As automotive insurance rates keep creeping up, more consumers are shopping for less expensive policies than ever before or even foregoing coverage. Last year, in fact, the weighing of other carriers reached a record.

Whatever the tack taken, consumers’ increased cost-consciousness is creating demand auto dealers can tap to meet customer needs – and therefore boost satisfaction – while adding to their bottom lines. Research shows that interest in what’s known as embedded insurance is mounting.

Data compiled by insurance comparison-shopping website Insurify show nearly half of all auto policy holders – 45% – searched for better deals last year, though J.D. Power found that by year-end rates started to normalize.

Still, many insurers are failing to retain even long-loyal customers. A TransUnion study found that 42% of shoppers switched insurers in the 18 months ending in August, a quarter of those in the last six months of the period leaving insurers they’d been with for six years.

Rate increases for both auto and home policies in most states motivated what can be an arduous shopping process. Insurer marketing campaigns added to the spree, TransUnion said.

Some auto consumers are skipping insurance altogether in an effort to save money amid overall inflation. The number of active drivers without coverage has increased since the pandemic, from about 12% to 15% in 2022 and 2023, according to the nonprofit Insurance Research Council’s most recent data.

Given the conditions, a growing segment of auto consumers is open to embedded insurance, which can take different forms. Dealers can offer insurance rate comparisons from a choice of various providers or even house an agent from a carrier in their stores, while some automakers offer their own insurance policies. 

Dealers may find more consumer receptiveness to the idea today. Nearly 40% of participants in a recent J.D. Power survey expressed interest in taking out policies at the dealership or through the automaker. Of those, generations Y and Z showed the most interest – 47%.

Insurers and insurance brokers are positioning themselves to take advantage of the demand. Stephen Crewdson, J.D. Power Managing Director, Global Business Intelligence-Insurance, said at least one of the top three U.S. insurers has dedicated a leadership role to embedded insurance and that he suspects the other two also have.

“Large insurers are looking for innovative ways to sell policies, and auto dealers are one way to do that,” he said.

Crewdson has seen more automakers dive back into offering their own policies after abandoning the business line about a generation ago. “OEMs are always looking for ways to build relationships with the customer.”

Different Routes

Embedded insurance can mean different things to different people in the industry due to the various forms it takes.

Auto dealers can’t sell insurance directly. But various marketplaces provide them with comparisons of multiple insurers’ rates to offer to customers after they’ve decided to buy a car. 

Some dealers invite a single insurer to establish an agent at the dealership to offer its policies to their car buyers, the dealer owning the agency and benefiting from a well-known brand. 

A smaller number of dealers establish their own independent insurance agencies and reap even more profits. While dealers can’t sell insurance themselves, they can create a separate licensed entity for the purpose.

Many automakers reach out to car buyers directly after their purchases, an increasing number of brands establishing their own insurance business, recently including Honda and Volvo. Tesla, though, has attracted the attention of regulators in California after thousands of claims complaints were lodged against its insurance arm, drawing enforcement actions against the Texas-based electric-vehicle maker.

Meanwhile, outside insurance platforms that allow dealers to present various carriers’ rates to customers offer the promise of profits with less legwork on the dealer’s part.

Bottom-Line Benefits

Auto dealers stand to benefit, whatever embedded option they choose, say operators in the space. Simply by offering a policy rate comparison across insurers, dealers boost profits, according to Polly, which offers an embedded insurance marketplace and also operates as a national insurance agency.

Based on a second-quarter study Polly conducted, dealers offering insurance quotes as part of their sales process, whether online or in-store, enjoyed an average 20% finance-and-insurance profit boost, or $313 per customer. Gains increased when customers followed through with taking out policies, for a 31% F&I profit bump, or about $500 per deal, Polly reported.

Other insurance-comparison offerings have cited boosts to customer satisfaction. They include VIU By Hub, which offers a digital rate-comparison platform but doesn’t sell insurance; In the Car, which offers a dealer management system plug-in, though so far in just five states and not compatible with all DMS programs; and Root Insurance, an embedded offering based on consumers’ driving patterns.

“Dealers tell us all time, ‘Why are you talking to me? I don’t sell insurance,” said Polly Chief Marketing Officer Mike Burgiss. “I say, ‘Exactly, you don’t, but you do need to introduce customers to insurance options, because it will keep you in control of the process. It gives you the ability to make sure the customer is getting insurance and getting good options to choose from.”

Growing Market

Now seems like a particularly opportune time for dealers to add auto insurance offerings to their deal structures, based on J.D. Power’s findings that an increasing number of consumers are open to the idea of shopping for policies at the dealership. High insurance prices and a desire for convenience are big contributors to interest. 

Pandemic-era closures of brick-and-mortar retail stores, coupled with a shift to more digital shopping, have created expectation of “instantaneous” service, convenience and offerings tailored to the individual customer, according to a 2024 Sedgwick report on embedded insurance. 

Already, consumers have grown accustomed to the idea through insurance offerings from companies like Amazon and appliance retailers, and travel insurance offered during airline bookings.

Other reasons factor into openness to embedded insurance. Of the recent insurance shoppers polled by J.D. Power, many were motivated by price concerns, 33% of whom expressed interest in embedded insurance. Others were shopping due to bad experiences with their current insurers, 48% of whom were inclined to consider embedded options.

The across-the-board 37% interest in embedded offerings speaks to a pretty deep reservoir or growth, Crewdson said. “The fact that most people haven’t had an embedded experience yet and over a third are willing to give it a try, I think that’s encouraging for the offering.”

Buying a new car is a natural and compelling reason to shop around for insurance because rates will be different for a new car, he added. “Buying a car is a trigger to switch insurers … People don’t typically think about their car insurance very often.”

Generational Approaches

According to the J.D. Power survey, older consumers are less likely to be open to switching carriers. Just 19% of baby boomers expressed interest in embedded options. But price inflation may be changing those patterns.

The recent TransUnion research showed that most of the longtime insurer loyalty switchers of late were baby boomers or in generation X instead of the youngest consumers.

Consumer Reports advises drivers to shop around for the best deal every one to two years because loyalty typically doesn’t ensure the least expensive rates. The nonprofit group says price is king among auto insurance consumers, eclipsing even service quality and claim experience. In fact, it found in a recent survey that consumers who switched carriers saved a median $461 annually.

Despite the motivations, dealers who decide to offer embedded insurance should do some training groundwork to help F&I managers pose the offering to different generations of customers, Crewdson advised.

“Don’t offer it to someone older as you’d offer it to someone who’s younger,” he said.

Roadblocks and Detours

Dealers should be aware of built-in assumptions many consumers may have about embedded insurance. 

J.D. Power’s survey found, for instance, that nearly 40% believe embedded policies would be more expensive than traditionally purchased ones, likely due to thinking the dealer “middleman” would naturally inflate rates.

On the other hand, many think insurance service through the embedded route would be superior to that from traditional agency purchases – 30%.

“If I’m an insurance company, I’m alarmed by that,” Crewdson said.

It’s important for dealers to stay in the reality that all customers don’t find savings when they’re provided with rate comparisons, Burgiss of Polly acknowledges. He says those who switch carriers after seeing its quotes aggregations save an average of $83 a month, adding that the savings often inspire them to spend more than they would have otherwise on F&I products.

Polly’s “virtual agency” model involves the dealer paying a subscription fee to access its marketplace and performance support in exchange for payments for each qualified lead a store generates. It says 15% to 30% of dealer customers who get quotes that way end up buying a policy via the arrangement, but the dealer benefits whether they do so or not.

“Say the dealership has four people enter door,” Burgiss says by way of comparison with auto retail itself. “One leaves, one test drives, one test drives and talks numbers, and one buys a car – 25% – this is not very different from selling cars.”

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