Quarterly Review | Fall 2025

“The future is embedded.” So wrote Lasith Lansakara, head of strategy and product innovation at HSB, a subsidiary of Munich Re, in a recent LinkedIn post. Within five years, he said, the “traditional insurance distribution model will be the exception, not the rule.” He was referring to embedded insurance, the process through which customers buy insurance policies at the same moment that they buy a car or a phone or a trip or even a house. It’s a single point of purchase, with insurance products being baked into packages offered jointly by insurers in partnership with airlines, car dealers, banks, automotive and telco companies. Embedded insurance promises to be a true industry disruptor. In December 2024, Deloitte reported that the embedded insurance market was “expected to top US $722 billion globally by 2030, driven by customer demand for greater personalization across channels.”

It’s not brand new, as a concept. Car rental companies have been providing insurance policies at their key-pickup counters for decades; extended appliance warranties are also a version of embedded insurance. But the field has been revolutionized by the explosion in the digitization of data. Reams of information—about the particularities of the way a customer drives, for example, and how these habits are likely to interact with the features of a specific model of vehicle—is increasingly becoming available through telemetrics collected by the vehicles themselves. “We are at an inflection point of understanding risk,” says Anudeep Chauhan, embedded insurance lead for North America at Ernst and Young. “And this is making the purchase of protection for that risk much, much simpler.”

Plus, customers are increasingly accustomed to the convenience of online transactions. Having the option to click “yes” to include an insurance policy, required or not, in the midst of making a significant purchase not only makes things easier for the consumer, it has become intuitive. More and more, the experts predict, it will be expected.

There is much for insurers to gain by going the embedded route. Partnering up with well-known and long-established car companies and airlines gives insurers access to large, previously untapped pools of customers. Being affiliated with trusted brands will boost credibility; a positive experience will boost customer loyalty. Making non-required insurance available right at the point of purchase—for, say, a concert or a venue rental—is likely to increase uptake. “With added efficiency and more data generated, embedded insurance improves customer stickiness, increases Customer Lifetime Value (CLV), and grows revenue,” said KPMG in a report on “The accelerating shift to embedded insurance,” published in 2024.

Adapting to the embedded model requires insurers to invest in new technologies and systems. Perhaps more significantly, it demands a change in their thinking about the very basics of their work, everything from underwriting to pricing. The challenges implicit in the shift are significant but surmountable. Canada is somewhat behind the U.S. and U.K. markets in moving to a more widespread embedded landscape. The regulatory frameworks and structure of the industry in Canada, as well as Canadian consumer habits, all play a role in this lag. But here as well, change is possible, and perhaps even likely, given current political trends.

Becoming a customer

Negotiations between insurance companies and third parties can be complicated. Chauhan points out that traditionally, an insurer wouldn’t be inclined to see an automotive company, for example, as a customer. “And the automotive company can’t afford to let someone use their brand without treating them as their customer.” In fact, he says, auto companies have traditionally been one-step removed from their customers, who tend to buy cars from dealers. “And now insurance shows up, and the automotive companies are confronted with this reality that if they were to partner with an insurance company, they would now invite another 800-pound gorilla to sit between them and their customers,” says Chauhan.

Lansakara points out that in forging a partnership with an insurer, a large automotive company will likely seek the best prices for their consumers. And, he notes, a large automotive company is itself a different kind of customer than what many insurers are used to, with greater leverage and negotiating power. “I think that will lead to better prices for the consumer,” he says. It also means insurers need to become more precise when it comes to predicting risk, assessing probability. “In the old world, where I’m selling insurance through a broker to a consumer, there could be certain segments that I price better and certain segments I price worse,” Lansakara says. But in an embedded model, with a car company looking for the most competitive deals, “I need to get really good at pricing a larger share of the market to equally balance the ‘good’ and ‘bad’ risk segments.”

And so, in order to win exclusive partnerships with third parties, insurance companies need to accommodate some of their needs. It may mean creating lower-cost products that compete with some of the insurers’ other products, says Chauhan, “cannibalizing” some of their own business. But Chauhan believes it’s critical for insurers to be open to the idea of “leaving a legacy and upending the market, creating a disruption kind of a story.”

Differing regulatory regimes

In the U.S., some car companies have brought insurance underwriting in-house—Tesla is an example, starting in 2019. It depends on the rules in a given state. And therein lies what Chauhan calls a “superpower” of insurance companies: managing the regulators. In addition to the licensing and expertise required to underwrite an insurance policy, insurers bring to the table invaluable experience working within the legal restrictions of a given jurisdiction.

But regulatory regimes, and in particular the variations in them between provinces in Canada, are also a possible hindrance to widespread adoption by insurers of embedded models. What Lansakara describes as a “legal patchwork”—different reporting requirements in different provinces, for example of a cyber breach, or different rules about what kind of insurance can be sold through an intermediary—can make a logistical nightmare of going national with a single policy.

Over the past year, Ontario’s Financial Services Regulatory Authority (FSRA) has conducted a pilot project whereby car dealers in Ontario have been invested with the ability to sell insurance when they sell a car. The project, known as a “regulatory sandbox,” was made possible by the province’s 2024 budget, and involves amending the Insurance Act so as to exempt car dealers from a section of the law that prohibits the sale of insurance.

Lansakara is hopeful that increased regulatory flexibility of this kind will facilitate a smoother transition in the industry to a more embedded landscape. He suggests now is a particularly opportune political moment for such changes. “With some of the recent trade disputes and issues south of the border, I think a lot more awareness has been raised about higher prices and hidden and interprovincial barriers,” he says. “And I think the federal government is also pushing for greater harmonization of regulation across provinces, and some deregulation.”

Consumer protection

But regulation is also critical in the field of embedded insurance, says Sebastian Rybarczyk, Director, Corporate Underwriting & Coverages, Personal Lines at Desjardins and Chair of the Hamilton/Niagara Chapter of the Insurance Institute of Canada, because of the potential for “undue influence” on consumers when third parties are motivated to sell insurance so as to sell their product. A car dealership may direct a customer to an online embedded insurance product in the hopes that this will increase the likelihood of the customer leaving with a car that same day. Who is around when the customer is filling out the application form? asks Rybarczyk. And are they really best positioned to advise a customer about an insurance policy? “Insurance is a very complex item to explain when you are licensed,” he says. “There are so many nuances to it, so many small complexities, from the actual rules behind it, to what you require, to what we’re seeing in the market, deductibles, what you’re going to be able to pay, all of these things.” Who is responsible for protecting consumer interests? “There need to be controls in place,” he says. “The goal is to try to keep it separate. The dealership and the folks there shouldn’t have influence over the person buying insurance.”

Prevalence of face-to-face sales

In Canada, insurance is largely sold “face-to-face” through brokers rather than directly by insurers, as is more commonly done in the U.S. and U.K. This structure may have contributed to a lag in the development of the embedded market in this country. Lansakara wonders about how this aspect of the Canadian industry dovetails with consumer behaviour in Canada, which he suspects differs slightly from that in other countries. “I don’t think Canadians would always go for the cheapest price,” Lansakara says. “My sense is, within reason, in Canada, you’ll pay a little bit more for familiarity or principles. Consumers are not looking to disrupt their relationships with brokers.”

The prevalence of selling through brokers has likely led to another handicap when it comes to embedded insurance in the Canadian market, suggests Duncan Meadows, Canadian insurance consulting partner at EY: a certain degree of “digital immaturity.” In Canada, less product is sold digitally, which means insurers tend to have “less good technology infrastructure and less good ability to sell digitally and through different types of selling, including embedded models,” says Meadows.

Potential for Risk Accumulation

Embedded insurance can bring a significant increase in the volume of an insurer’s business, but there is such a thing as too much. “Depending on who your partner is, you may get a lot of the same risks,” says Rybarczyk. “Maybe you’re obtaining too many tenants in a single building. Maybe you’re obtaining too many of the same vehicle type. These kinds of things can work against you as an insurer.” He likens it to investing all your money in one in one stock; if something bad happens, you are over exposed. “Imagine you insure a whole building, all of the tenants, everyone in there, and then there’s a flood, and it leaks down from the 11th floor to the bottom. You’re just accumulating a lot of risk within the same area and a similar type of risk.” Some insurers are large enough to handle such a significant exposure, but many would not. “The partnerships are important in this respect,” says Rybarczyk. “You want to make sure you’re diversifying.”

Speed

The delivery of embedded insurance is, by the industry’s standards, almost instantaneous. The customer asks for a quote; they receive it minutes later. The customer moves a product into their online cart and presses purchase; the product is theirs, almost immediately. To operate at such a pace of assessing risk and assembling policies requires that insurers adapt technologically and begin to shift the way they approach information gathering and the design and pricing of their products.

Lansakara points to something called API, application programming interface, as one possibly critical investment for firms to make if they wish to offer embedded insurance. API is software through which insurance companies communicate securely with third parties. The auto dealer or car company would collect the required information and the API would then pass this to the insurer’s system. The insurer would then calculate an estimate for the policy and pass this information back to the auto dealer or company through the API. Whereas insurers have tended to collect quite a bit of historical information about the driver—a record of their previous three years on the road, details of any accidents they were in—now they may have to be satisfied with what the driver can give in the moment—their gender, age, driver’s license information. “So, how you underwrite the policy and assess the risk has changed,” says Lansakara. “We are using fewer questions. As a carrier, you need to rethink your product design, rethink your product.”

He points to what he sees as the relative lack of third-party data that is available in Canada. At a moment when insurers have to settle for collecting less information from customers, they need access to more of it from other sources. “If you look at places like the U.S. and even the U.K., with respect to companies and corporations, there’s quite a lot of publicly available information on revenue, employee count and so on,” he says. “Here, it’s not as widely available.”

Growing pains

An established insurer can only move into the embedded field gradually; it will need to keep doing “business as usual” as it adjusts to the new model. Chauhan urges insurers to “incubate” their embedded efforts so as to allow the rest of the machine to continue running smoothly and also avoid “legacy” habits interfering with new ones. Chauhan says insurers need to adopt what he calls a “self disruption mindset,” conceive of insurance less as product and more as service, and make more efficient use of data. They need to acknowledge the fact that massive change wrought by technological advancement may yet pose a credible threat to the idea of a “competitive moat” protecting the near-exclusive claim insurers have long had on that “superpower” of underwriting. Instead, they need to think about collaborating with non-traditional partners while claiming their role in the process. As Chauhan put it in a paper he wrote for EY: “Co-opetition, perhaps?”

HSB recently partnered with the Internet security and privacy company NordVPN in an embedded offering that insures against identity-theft breaches. HSB’s Stolen Identity insurance is built right into the third and higher tiers of NordVPN’s solution packages, Lansakara explains. HSB understood that encryption software has become a routine aspect of “cyber hygiene,” and saw the chance to put a uniquely relevant product in front of customers at the very moment that they are thinking about protecting their online data and privacy. How many people would think of insuring against the software? How many would go the extra step of calling a broker to purchase a policy? When the insurance is wrapped right into the encryption package, it alerts customers to its benefits and makes the process of buying it entirely convenient. This was one of the key takeaways for HSB in developing the partnership with NordVPN, Lansakara wrote in his LinkedIn post: the importance of customer experience.

“This is the creation of an ecosystem,” says Chauhan. “You’re bundling stuff together, and you’re creating a unique value proposition for the customer that is miles away from a standalone insurance conversation.” He hypothesizes about a partnership between a car and an insurance company in which the first collects data that the second can use to fine-tune the risk assessment and tailor the policy to the customer. “I can see how your teenager drives,” says Chauhan. “I’m going to give them gamification to incentivize them to win prizes and compete with their teammates and their friends on Facebook and on Instagram. Now, all of a sudden, I’m selling you the Family Safety Services bundled with your insurance.”

Rybarczyk echoes this point. “Once you open the door with one product, you can technically cross sell with another,” he says. You may have partnered with an auto manufacturer to sell car insurance to a customer. Now you can reach out to that customer about other products, home insurance, for example. “There’s potential to obtain multiple lines,” he says.

In his LinkedIn post, Lansakara points out that a critical lesson of HSB’s partnership with NordVPN had to do with the ownership of customer data, which needs to be carefully worked out between partners in advance of launching the product, in fact “on day one.” It also points to the wealth of possibilities for growth and creativity in the embedded field. Event insurance, tenant insurance, insurance for specialized equipment or designer clothing—for anything of value that is purchased online—becomes more visible when customers encounter it on another company’s website.

“Imagine a world where an insurance company partners on a platform with an automotive manufacturer, a generator manufacturer, an ATV manufacturer and a lawnmower manufacturer,” says Chauhan. “And the insurance company gets paid, not only for the insurance, but because it’s their platform. They make five cents on the dollar when the ATV gets bought or when the lawnmower gets bought.” The insurance industry is in a “disrupt-or-be-disrupted” moment, Chauhan says. “You cannot be afraid to disrupt yourself, because if you don’t do it, somebody else will.”