Embedded Insurance Helps Merchants Avoid the "Protection Gap"

[0:04] I’m Justin Turner. I head up strategic partnerships for our logistics vertical globally. My role is to define and execute the global logistics strategy, but also work with our partners to ensure that they can offer protection to their global customers. So, we’re going to talk today about how embedded insurance in the logistics industry, through shipping platforms, allows merchants to access insurance products for their goods in transit at a time and a price that is appropriate to them.

[0:34] What is embedded insurance distribution in logistics?

[0:38] Embedded insurance distribution in the logistics industry is being able to offer an insurance product at the time that the shipper is making a booking. So, what is important about that is that the goods that are in transit can be covered for the actual value of their goods, rather than traditionally where you would have an annual insurance policy purchased by a broker.

[1:04] Why is embedded insurance getting more popular now?

[1:08] So, importantly, with the growth of eCommerce over the last five, especially ten, years, so too has the customer wanted to have choice in how they receive their goods that they’ve purchased online. So, with that has been an increase in shipping platforms that are able to offer a multi-carrier service. Offering a multi-carrier service, which gives a consistency amongst the delivery process, you would also want to have protection that is consistent with the products that you’re shipping as well. Traditionally, couriers would offer a warranty product which may include a fixed amount, or they may offer to sell insurance at quite a high price, and all those offers are different. So embedding insurance across a shipping platform in eCommerce is extremely important these days.

[2:00] How does embedded insurance instill trust and gain new customers?

[2:06] So, embedded insurance, in particular products where you can protect the full item value — the retail value plus the reshipping cost — allows the shipper to resend those goods that may have had something wrong in the delivery, such as being lost in transit, without losing their margin. By being able to ship that out immediately when there’s an issue, the consumer has trust with the platform that they’re using, because they know that when they’re buying online from this company, they will get the goods delivered in a timely manner, or at the time that they choose, or the place that they choose. So, that trust goes a long way to creating conversions, or adding sales.

[2:53] Describe the “Protection Gap” in logistics. What liability exposure is it creating?

[2:59] So, protection gap, as a term — what that means is that traditionally a shipper, or a merchant if you want to call them that, would go to a broker and purchase an annual policy under a marine cargo policy. Now, what you would have to do is estimate the amount of goods that you were going to ship in a 12-month period, and a premium would be applied to that. Now, the protection gap means that you could be under-insured or over-insured. Under-insurance would be something like you’ve offered that you are going to ship a certain amount of X products in the next 12 months, but the policy may not include the final mile distribution, so for that last leg you aren’t covered. Or alternatively, you’ve decided to launch a new product line which you hadn’t advised your insurer of originally, so that new product line may not be insured either — so there’s a protection gap there of being under-insured.

[3:55] To be over-insured means the same thing. So, what’s happened is you’ve estimated what you’re going to ship in the next 12 months and you’ve paid a premium. However, there could be some external factors — COVID being a great example — in the last 12 months where you lost some sales, or you lost orders from a retailer and you’re a wholesaler, so therefore you’ve paid a premium on goods that you’re never going to ship. So, that’s being over-insured. And what embedded insurance allows for goods in transit is that — when I talk about the right product, at the right time, at the right price — it means you’re actually paying a premium for the goods that you have in transit. So, you’re not estimating; it’s specific for what you’re covering, so you’re always protected for the goods.

[4:44] Why is it important for the shipping industry to have access to new and diverse payment options?

[4:44] Shipping platforms are asset-light, so they tend to sit above the courier networks, who are very asset-heavy. With that asset-light model, for them to get scale they obviously want to grow internationally. So, when they enter new markets, what they don’t want to do is have to worry about other areas — they want to focus on core issues. So, being able to have a partner that can pay out claims in the markets in which they’re operating is going to take away that ancillary burden for them completely, and allow them to focus on core business as they grow into new markets.