Keys to adding embedded insurance options to legacy systems

We work in an industry heavily influenced by trends, which often set the direction for insurance companies. Once upon a time, unit-linked insurance was the hot topic, but now the entire industry’s attention is focused on parametric and embedded insurance.
Let’s take a closer look at embedded insurance and highlight the technological challenges faced by insurers.

What is embedded insurance?
Embedded insurance refers to the seamless integration of insurance products into the purchasing process of other goods or services. Instead of offering insurance as a standalone product, it is “embedded” into the primary product or service that the customer is buying. An example of this is when purchasing an expensive smartphone and being offered device protection insurance during the transaction. Similarly, when booking a vacation, travel insurance might be bundled into the package. This integration removes barriers from the purchasing process, enabling customers to add insurance to their cart with just a few clicks.

The Importance of APIs in embedded insurance
To succeed in the embedded insurance market, a company must be able to integrate its insurance products into the sales process of various vendors. This is where technology comes into play, specifically APIs (Application Programming Interfaces). APIs are crucial because they allow different systems to communicate and exchange data, ensuring that the insurance offer is smoothly integrated into the vendor’s sales process.

APIs in the context of embedded insurance must be fast, scalable and reliable. During events like Black Friday, when sales volumes surge, an unreliable API could mean missed opportunities and lost revenue. If a customer doesn’t add insurance at the point of purchase, they are unlikely to return for it later.

Additionally, the API needs to handle key functions such as real-time quotes and policy issuance. Given the sensitive nature of customer data, these interfaces must also comply with data protection regulations such as GDPR (EU) or CCPA (USA), ensuring that customer information is processed securely.

The challenge of legacy systems
Once the necessary API infrastructure is implemented, you’re ready to collaborate with vendors. However, at this stage, a significant challenge emerges: flexibility. Each vendor you work with will likely sell different products and services, requiring unique terms, prices and conditions for the embedded insurance offer. This means you need the ability to quickly configure various insurance products and pricing models. And here we encounter the problem: legacy systems.

Most insurers rely on legacy systems that are slow, rigid, and not designed to handle modern, internet-based transactions. These outdated systems often lack the ability to quickly adjust insurance products or flexibly shape premiums, which is essential when offering embedded insurance across different sales channels.

The solution: Layering modern software on legacy systems
Although issues related to legacy systems may seem like a significant hurdle, they don’t have to be the end of the road. With the right software and an agile approach, insurers can implement solutions within a few months. The key is to avoid a complete overhaul of the legacy system, which is costly and time-consuming, and instead layer modern solutions on top of the existing system.

The first step is to configure a general insurance product within the Policy Administration System (PAS) that will accept policies, matching them, accounting and reporting tasks. Instead of building a new user interface (UI), companies can develop an API layer that manages quoting, validation, and policy issuance.

With this approach, the new system can handle real-time customer interactions (such as quoting and issuing policies) while asynchronously transferring policy data to the legacy system for backend tasks like accounting and reporting. Separating front-end operations from the back end allows companies to maintain fast, modern sales processes without disrupting the rest of the business.

The heart of the system: Product configurator
A crucial component of this solution is the product configurator. This tool enables insurers to quickly create and modify insurance products based on the requirements of various vendors. For example, the configurator can help define the features and pricing of a policy in a way that can be easily adapted for different sales channels in just a few minutes.

Insurers can choose to develop their own product configurator or utilize existing solutions that support the rapid development of products and premium calculations (such as BRE – business rules engine). With such tools, companies can tailor insurance products to the needs of different vendors without adding unnecessary complexity to their systems.

By integrating the product configurator with the API, companies avoid introducing additional Policy Administration Systems (PAS) into their architecture. This not only simplifies the management of insurance products but also reduces the risk of future data migration challenges, which are notoriously costly and error-prone. In fact, many insurers stick with legacy systems precisely because of the high costs and risks associated with migrating data to newer systems.

Don’t lose hope
Embedded insurance is undoubtedly the “new black” in the industry, offering insurers a unique opportunity to reach customers in a more seamless and convenient way. However, the path to successfully implementing embedded insurance is not without challenges, especially for insurers relying on legacy systems.

The good news is that, with the right strategy, these challenges can be overcome. By layering modern solutions on top of existing systems and leveraging APIs and product configurators, companies can introduce flexibility, speed and scalability into their insurance offerings without the need for a complete system overhaul.
So, if you’re an insurer operating on a legacy system, don’t lose hope. With the right approach and technology, you can still capitalize on the embedded insurance trend – and position your business for success in this rapidly evolving market.