Why embedded insurance keeps this lawyer up at night

When it comes to embedded insurance, the risk of insurance activities being performed by unlicensed individuals or entities is probably the biggest concern, a Dentons lawyer said Wednesday at Insurance Bureau of Canada’s InSight Summit.

Dentons partner Marisa Coggin was discussing a “laundry list of things that keep [her] up at night on embedded insurance,” which involves the integration of insurance directly into a customer’s digital purchase journey, such as buying travel insurance with a flight or device protection with a mobile phone. The use of unlicensed individuals or entities, whether corporate or platform-based, topped her list.

“This is probably the biggest bucket, because you’re moving through the customer journey, and you’re starting at solicitation, and you have to think about, ‘Okay, how does the customer get introduced to the concept that there is insurance available at all?’” Coggin says. “Because they didn’t come on this website looking for insurance, right?

“Maybe some people have that in the back of their mind, but most people will not.”

How the referral partner or resale partner is conveying the insurance product is important, Coggin says.

“Is it limited to sort of saying, ‘Here’s our marketing partner, here’s our insurance partner, who can give you insurance on this product,’ and that’s the end of it? Or is it a bit broader than that?” she asks. “So, I think that’s an important piece to look at to make sure they’re not acting in an agent capacity; and also having the proper APIs [application programming interfaces] to link the customer to the licensed platform or entity.”

Real-life example

The issues surrounding embedded insurance came to a head recently when Quebec’s broker association raised concerns about the province’s deferment of a legislative amendment that prohibits auto and recreational vehicle dealerships from offering replacement insurance. The product involves a replacement cost policy, in which an insurer pays compensation to replace a vehicle at the dealership the insured has chosen.

Lucie Fréchette, president of the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), told Canadian Underwriter last month the association wrote a letter to the provincial government asking that they maintain the original July 1, 2026 prohibition implementation date.

But the government postponed the prohibition until Jan. 1, 2027. At that time, ‘distributors’ — including auto and recreational vehicle dealerships — will no longer be permitted to offer replacement insurance related to vehicles they sell or lease. The product must instead be obtained through licensed representatives and firms in Quebec, such as property and casualty insurance brokers or agents, Dentons said in a March 2 bulletin.

Looking ahead, coverage questions may pose another concern with embedded insurance, Coggin says.

“I recognize a lot of these products right now are pretty straightforward, and you may not have a ton of questions,” she says. “But I think as the complexity grows, you’re going to have customers or potential clients who are going to say, ‘Okay, wait. What about this exclusion? And what does this exactly cover?’

“Eventually, and I think right now, best practice is always to have a licensed person available during normal business hours to answer questions.”

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Some factors to consider include:

• Whether consumers have an opportunity to review terms and conditions, and have access to a full copy of the policy (ideally delivered by a licensed broker).
• Whether a licensed TPA (third-party administrator) or other party is involved for claims adjusting.
• Ensuring carriers have sign-off on all websites with customer-facing/promotional materials, and that partners have the proper roadmap and scripting so representatives understand what they can and can’t do.
• Regarding automatic enrollment (for membership and affinity association-type plans, for example), provide consumers a chance to opt into the program. “Usually, the customer either doesn’t know they’re getting insurance coverage or doesn’t understand what the cost of that coverage is, and they can’t opt out,” Coggin says.
• Remuneration/compensation structures – i.e. no compensation if individuals/entities don’t hold licensing for acting as an ‘insurance agent.’
• Ensuring customers know when they are dealing with artificial intelligence and that they can opt out and deal with a human licensed agent, should they choose.

Finally, all parties must comply with applicable privacy rules. Sometimes, carriers and retail partners can act in silos, leading to a lack of collaboration and understanding, Coggin says.

“At first, the customer is okay with giving their information to you, the retailer, let’s say,” Coggin explains. “They’re not expecting necessarily for it to be transferred to someone else, much less for all the expanded uses that we are not using all of this data and information for.”

It’s also important to be mindful of geography, or data-crossing borders. “Because there’s all sorts of rules about transfer of information or personal information.”

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.