Embedded insurance is cover offered inside the purchase of another product or service, as part of the seller's own customer journey. A customer buying a phone, a flight, a car or a business service can add or receive insurance at the point of sale without going to a separate insurer or broker.
This entry explains how an embedded sale works and who takes part in it, how embedded cover compares with bolt-on, add-on and standalone insurance, what UK, EU and US rules require of each party, what regulators' claims data shows about insurance sold alongside other products, and what a published market forecast rests on.
How embedded insurance works
A retailer, travel company, bank, car maker or software platform places an insurance offer inside its buying journey. Details the partner already holds, such as the item bought, its price or the dates of a trip, are passed to the insurer's systems through an API, a rating engine returns a price and cover is issued when the customer accepts. The policy is provided by an insurer. The insurer, an MGA acting under delegated authority or a third party administrator can handle claims and reporting, and the partner can be paid a commission or a share of income on the sales it makes. The same arrangement can serve businesses as well as consumers, for example when a software platform offers cover to the firms that use it.
An embedded insurance sale, step by step
Embedded, bolt-on, add-on and standalone insurance
This entry uses the four terms as the table sets out. UK and EU rules use different labels: the FCA Handbook speaks of optional additional products and of insurance that is ancillary to another product or service, the Insurance Distribution Directive of ancillary insurance intermediaries, and the FCA's value measures data reports a number of products twice, once as add-on and once as stand-alone.1234 The FCA's add-on category does not separate embedded sales from other add-on sales.4
| Term | How the cover is bought | Example | Treatment in UK rules and FCA data |
|---|---|---|---|
| Embedded, included in the price | Comes with the product, with no separate decision to buy it | Motor cover built into a car subscription | Where insurance is ancillary to goods or a service in a package, the goods or service must also be offered on their own, unless the main product is an investment service, a mortgage credit agreement of the kinds listed or a payment account (ICOBS 6A.3.2R and 6A.3.3R) |
| Embedded, opt-in at the checkout | Offered as an extra inside the seller's own journey, priced from data the seller holds | Gadget cover at a phone retailer's checkout | Needs an active choice where ICOBS 6A.2 applies; ICOBS 6A.2.3G notes a similar prohibition in the Consumer Contracts Regulations 2013 where the main sale is not a financial service or product |
| Bolt-on or add-on | Sold in connection with a main purchase, at the same time or through a separate step | GAP insurance sold with car finance; home emergency cover added to a home policy | Reported as "(Add-on)" in FCA value measures data, with no separate figures for embedded sales; GAP sold with a vehicle has its own rules in ICOBS 6A.1 |
| Standalone | Bought on its own, not linked to another purchase | Single-trip travel insurance bought direct from an insurer | Reported as "(Stand-alone)" in FCA value measures data |
Regulators have studied whether the point of sale changes how customers buy. In the FCA's market study of general insurance add-ons, 59% of add-on GAP customers said they had not thought about buying GAP insurance until the day they bought it, almost half said they were unaware it could be bought other than at the point of sale, and only 19% said they had shopped around, the lowest share among the five add-on products in the study.5
Who is involved, and their regulatory status
An embedded arrangement brings together a brand that sells, an insurer that carries the risk and, between them, any of an intermediary, an MGA and a technology provider. In the UK, anyone carrying on a regulated activity by way of business must be authorised or exempt, and the FCA's perimeter guidance sets out the questions, from whether an activity is insurance distribution to whether an exclusion or exemption applies, that decide whether a business needs authorisation.6
| Party | Role | UK regulatory position |
|---|---|---|
| Brand or retailer | Owns the customer journey and presents the offer | Authorised in its own right; an appointed representative of an authorised principal; an introducer appointed representative, limited to introductions and distributing financial promotions7; or outside regulation for connected contracts excluded by Article 72B8 |
| Insurer | Carries the risk and designs the product | Its link to the sale under PROD 4.3.2AR: each distributor's arrangements must let it understand the outcome of the insurer's value assessment and any group of customers for whom the product is not expected to give fair value9 |
| Intermediary or broker | Arranges the scheme and can act as principal for the brand | Authorised firm; as principal it must have a written agreement with each appointed representative, notify the FCA at least 30 days before an appointment takes effect and review each appointed representative at least every 12 months7 |
| MGA | Prices, underwrites or handles claims for the insurer under delegated authority | Status follows from the activities it carries on, tested against the same perimeter questions6 |
| Technology provider | Supplies the API, rating and policy systems | Needs authorisation only if its own activities amount to regulated insurance distribution by way of business and no exclusion or exemption applies6 |
Article 72B of the Regulated Activities Order excludes insurance distribution carried on by a provider of non-motor goods or services, whose business does not otherwise consist of regulated activities, in relation to connected contracts of insurance; its premium limits have been stated in sterling since 1 January 2025.8 The FCA's guidance on the exclusion at PERG 5.11.13G, last amended on 1 October 2018, still states the limits as €600 and €200 "or equivalent amounts of sterling", the amounts in the Insurance Distribution Directive.1011 The UK travel limb is narrower than the Directive's. Article 72B covers travel risks only where the travel booked with the provider is to attend an event the provider organises or manages and the buyer is not an individual acting privately or a small business, or where the travel booked is only the hire of an aircraft, vehicle or vessel that does not provide sleeping accommodation.8
UK rules on the sale itself
ICOBS 6A.2.1R provides that a firm must not enter into an agreement under which a charge is, or may become, payable for an optional additional product unless the customer has actively elected to obtain that specific product, and an omission by the customer is not an active election.1 The guidance gives failing to change a default option, such as a pre-ticked box on a website, as an example of an omission, reminds firms that the Consumer Contracts Regulations 2013 impose a similar prohibition where the main sale is not a financial service or product, and reminds them that they must ensure their appointed representatives comply.1
The cross-selling rules in ICOBS 6A.3, which implement article 24 of the Insurance Distribution Directive, work in both directions. Where insurance is the ancillary product in a package or agreement with a non-insurance product or service, the firm must offer the customer the option of buying the non-insurance goods or services separately. Where insurance is the main product and something else is attached, the firm must say whether the components can be bought separately and, where they can, describe them and give separate evidence of the costs and charges of each.2 The consumer's right to cancel, with its exceptions for some policies sold alongside other products, is set out separately in ICOBS 7.1.12 Packaged bank accounts have had rules of their own since 2013, requiring firms to establish and record whether customers are eligible to claim on each insurance in the package and to send annual statements.13
GAP insurance sold in connection with a vehicle has rules of its own. Before a GAP contract is concluded, the firm must give the customer prescribed information, including the total premium separate from any other prices and, whether or not the GAP is sold with vehicle finance, that GAP contracts are sold by other distributors. The contract cannot then be concluded until at least 2 clear days have passed. It can be concluded the day after only if the customer initiates it, consents to the earlier conclusion and confirms that they understand the restriction.2 These rules came into force on 1 September 2015.5
Fair value rules reach along the whole chain. Under PROD 4.3.6AR, a distributor's arrangements for a non-investment insurance product must let it identify the impact that the distribution arrangements, including any remuneration it or anyone else in the chain receives, have on the product's overall value, and the firm must consider whether its remuneration would stop the product giving fair value and any detrimental effect of selling it in a package with another product or service.9 PROD 4.3.6E, an evidential provision, lists arrangements whose presence may be relied on as tending to establish a breach of that rule, including remuneration that bears no reasonable relationship to the firm's costs or the benefit it adds, and a package whose overall price bears no reasonable relationship to its overall benefits.9
What regulators' claims data shows
GAP insurance, which covers the gap between a vehicle's purchase price or outstanding finance and its current market value if it is written off, is typically sold alongside car finance.14 The FCA's 2014 market study found that only 10% of premiums for add-on GAP insurance were paid out in claims, on average, between 2008 and 2012, a figure that includes insurance premium tax.14515 In February 2024 the FCA said its value measures data showed that only 6% of the amount customers paid in premiums for GAP was paid out in claims, and firms accounting for 80% of the GAP market agreed with the FCA to pause sales; it later recorded over 2.4 million GAP policies in force in 2022.1416
GAP insurance: share of premiums paid out in claims, as published by the FCA
The FCA's 2025 publication puts the proportion for 2022 at 7% and for 2023 at 22%. In 2024 written premiums fell significantly while claims were still being paid, so the proportion for stand-alone GAP rose to 104% in 2024 before falling to 53% in 2025, and the FCA says these figures should still be used with caution.17 The FCA does not explain the difference between its 6% and 7% figures for 2022; it notes generally that data can change between publication cycles.17
The 2025 data also allows the same product to be compared when sold as an add-on and when sold stand-alone. For the four products below, the add-on version paid out a smaller share of its premiums in claims than the stand-alone version, and had a lower claims frequency.4
| Product | Claims as a share of premiums: add-on | Claims as a share of premiums: stand-alone | Claims frequency: add-on | Claims frequency: stand-alone |
|---|---|---|---|---|
| Gadget, including mobile phone | 34.0% | 36.7% | 7.4% | 8.5% |
| Excess protection for motor insurance | 25.8% | 34.0% | 1.0% | 7.8% |
| Home emergency | 24.5% | 32.9% | 4.4% | 34.0% |
| Personal accident | 21.4% | 33.9% | 0.2% | 1.0% |
The FCA publishes the proportion of premiums paid out in claims at aggregate product level. It warns that business mix, product age, policy duration, target market and business volumes can affect it, that the data is historical and that it is not intended to help consumers choose products directly.17 Travel policies provided under packaged bank accounts are not included.17 The 2014 market study found claims ratios, including insurance premium tax, of 52% for add-on travel insurance and 42% for stand-alone travel insurance.15
In the EU, EIOPA's thematic review of credit protection insurance sold through banks, covering mortgage, consumer credit and credit card protection, collected data from 174 insurers and 145 banks for 2018 to 2020.18 It found that 83% of the banks in the sample sold the cover tied to the credit product, meaning they would not sell it without the credit product, and that 63% of insurers had close ties with their banking partner, such as membership of the same financial group.18 The average claims ratio over the three years was around 26% of gross written premium for mortgage protection, around 18% for consumer credit protection and around 8% for credit card protection, leaving 74% to 92% of premium to cover insurers' and banks' costs and profits.18
Credit protection insurance sold through EU banks: average claims ratio, 2018 to 2020
EIOPA found significant risks of consumer detriment from poor underwriting and sales practices and from insufficient management of conflicts of interest in bancassurance sales, and listed a warning to insurers and banks among the tools it would examine.18
Rules in the EU and the US
As the text of the Insurance Distribution Directive stood on 31 December 2020, it defined an ancillary insurance intermediary as a person, other than a credit institution or an investment firm, whose principal professional activity is not insurance distribution, who distributes only certain insurance products complementary to a good or service, and whose products do not cover life assurance or liability risks unless that cover complements the good or service it provides as its principal professional activity.3 Article 1(3) took such an intermediary outside the Directive where the insurance was complementary to the good or service, covered its breakdown, loss or damage, the non-use of the service, or baggage and other risks linked to travel booked with the provider, and stayed within the premium limits in the table below. Article 1(4) then required the insurer or intermediary behind the sale to ensure the customer was given its identity and complaints procedures and the insurance product information document before the contract was concluded, and that arrangements were in place to comply with articles 17 and 24 and to consider the customer's demands and needs.11 Later EU amendments have not been reviewed for this entry.
In the US, the NAIC's Travel Insurance Model Act is drafted for each state to enact into its own insurance code.19 Under the model, a travel retailer may offer and disseminate travel insurance under the licence of a limited lines travel insurance producer, which must keep a register of its travel retailers, designate a licensed individual producer as responsible for compliance and require training for the retailer's staff who offer the cover.19 Under the model, nobody may sell travel insurance by negative option or opt out, such as a box the customer must untick when buying a trip.19
| Question | UK | EU (Insurance Distribution Directive) | US (NAIC model, travel insurance) |
|---|---|---|---|
| Light-touch route for the seller | Article 72B exclusion for connected contracts, or appointment as an appointed representative87 | Article 1(3) exemption for ancillary insurance intermediaries11 | Travel retailer registered under a limited lines travel insurance producer19 |
| Cover the route applies to | Non-motor goods or services the seller supplies; travel risks only for travel to an event the provider organises, bought by someone other than an individual or small business, or for hire of an aircraft, vehicle or vessel without sleeping accommodation8 | The good or service the seller supplies, and baggage and other risks linked to travel booked with the seller11 | Travel insurance, the subject of the model19 |
| Premium limit | £500 a year pro rata, or £175 where the insurance is complementary to a service of three months or less8 | €600 a year pro rata, or €200 per person for a service of three months or less11 | No premium limit in the model's licensing and registration section19 |
| Buying the main product without the insurance | Where insurance is ancillary in a package, the goods or service must also be offered on their own (ICOBS 6A.3.2R)2 | The same requirement, in article 24(3), which ICOBS 6A.3.2R implements2 | The retailer's materials must explain that buying travel insurance is not required to buy any other product or service19 |
| Who answers for the seller | The principal firm, for its appointed representatives7 | Under Article 1(4), the insurer or intermediary must ensure the required information is given and arrangements are in place11 | The limited lines producer and its designated responsible producer19 |
What published market forecasts rest on
No regulator source used for this entry measures the size of the embedded insurance market. One published estimate comes from a June 2022 peer group report by Embedded Finance & Super App Strategies, organised by Simon Torrance and Dawn LeBlanc with senior executives from companies including Allianz, AXA, Munich Re and Swiss Re, and sponsored by iptiQ (a division of Swiss Re) and Google.20 It estimated that, by 2032, what it calls Embedded Insurance 2.0 could account for around 16% of total global insurance distribution, or $1.5 trillion of gross written premium, and would likely be nearer 30% in certain property and casualty markets, and that the US market could reach $150 billion in five years' time, by 2027, rising to $500 billion by 2032.20 The report attributes its market estimates to the authors' own analysis.20
| Assumption | Value in the report |
|---|---|
| Share of markets addressable by Embedded Insurance 2.0 | 60% of non-life and 30% of life |
| Global insurance premium in 2022 | $7 trillion, growing 3% a year for the next 10 years |
| Insurance penetration of GDP | Two scenarios: flat at 7%, or rising to 8% by 2032 |
| Share of net new industry growth driven by Embedded Insurance 2.0 | 80% |
| Embedded Insurance 2.0 as a share of the total market | Less than 1% in 2022, about 5% by 2027 and 15% in 2032 |
The figures are estimates by the report's authors, not measurements, for a category the report defines itself, and its appendix gives 15% for 2032 where its summary gives around 16%.20
Show References Hide References
- FCA Handbook. ICOBS 6A.2: Optional additional products. Read 10 November 2026.
- FCA Handbook. ICOBS 6A: Product specific rules (6A.1 GAP contracts, 6A.3 Cross-selling). Read 10 November 2026.
- Directive (EU) 2016/97 on insurance distribution. Article 2: Definitions. legislation.gov.uk, the text as it stood on 31 December 2020; later EU amendments not reviewed.
- Financial Conduct Authority. General insurance value measures underlying data 2025 (XLSX), Product Table. Data held on 5 May 2026.
- Financial Conduct Authority. PS15/13: Guaranteed Asset Protection insurance: competition remedy. June 2015.
- FCA Handbook. PERG 5.2: Introduction. Read 10 November 2026.
- Financial Conduct Authority. Responsibilities and how to oversee your appointed representatives. Last updated 9 November 2026.
- The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Article 72B. legislation.gov.uk, up to date to 9 November 2026.
- FCA Handbook. PROD 4.3: Distribution of insurance products. Read 10 November 2026.
- FCA Handbook. PERG 5.11: Other aspects of exclusions. Read 10 November 2026.
- Directive (EU) 2016/97 on insurance distribution. Article 1. legislation.gov.uk, the text as it stood on 31 December 2020; later EU amendments not reviewed.
- FCA Handbook. ICOBS 7.1: The right to cancel. Read 10 November 2026.
- Financial Conduct Authority. New rules on packaged bank accounts have improved standards, but firms have more work to do on sales and complaints handling. Press release, 20 October 2016.
- Financial Conduct Authority. GAP insurers agree to suspend sales following FCA concerns over fair value. Press release, 9 February 2024.
- Financial Conduct Authority. MS14/1: General Insurance Add-Ons: Final Report, Confirmed Findings of the Market Study. July 2014.
- Financial Conduct Authority. Firms to recommence GAP insurance sales following FCA action. Press release, 24 May 2024.
- Financial Conduct Authority. General insurance value measures data 2025. First published 21 July 2026.
- European Insurance and Occupational Pensions Authority. Thematic Review on Credit Protection Insurance (CPI) sold via banks. 2022.
- National Association of Insurance Commissioners. Travel Insurance Model Act (#632). NAIC Model Laws, 4th Quarter 2018.
- Embedded Finance & Super App Strategies. How and why insurers should increase investment in Embedded Insurance 2.0: Embedded Insurance Peer Group Report. June 2022. Peer group sponsored by iptiQ (a division of Swiss Re) and Google; hosted on swissre.com.
Frequently Asked Questions
Is embedded insurance the same as affinity insurance?
The Embedded Insurance Peer Group report published in June 2022 by Embedded Finance & Super App Strategies described what it called Embedded Insurance 2.0 as complementary to, but different from, current affinity and partnership programmes, which it called "Embedded Insurance 1.0", and set out four differences. On purpose, it aims to give brands and their customers a broader set of customised solutions rather than distributing existing products from a single supplier. On technology, it relies on operating systems that aggregate demand and orchestrate supply from multiple parties. On skills, it needs digital sales and marketing, data science, open platform development and digital underwriting. On monetisation, it combines software as a service fees with recurring premium and revenue share. Asked to identify blockers, peer group members named organisational structure and skills as the number one barrier, ahead of legacy technology, market adoption, leadership mindset and regulation.
Some arrangements cover everyone in a group under a single policy held by the business, rather than selling individual policies to each customer. In EIOPA's review of credit protection insurance sold via banks, 66% of insurers (115 out of 174) underwrote their credit protection products as group policies, in which the bank is the policyholder and consumers are affiliated to the policy as the insured person. In the US, the NAIC's Travel Insurance Model Act defines blanket travel insurance as a policy issued to an eligible group that covers all its members without a separate charge to each of them, and makes it an unfair trade practice to market blanket travel insurance as free.
Can you cancel embedded insurance?
Under ICOBS 7.1, a UK consumer has a right to cancel a contract of insurance without penalty and without giving a reason within 14 days, or within 30 days for a pure protection or payment protection contract. The period runs from the day the contract is concluded, or from the day the consumer receives the terms and conditions and other required information if that is later. Several exceptions matter for insurance sold with something else. There is no right to cancel a travel and baggage policy or similar short-term policy of less than one month's duration, a connected contract which is not a distance contract, or a general insurance contract which is neither a distance contract nor a payment protection contract and is sold by an unauthorised intermediary other than an appointed representative. A firm may give longer or additional cancellation rights voluntarily.
Renewal has its own rule. Under ICOBS 6A.2.1R, an automatic renewal on substantially the same terms does not need a new active election, but a renewal after which a charge becomes payable for the first time does. Changes in the level of charges are disregarded in deciding whether the terms are the same. Group arrangements can make cancelling harder: in EIOPA's review, 43% of insurers said that, before cancelling a credit protection policy, consumers had to get the bank's agreement and fulfil certain conditions, in most cases because the bank held the group policy and was the beneficiary.
What did the FCA find about competition in add-on markets?
The FCA's 2014 market study of general insurance add-ons found that competition in add-on markets was not effective. It said the add-on mechanism has a real impact on consumer behaviour: add-on buyers are less price sensitive, have poor awareness of buying the product or of the price they paid, and focus on the primary product. Information about the quality and price of add-ons was often presented very late. Add-on sellers had a clear point of sale advantage, competition between bundles was not effective, and standalone products did not generally constrain add-on sales. The FCA said this could lead to poor value and prices significantly above cost for many add-on products, and that it found many instances of poor value for standalone products too.
The measure itself has limits. Firms responding to the study argued that the claims ratio leaves out relevant costs such as claims management, distribution and marketing, and asked whether overpayment on add-ons is returned to consumers through lower prices for the primary product, which the FCA called the waterbed effect and acknowledged might happen in part. Insurance premium tax also moved the figures: respondents pointed out that add-on GAP sold face to face through dealers carried IPT at 20%, against 6% for GAP sold online, at the rates then in force. The FCA said that excluding IPT would have raised the claims ratio for add-on GAP from 10% to 12%.
How are embedded insurance partners paid?
The FCA has published examples of how large a seller's share can be. In February 2024 it said it had seen some firms paying out 70% of the value of GAP insurance premiums in commission to parties involved in selling the policies. Its 2014 market study reported insurers' estimates of how the retail price of add-on GAP, excluding insurance premium tax, was divided: estimates varied, but most put the insurer's share at less than 25% and the retail distributor's share at over 60%. After the FCA's intervention, firms that resumed GAP sales did so with materially lower levels of commission being paid to those selling it.
Under PROD 4.3.10BR, a distributor must provide a manufacturer, on request, with information on its remuneration for distributing the product, on any ancillary product or service it provides that may affect the product's intended value, including insurance add-ons, non-insurance additional products and retail premium finance, and confirmation that its arrangements are consistent with the FCA's conflicts of interest and IDD remuneration rules. In bancassurance, EIOPA found that where ties between bank and insurer were closer, the commissions paid to banks and the profits kept by insurers were higher, and that 107 of 145 banks (74%) had no cost allocation model and could not state the total cost of distributing the cover.
Does a phone retailer need FCA authorisation to sell gadget insurance?
Only if the policy falls outside Article 72B of the Regulated Activities Order. The exclusion needs all of its tests to be met: the retailer supplies non-motor goods or services and its business does not otherwise consist of regulated activities; the contract is not long-term insurance; it covers breakdown, loss of or damage to the non-motor goods the retailer supplies, the non-use of services it supplies or the limited travel risks the article lists; it covers no liability risks, except as ancillary cover in a travel contract; it is complementary to the goods or service supplied; and its premium is within the article's limits. The FCA's guidance in PERG 5.11 gives a policy that covers the cost of unauthorised calls made after a mobile phone is stolen as an example of cover that includes liability risks, and so is not a connected contract. It also uses a travel agent to show that one business can sell some contracts within the exclusion while needing to be authorised, or to become an appointed representative, to sell others.
The FCA's 2025 value measures publication reported that gadget insurance policies in force fell by 5% to 7.5 million, claims registered fell by 8% and claims costs by 12%, while premiums rose by 3%. The share of premiums paid in claims fell from 42% to 36%, one of the largest drops across all products, mainly because of higher premium rates. The underlying product data shows an average of about 2.64 million add-on and 4.87 million stand-alone gadget policies in force in 2025.
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