Embedded insurance: What companies should consider when structuring the legal framework

Insurance that fits seamlessly into the purchasing process of a product – such as an extended warranty for an electronic device or travel insurance directly in the booking portal – is considered an exciting growth trend in the insurance industry. “Embedded insurance” also promises retailers additional sales, greater customer loyalty and a better user experience. But there are a few legal hurdles between the idea and its implementation.

We asked Dr. Ulrich Keunecke, Partner at KPMG Law and expert in insurance law, how companies can legally integrate insurance into their business models.

What exactly is “embedded insurance”, Dr. Keunecke?

Embedded insurance refers to the integration of insurance products directly into the purchasing process of another product or service. Customers are offered insurance cover where they need it, for example theft insurance for a bicycle, repair insurance for a smartphone or travel insurance as an additional option to a booking. Insurance is usually taken out digitally and without media discontinuity. This is convenient for consumers and increases the take-up rate.

Why is this type of insurance so popular, also in Germany and Europe?

Two developments are driving the trend: firstly, the traditional insurance market is largely saturated and growth is only possible through new sales channels. Secondly, consumers increasingly expect “one-stop shopping”: anyone who buys a smartphone online expects to be able to take out the right insurance in the same checkout process.

For which industries or business models is embedded insurance particularly interesting?

Embedded insurance is particularly suitable for retailers, e-commerce, mobility providers, tour operators and manufacturers of smart devices. The prerequisite is that the insurance is easy to understand and can be taken out digitally, such as theft, repair or warranty insurance.

Do dealers need a license and when is a company that integrates insurance into its product legally considered an insurance intermediary?

If a dealer “co-sells” the insurance, he is normally an intermediary. And as soon as a company actively brokers insurance, a license in accordance with Section 34d of the Trade, Commerce and Industry Regulation Act is usually required. However, there is an exception for brokers who act as intermediaries. This applies if the insurance cover is directly linked to the purchase of a product and the insurance cover is merely a supplement to the main product.

Micro-brokers are a special category of ancillary product brokers with additional reduced requirements. Due to the small scope of their activities, these intermediaries only pose a very low risk, which is why they are exempt from the licensing requirement. The insurance policies brokered by micro-brokers must, for example, be an additional service to the delivery of a product or the provision of a service and, among other things, the annual premium must not exceed EUR 600.

Are there ways to implement such a model without acting as an intermediary yourself?

Yes, the tipster model in particular is an option here. Retailers merely provide tips in the form of a QR code or flyer. They are then not directly involved in the sales process. A brokerage license is then not required. However, the closing rates are lower here and the remuneration is limited to lead bonuses.

What information and documentation obligations apply when a product is combined with insurance?

Before concluding a contract, customers must receive a product information sheet (IPID), the cancellation policy and the general terms and conditions of insurance. In addition, a “demands and needs test” is required to ensure that the product meets the customer’s needs. Many retailers solve this via digital multiple-choice dialogs in the checkout process.

How can data protection and data exchange between platform, retailer and insurer be made legally compliant?

Depending on the design of the offer, the intended use of the data and the data content, the GDPR requires the customer’s consent to data processing. As a rule, retailers and insurers will have to conclude an agreement on the joint processing of personal data, as they usually act in pursuit of a common purpose and also jointly determine the means of data processing. Data from loyalty programs or cash register systems are particularly sensitive. Special categories of data, such as information that allows conclusions to be drawn about the customer’s state of health, may generally not be processed for sales purposes unless the customer has expressly consented to the processing of this data. Effective consent requires, among other things, sufficient information about the intended data processing.

How do international regulations such as the “Consumer Duty” in the UK or the “Loi Hamon” in France influence embedded insurance in Germany?

International regulations are setting new standards for transparency and fairness. The British “Consumer Duty” obliges providers, among other things, to ensure that financial products and therefore also insurance policies offer appropriate value for money. France’s “Loi Hamon” allows customers to terminate their contract at any time after one year and aims to strengthen competition with this switching option. BaFin is monitoring these developments and plans to follow the British model. For German providers, this means: more documentation, but also more customer orientation.

What do companies need to consider if they want to offer integrated insurance across borders within the EU?

Despite harmonization through the IDD, there are country-specific peculiarities, such as information obligations or termination rights. In addition, payment flows must be legally compliant, particularly in the case of platform models with multiple participants. A careful legal review is essential in order to avoid compliance risks.

What technical requirements do retailers and platforms need to fulfill in order to successfully integrate insurance?

Integration requires flexible checkout systems, API interfaces to insurers and GDPR-compliant data processing. Companies should invest in scalable infrastructure and ensure that all processes – from needs assessment to documentation – can be mapped digitally and in a legally compliant manner.

What impact will embedded insurance have on traditional insurance brokers and agencies?

Embedded insurance is changing access to customers. Standard products are increasingly being taken out digitally and directly at the time of purchase. Traditional brokers are losing relevance here, but can differentiate themselves by specializing in complex risks and providing personal advice. The demand for individual support remains – especially for industrial and specialty insurance.

How can large brokerage houses benefit from integrated insurance and digital sales models?

Even if embedded insurance does not fit directly into the business model of large brokerage houses, they benefit from technological advances. AI-supported risk assessment, more efficient processes and data-based advice enable a stronger positioning in the industrial business. Digitalization is becoming a strategic advantage.

What role does artificial intelligence play in the development and implementation of purchase-integrated insurance?

AI enables more precise risk assessments, personalized offers and automated decision-making processes. It recognizes patterns in consumer behaviour and supports the development of new products. For embedded insurance, this means higher acquisition rates, better targeting and more efficient claims settlement.

How can blockchain technology change embedded insurance?

Blockchain creates transparent and unchangeable transaction data. Smart contracts enable automated claims settlement, for example for weather index-based policies. This strengthens customer trust and reduces administrative effort. This is particularly relevant for microinsurance and real-time contracts.

How do you see embedded insurance developing over the next few years?

It looks like integrated insurance will become the standard. Tokenized warranty cards, automated claims settlement using weather data, Near Field Communication (NFC)-based contract conclusions at petrol stations and even voice-supported insurance offers are also conceivable. BaFin is observing international models such as the British “Consumer Duty” and is striving for more transparency and documentation.

What advice do you have for companies that want to integrate embedded insurance into their business model?

Companies should obtain legal expertise at an early stage in order to properly implement regulatory requirements such as intermediary status, information obligations and data protection. Those who master these hurdles can successfully and profitably integrate embedded insurance into their business model.