative and where we see stronger role of distributors or how we call them embedders in defining the insurance products. And talking about embedders there are a number of factors which actually drive the industry towards embedded It basically ecosystem emerge So there are more and more ecosystems like home travel mobility where you could actually want to serve a customer in one journey. Then technological advancements, all these kind of embedded examples from the past, which I mentioned, there were no smooth journeys because technology was not available.

Now with different technology capabilities, you can offer these online journeys embedded in an easier way. And of course, availability of data and data exchange helps insurers to actually customize products to particular end customer needs. There is also, I would say, not a thing to consider is basically data and regulation, because this sometimes can be also a showstopper to some of the use cases in the embedded insurance area. Now, are there any particular industries that are leading the way in using embedded insurance?

I said in the intro, for instance, about travel and vehicle purchases. Are these industries the leaders or is it becoming more common for other areas to use or offer embedded insurance? Well, I mean, there are different analysts are trying to kind of focus how embedded can influence the insurance industry. And some projections say that by 2030, there'll be like between 500 billion to 1 trillion gross return premium, especially in property and casualty segment, coming through embedded insurance, which basically would mean that embedded will become a top three distribution channel for insurers.

So I think there are examples in practice already. And as you said, they are typically linked to particular P2C scenarios and typically linked to particular ecosystems. So I think travel, definitely an easy one because to go embed it, the simpler the product, the easier it is. So in travel insurance area, we have Booking, Expedia.

They already for a while embed travel insurance along their online journeys. Next one, for example, interesting as well is like with Uber, with ride sharing services, they are sure that their drivers are covered for the liability coverage, which makes the entire, I would say, driving experience more safe. And, yeah, I must mention Tesla as well. I mean, they're a disruptor by any means, but they also, apart from offering vehicles, they also offer insurance embedded in the vehicles, claim to leverage the most actual data about your driving behavior, being able to actually price your products and premiums based on your actual driving score or safety score, rather than paying a general premium based on particular historical parameters.

Yeah, there are many more also in the house and home area with IKEA in Europe as well. And I must say, we work with a number of customers and one of our customers in Malaysia, TuneProtect, they're relatively small, but they have a strong partnership with the airline and they offer a variety of travel, embedded travel insurance coverages, micro insurance as well. So there are plenty of examples. So, Nicola, in your experience, does the development of new products, for instance, in embedded insurance, does that drive digital transformation?

Though we are focusing on tech, I must admit that a number of times I saw that, on the other hand, for example, a culture within a particular organization can be an obstacle to digital transformation. Because nowadays, when you are transforming your IT landscape, you're not only replacing the legacy products with new products, because the way businesses operate is changing. So I personally think that technology is available. There are a lot of vendors who offer different products.

So I think unlike in the past where technology was not easy, accessible, talent was also not available. Those things are available today. But then what makes a particular customer successful or not is how they change organization. So how they adopt a new culture, how they onboard new solutions, and how they adjust their organizational structure and culture to those, let's say, transformations they undergo.

So let's say I'm a big seller of a particular service. Is it incumbent on me as a provider of that service to have open access and open APIs to allow other channels to sell my products? So it's kind of incumbent on the suppliers of insurance to offer that type of facility in order that embedded insurance can be offered. And so therefore driving the whole embedded insurance industry.

Definitely. So this is one of the probably top three technological capabilities that insurers need to embrace if they want to play a relevant role in embedded insurance area. Some insurers are still reluctant to go that way. Because if you talk about embedded, at the same time, this is an opportunity and risk for insurers.

Opportunity is clear. It generates additional revenue stream. So potentially they can increase the top line They can cover market segments which they did not cover so far They can leverage the data which they get from the main brands about the customer in order to personalize and create more innovative product offerings But at the same time, it's a threat because there are a number of insurers who, especially tier one players, who are relatively large. They have a strong brand and they are reluctant to go embedded because if you go embedded, there is a risk that you get white labeled.

that your brand is not anymore the brand which customer knows, but actually customer associates with a brand who sells the main product and insurance comes along. So a number of Taiwan insurers still are trying to make their B2C play stronger and don't get embedded. But eventually, my opinion is that sooner or later, if they don't get embedded, they will start losing on the revenue side because insurance still really becomes just additional service or a product or a main product in general for the end consumer.

And then talking about technology, what you mentioned is that definitely openness. So having open APIs, having event-driven architecture is one prerequisite. Second prerequisite as well is hyper-personalized products because typically online when product gets embedded, it has to be adjusted to a particular need of a customer in a particular journey. So it has to be highly personalized.

So I think openness, personalization, cloud capabilities that you can get also some agility. But this is not easy because typically all the incubants come with a large back office systems for who are potentially maintained for years. And implementing those changes, definitely it's not easy. Yeah, it's interesting, isn't it?

I'd quote two companies, Sony and Apple, and they're two bodies who aren't, if you like, scared to cannibalize themselves. If you think about Steve Jobs and the original iPhone, the iPad actually was being developed first inside Apple. And he got hold of that and said, OK, we're going to produce this phone now using the technology that we've been developing. Is it that willingness that's missing sometimes in insurance companies, for instance, that they don't want to cannibalize their own departments in order to drive these bigger goals of offering products like embedded insurance?

Yes, it's definitely like that. And that's why typically embedded play will open opportunities for tier two and tier three insurance, because they would make an easier decision to provide capacity to particular, you know, third party distribution partner or basically get embedded, get white labeled. They would be much faster in deciding. And for them, the revenue which can then generate through that opportunity may be substantial.

Okay, so if we play buzzword bingo, obviously the big buzzword at the moment is AI. Are there opportunities, substantial opportunities inside the financial sector and insurance, embedded insurance? Are there opportunities there for using AI in this space? Definitely.

So I think, and you're right, I was last week on a conference, and I would say hype about AI is really, really big. And everyone talks about AI and how it can be leveraged in a number of use cases. I think companies are pressed to make a use of it. So I think AI can be used in any step of an insurance value chain.

But here, when we talk about embedded, we largely talk about sales. We talk about product offering to particular customer needs. So, yes, AI can definitely help. Why?

Because we talked about personalization. And if we leverage AI, we can real-time, dynamically personalize our proposition and offering to a customer based on the context. So if customer is undergoing a particular journey and has provided certain data, for example, 30 years old, driving this vehicle, heading to this particular destination, based on this data, we can leverage AI and dynamically recommend the best possible proposition to this customer and avoid or basically make a journey more seamless.

So with less clicks, less questions answered or asked and whatsoever. You mentioned second and third tier. Is it, in your experience, is it the case that it tends to be the newer banks and the newer financial institutions that are offering these types of products via these open systems rather than, if you like, the more established financial institutions, institutions with a capital I, I guess? Well, it's a good one.

I think talking about embedded insurance, we definitely talk about ecosystems. And in ecosystem, there are different parties who collaborate. And also, insurers can take different roles within an ecosystem. And I think, as you rightly pointed out, probably those who have more technological capabilities, who are small organizations, more agile, can better and faster adopt.

But still if you talk about the context of embedded there is an opportunity for everyone So if you talk about tier one insurers incumbents who are less agile they can still with a good investment technology they potentially have an opportunity to become an ecosystem orchestrator so they can support particular brands in orchestrating not only insurance products and services but others so combining for example uh home insurance with fire alarm so there can be a large insurer who who is happy to build a platform which can orchestrate not only its own products and services which are insurance-specific, but also other third-party products and services for the particular brand, and offer the orchestration platform where these products can be combined together, insurance and non-insurance products and services in one go.

So this is a play which is more relevant for the large Tire 1 insurers, and there we talk about orchestration platform which they can deliver. Then on the other hand, I think talking about tier two, tier three, there are different options. I mean, they can develop technology capabilities, but sometimes they don't have capability, talent. There is also, we don't talk about talent in insurance and in tech, but sometimes insurers have a challenge to attract the right talent.

And that's where insurtechs come in play. I mean, talking about insurtechs, I have witnessed around about hundreds of them who are dealing with embedded insurance, specialize in particular product line, particular business line. And what you can see is they're somehow squeezing down insurers to being a mere capacity providers or white label product provider. So they go and establish then partnerships with particular partners in the distribution area.

And then they can source certain capacity for particular insurance players. So these insurtechs are definitely also a threat, as well as, in a way, some of them enablers for insurers, as we talked about them before. Oh, I see. So on the one hand, you've got marketplaces and you've got online stores in various industries.

And then you have the engagement hub. And if you like, you guys are coordinating the backing insurance, as it were, using AI and algorithms, almost a mix and match. So would you describe SAP Fionier as an enabler? Correct.

But for the time, yes. But for the time being, we want to give this product in hands of insurers so they have technological capabilities to do so. And as you rightly pointed out, so mixing different products and services based on the data and what we learn about customers from the distribution channels or commerce platform, however you call it, online travel places, you name it, OEMs, mobility segment, and then create quickly personalized insurance offerings which can be easily embedded into these online journeys.

Okay, so in general, if listeners are in the industry and they're interested in the subject, what are the best ways for them to explore and make the most of those opportunities in embedded insurance? Is the first call to you guys or a source of information? Where should people be going in order to get involved more? They can reach out to us.

I mean, they can follow SCP Finance on LinkedIn. They can visit our website. We also host a lot of webinars and events about this topic. So if you follow us or myself on LinkedIn, you will get this information.

Nevertheless, I could also recommend communities like Open and Embedded Insurance Observatory, where we also participate ourselves and have good exchange. And one interesting thing, I mean, coming from our side, I mean, I talked a lot about embedded, But what we as SAP finally do in that area, we are just about to launch a new product called Engagement Hub, which exactly I would say if I need to describe it in three sentences, would serve as an ecosystem orchestrator. So the new product solution sitting between the, let's say, back office, robust core insurance systems, and on the other hand, the distribution partners and channels of that kind, but now emerging, meaning going beyond industry borders.

So engagement hub should be there to orchestrate, on one hand, combination and bundling of different insurance products and non-insurance products and services and personalize them by using the AI and then leveraging the open APIs, micro-frontends or video technology, making them available for different distribution partners. We, in particular, want to help incubants and the insurers of different sizes and provide them kind of enabler so they can stay relevant in the whole embedded insurance play.

Well, I'm afraid to say we are just about out of time. It only remains for me to say thank you to Nikola Djokic of SAP Fionier for being on the podcast today. Thanks, Nikola. Yeah, great.

Thanks a lot. And I really enjoyed it. It was much more relaxed and informal, so I will do it again, at least with you. And thanks as well.

Go out to all the listeners out there. Thanks for joining us today. I hope you can join us next time on the Tech Means Business podcast. Bye for now.

Thank you.