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Exploring Embedded Life Insurance to Fix the Coverage Gap

In the U.S., there is a notable insurance protection gap affecting millions of people. By definition, this gap is defined as the difference between those who need insurance and those who don’t have it. This need is not simply a pipe dream by those companies selling insurance. Filling the insurance protection gap would actually be beneficial to individuals and society in the long-run. Unfortunately, there are many obstacles that make purchasing insurance difficult and unpleasant. And this is a reason many believe an embedded insurances model is ideal.

The embedded insurance model is part of a larger trend known as embedded finance. In essence, the embedded insurance model includes opportunities for consumers to purchase insurance when engaged in other commercial activities. But it’s more than just greater visibility. These offerings are also more flexible, personalized, and easier to understand. And best of all, they often result in lower costs not only for buyers but for insurers and third parties as well. Exploring this new way of attracting consumers to the insurance products they need highlights how quickly the insurance sector is changing.

“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,” Eddie Pacey, Fellow of the Chartered Institute of Credit Management (FCICM)

Problems With Existing Insurance Models

For the most part, none of us like to buy insurance of any kind. Life insurance is no different. The policies are often complex, and the actual products usually expensive and inflexible. This is why there is such a tremendous insurance protection gap today. Worldwide, it is estimated that this gap is about $20 trillion annually. In addition, this figure has doubled since 2000, highlighted how ineffective current insurance models are. Many thus hope that an embedded insurance model may be the answer to a system in need of significant change.

The key issues of the current insurance system can be assessed from supply and demand problems. On the supply side, the costs of distributing policies are quite costly. Partnering with insurance sales companies and efforts to educate and sell to a consumer base is inefficient and expensive. Likewise, these systems fail to supply insurance analysts with ample data to offer better risk products. On the demand side, consumers are flocking to buy insurance. This is especially true when offerings are complicated or cover more than they should. Like real estate and healthcare, insurance systems need to change.

“Insurance is a good example of a product that’s made by our internal applications team. We make the insurance product and connect it to the car, look at the data, calculate the risk. This is all [done] internally — basically [it’s an] internal software application.” – Elon Musk, Founder and CEO of Tesla

How the Embedded Insurance Model Works

As the name implies, the embedded insurance model offers consumers insurance products at the time of another purchase or activity. This has been made possible by technology advances that enables digital bundling of insurance with other products. Bundling of insurance products is not new, but doing so through technology is. For example, purchasing travel insurance at the time of travel, or getting car insurance when buying a Tesla matches relevancy, need, and interest. This is what technology offers, and it’s why it can reduce the insurance protection gap. (Read more about how a certain virus made travel a bit more complicated in this Bold story.)

Someone looking up their insurance options
The insurance protection gap for those who most need it is glaring, but what if coverage was embedded in retirement plans?

An embedded insurance model isn’t simply a way for insurers to better move their products. However, it does dramatically reduce their costs of distribution. But these models also offer new opportunities for third parties to gain new revenues streams. It also allows them to enhance their value proposition to their customers, especially if the offering is personalized. By expanding sales that reduce the insurance protection gap, society also prospers over time. And because these models use AI and modular software, insurers collect larger volumes of data. Ultimately, this will lead to less costly and more personalized insurance products as well.

“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.” – Janthana Kaenprakhamroy, CEO of UK insurtech company, Tapoly

Companies Already Engaged in an Embedded Insurance Model

Many businesses today have already jumped on the embedded insurance model bandwagon. As noted, Tesla routinely offers auto insurance when customers buy their car. Carvana does the same thing online. Walmart provides those buying pet food or filling their pet’s prescriptions options for pet insurance. And companies like Uber are working with insurers to create more flexible, personalized insurance products for their millions of drivers. These efforts can reduce the insurance protection gap because they meet customers’ needs more precisely. They also offer the products in a context where they are more likely to appreciate their value.

The expansion of the embedded insurance model to include life insurance is therefore a no-brainer. Online finance companies could include embedded life insurance offerings in their planning services. Likewise, other third parties that deal with healthcare, travel, and debt management could do the same. By creating life insurance products that are simpler, more flexible, and more relevant to a situation, sales will increase. Technologies allow the development of these types of products and platforms today. So, expect life insurance models to soon move in this direction as well.

Tapping Into an Untapped Market

Life insurance markets aren’t new, but the insurance protection gap in this sector is growing. But an embedded insurance model has the potential to change this trend. Based on analysis, insurers estimate that 50 percent of Millennials will purchase life insurance in the next year. If so, then this will represent a multi-trillion-dollar boom for the industry. But life insurance companies will need to educate them and connect with them in the right way. Third parties and embedded insurance offer the best hope in this regard. And if done well, not only will the insurance protection gap decline, but revenues for many stakeholders will increase.


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Solar Energy Industry Update – Jockeying for Position

With increasing interest in clean energy, a number of startups are introducing new solutions for the future. One of the more promising sectors involves the solar energy industry, which tends to enjoy widespread support. However, despite many homeowners adopting this new technology, costs remain prohibitive in many areas. As a result, the growth of residential solar energy has been slower than expected. But that doesn’t mean that those in the industry don’t still see potential. It also doesn’t mean that they’re not actively pursuing innovations that might solve some of these issues.

Residential solar energy installations involve much more than just putting panels on a roof. The overall process includes several steps ranging from design to the finished product. Likewise, companies that are able to leverage scale to create efficiencies and cost reduction enjoy clear advantages. (Check out our previous analysis on the solar energy industry in this Bold story.) Understanding this, there have been some recent moves in the solar energy industry that are noteworthy. While some companies look to be streamlining the overall installation process, others are expanding regionally. Both look to be key strategies for companies hoping to be leaders of the solar energy industry of tomorrow.

“With heightened awareness about climate change there will be more interest in ways to mitigate it…If you want to be the platform for a significant percentage of the energy capacity of the country… you gotta tool up.” – Sam Adeyemo, Co-founder and COO, Aurora Solar

Lowering Barriers to Residential Solar Energy Adoption

When it comes to installing residential solar energy systems, the overall process has several components. Data must be collected to determine whether solar systems make sense for an individual home. Similarly, the design of the actual panel placement must be constructed for optimal effect. If such a system looks feasible, then there are acquisition costs as well as the labor of installation. In total, these additional expenses comprise roughly half of the total price-tag. Thus, any way the solar power industry can reduce these costs increases the chance consumers will buy.

This is where Aurora Solar comes into the picture. Aurora Solar is a startup in the solar power industry that has received a great deal of attention lately. In essence, it simplified the design and cost-estimation aspects within the residential solar power field. Using satellite imagery, aerial lidar scans, light and power usage data, and sunlight pattern information, it quickly determines feasibility. Instead of manually measuring roofs and interpreting data, its proprietary software does it efficiently and thoroughly. And because time is money, this saves significant costs.

A graphic breaking down how solar energy works
The solar power industry continues to innovate and grow, especially now that fossil fuel use is steeped in climate concerns.

Through its initial 2 rounds of venture capital investments, the company received a whopping $70 million. But most recently, Aurora Solar got an even larger boost with $250 million in Series C funding. This seems like a great deal of money for a startup that’s essentially a software company. But it speaks more to the potential Aurora Solar has within the residential solar power market than anything. With plans to expand its platform beyond basic design assistance, investors believe the company has tremendous growth opportunities. Aurora Solar has already provided services to 5 million homes, of which 20 percent proceeded to build-outs. Investors believe this is just a small percentage of potential residential solar power users that exist.

“The next frontier [is] to make solar cost-competitive, and that’s where Aurora comes in. Every time we shave a few dollars off the price of an installation, it opens it up for new consumers.” – Chris Hopper, CEO and Co-founder, Aurora Solar

Scaling Up to Lead the Solar Power Industry

Aurora Sun’s co-founders have yet to reveal their next step, but it likely involves using funding to scale its software. In this regard, it’s not the only company within the solar power industry looking to take advantage of larger scale opportunities. Both Tesla and Sunrun, two market leaders, are also making such moves in the residential solar power market. This is notable because these two companies already account for 75 percent of new residential solar power installations. Advancing their size could potentially squeeze others out of the industry.

In 2014, Tesla acquired Solar City in a tremendous buyout worth $2.6 billion. In doing so, Tesla became the industry leader in residential solar power by far. But that’s no longer the case. Sunrun recently acquired Vivint Solar for $3.2 billion, surpassing Tesla as the industry’s top dog. In the process, Sunrun can now boast over 500,000 homes that operate on solar power. In addition, Sunrun also works with power companies to store excess energy within their power grids. (Dive deeper into renewable energy microgrids in this Bold story.) Tesla will continue to enjoy a strong position in the solar power industry. But Sunrun is clearly making its own statement regarding the future.

By acquiring Vivint Sun, Sunrun will be able to significantly reduce in its operating costs. In fact, estimates suggest it will save roughly $90 million in operational efficiencies as a result. Its larger size will also enable the company to have greater leverage with power companies. Negotiations should yield higher compensation for stored energy reserves in the process. Finally, their expanded outreach will have notable marketing advantages. As the solar power industry leader, Sunrun will gain visibility and increased clientele. In this specific instance, bigger looks to be definitely better.

“Americans want clean and resilient energy. Vivint Solar adds an important and high-quality sales channel that enables our combined company to reach more households and raise awareness about the benefits of home solar and batteries.” – Lynn Jurich, CEO and Founder of Sunrun

Growth Potential for Residential Solar Energy

The current penetration of residential solar power into the energy sector is only about 2-3 percent. As noted, some homes simply will not benefit from a solar panel system. In other instances, the price of installation deters use from a cost-benefit analysis. But as prices fall, growth opportunities will expand quickly. Both Aurora Solar and Sunrun appreciate this as do their investors. With a push for clean energy in vogue, and with bipartisan support, many experts believe the solar energy industry will boom in coming years. If that’s the case, then these companies scaling up now will be a great position to reap the benefits.


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