The Future (Potential) of Embedded Insurance

An Introduction

Embedded insurance is the process by which digital platforms (i.e. startups, SMBs, etc) partner with insurance providers to offer insurance products to their customer base natively within their platform. The digital platform remains the primary brand that the customer engages with, while the insurance provider is the underwriter of the insurance policy. Insurance providers will share profits with the digital platform as well as charge a software-as-a-service fee for implementing their products.

APIs (application programming interfaces) are the technical means by which this is achieved. With a few lines of code, software engineers can use APIs to seamlessly incorporate product offerings developed by another company directly into their website or app. APIs are the technological backbone behind embedded insurance and can be used for quote generation, policy purchase, customer data storage, and policy management (among many other capabilities).

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The Current Landscape

Many startups within the embedded insurance / insurtech space have been founded within the last 5-7 years and are heavily capitalized; recently announced funding rounds routinely drive company valuations to $1B and beyond. A few examples include:

• Ethos Life: Ethos provides a streamlined digital platform to make whole and term life insurance more accessible. Ethos offers an API that allows other companies to natively sell their term life insurance policies. Ethos has raised $414M since it was founded in 2016, and is estimated to be valued above $3B.

  
  

• Ladder Life: Ladder sells term life insurance with the explicit goal of laddering up/down life insurance based on need. Like Ethos, they also offer an API for term life insurance. Ladder has raised $194M since it was founded in 2015. Ladder was valued at approximately $1B in October 2021.

  
  

• Bolttech: Bolttech is the world’s largest technology-enabled insurance exchange, offering its products through a suite of APIs. Founded in 2020, Bolttech has raised $217M in venture capital funding, with their latest $50M Series B round in October 2022 bringing their valuation to $1.5B.

  
  

• Cover Genius: Cover Genius provides a suite of APIs that enable their partners to sell a variety of products, including commercial, pet, auto, and property insurance. Cover Genius has raised $165M in venture capital funding, with their latest $70M Series D funding announced in November 2022. Their estimated valuation is $300-500M.

  
  

• Boost Insurance: founded in 2017, Boost provides a suite of APIs to make it easy for any company to offer insurance products. They operate across a variety of product lines, including commercial insurance, pet insurance, and crypto insurance. Boost has raised $37M in venture capital funding, with their latest $20M Series B round announced in May 2021.

  
  

• Extend: Extend is an API that allows companies to natively sell extended warranties for their products. Extend was founded in 2019 and has raised $320M in venture capital funding, with their $260M Series C announced in May 2021. Their latest valuation is $1.6B.
  
  More broadly speaking, we are seeing many companies embrace this model outside of embedded insurance. Fintech FBO accounts are one such example — banks operating behind-the-scenes (such as Bancorp, Evolve, and Goldman Sachs Transaction Banking) serve as critical financial infrastructure by partnering with startups looking to offer banking features within their products (e.g. Chime, Mercury, and Modern Treasury). Another related example is Amazon Web Services (AWS) — software companies can easily incorporate a wide variety of Amazon products and services into their own platforms through a few simple lines of code. In this way, AWS serves as critical infrastructure for the internet.

The Opportunity

There exists an opportunity for a direct insurer to become the critical infrastructure for the entire life insurance industry of the future. Embedded life insurance provides a fundamental inflection point for a carrier's business model and offers a unique opportunity to materially increase their customer base — life insurance, as an example, can be sold through the same distribution channel (i.e. third-party insurance practices) in a new way (i.e. through an API). In many ways, embedded life insurance is a direct evolution of the original ethos and spirit of the company: the Quiet Company 3.0 will be a suite of Northwestern Mutual APIs working behind-the-scenes to provide best-in-class whole life insurance.

For property and casualty insurance alone, embedded insurance is expected to account for over $700B in gross written premiums by 2030 (25% of the entire industry). A similar opportunity exists within the life insurance industry, and this will likely serve as one of the key pathways by which Northwestern Mutual reaches its next 5 million customers over the upcoming 3-10 years.

Embedded insurance startups today are primarily focused on property and casualty insurance, with only a few companies offering term life insurance through an API. We view it as an inevitability that this will eventually change, and believe it’s highly likely that these startups will offer embedded whole life insurance within the next 2 to 4 years.

This poses both a fundamental threat as well as a compelling opportunity to individual carriers. If they act too late, they might be forced to play catchup and compete with other heavily funded startups operating with a multi-year head start. If they act now, a carrier could be perfectly positioned to become the market leader in the space. In line with this timing, we predict a narrow window exists in which an individual carrier could leapfrog both the other Fortune 100 life insurance providers (e.g. New York Life, Mass Mutual, etc) as well as well-funded startups within the space (e.g. Ethos Life, Cover Genius, etc).