What is Embedded Homeowners Insurance & How Does it Work?
Reading time • 12 mins
By Matic
For lenders, loan originators, and servicers in the mortgage industry, efficiency is the name of the game.
Adding even 1% to your revenue, or shaving just 1% off of your expenses, can translate into thousands or even millions of dollars in increased profit over the course of a year, depending on your business. That’s money that can be reinvested into the business for growth, employee retention, and other purposes.
But how do you actually go about realizing this goal?
Unfortunately, there is no one-size-fits all strategy that will work in every situation. Your greatest opportunities for improvement will depend on your current reality.
For some lenders, the answer may lie in adding complementary revenue streams (especially during periods when originations are down). For others, the answer may lie in closing loans more quickly. For others, it may lie in reducing the number of rate-lock extensions that your business needs to accommodate. And for others yet, it may lie in improving the customer experience.
The good news? One option in particular has been proven time and again to be successful in moving the needle on the metrics that matter most to your business: Embedded homeowners insurance.
Below, we define embedded insurance and take a look at how it works. We also walk through the impressive benefits that it offers businesses that implement it.
What is embedded homeowners insurance?
Embedded insurance refers to the process of insuring a purchase — any purchase — either at the point of sale or at other key moments where it would make sense for the buyer to do so. In reference to homeowners insurance, specifically, the term comes from the fact that the process of insuring the home is “embedded” directly within the experience of buying or owning a home.
Embedded homeowners insurance specifically refers to the processes and policies that mortgage lenders, originators, and servicers use to help borrowers find insurance. Often, this takes place as a part of the financing process, but it can also take place at other key junctures of the homeownership experience. A lender or servicer who must notify a borrower that their escrow payment is going to increase due to rising insurance costs might, for example, leverage an embedded insurance solution to prompt the user to shop around for new coverage that offers cheaper rates.
It’s worth noting that embedded insurance can be leveraged by lenders who specialize in originating other types of loans as well. For example, a lender offering auto loans (or a dealership that provides financing to customers) might consider integrating embedded auto insurance into the purchasing process, for many of the same reasons discussed below.
How does embedded homeowners insurance work?
When most people set out to buy a home, homeowners insurance is the furthest thing from their minds. They’re thinking about things like getting pre-approved for a mortgage, sifting through listings, conducting their inspection, and making an offer on their dream home. Often, they won’t even start to consider homeowners insurance until they’re ready to close, when the lender asks for proof of insurance.
While this is understandable — especially in the case of first-time home buyers — it can cause headaches for mortgage lenders and originators. In a best-case scenario, it might add a couple of days or a few weeks to the closing process, driving up your costs. Rate-lock extensions alone can cause lenders to lose tens of thousands of dollars a month.
But in a worst-case scenario, it could lead to a mortgage being denied in underwriting. Calculating a customer’s front end debt-to-income ratio (DTI) requires you to know all of their housing expenses — including their homeowners insurance premium. It’s not uncommon for a loan officer to walk away from a loan or two every month because the borrower’s DTI ends up being just a little too high once the insurance estimate is added in.
Embedded insurance solves these and other problems by automatically connecting your borrowers with potential homeowners insurance carriers the moment they are ready to close.
Usually, lenders accomplish this by partnering with an embedded insurance platform (like Matic) who provides an interface that the borrower can use to easily shop for an insurance policy. What, exactly, this interface looks like will depend on your partner and your business, but it can take the form of:
- White-labeled landing pages
- Embedded widgets directly on your website
- One-click buttons that loan officers can embed in their LOS
- Automated processes that are embedded directly within the loan process
- and more
The result? Your borrowers start thinking about homeowners insurance earlier in the buying process, reducing the risk of an elongated close cycle and rate-lock extensions. And because the cost of insurance is known earlier, it also reduces the risk that your borrower might price themselves out of a loan.
How your mortgage business can benefit from embedded insurance partnerships
While we’ve alluded to some of the benefits that you can realize by incorporating embedded insurance into your lending process, we haven’t spoken to them fully. Below we take a closer look at how, exactly, mortgage companies, banks, and other lenders can all benefit from embedded insurance.
1. Increase profits with cross-sell revenue
The Federal Reserve has attempted to bring historic levels of inflation under control by aggressively raising interest rates throughout 2022. Since March of this year, the Federal Funds Rate has risen by 3%— and is widely expected to rise further in coming months.
That’s been bad news for mortgage originations. With the average APR on a 30-year fixed mortgage currently hovering just shy of 7%, there are simply fewer buyers out there who are willing (or able) to pay such high rates. How bad has it gotten? According to the National Association of Realtors, existing-home sales for August of 2022 were down 20% from a year ago, the lowest since the earliest days of the pandemic.
Fewer originations means less revenue for lenders, who are increasingly looking for new ways to generate cash independent of loan originations. Cross-sell revenue generated by selling additional products to borrowers is one potential option that increasingly fits the bill.
Incorporating embedded insurance into your mortgage origination process offers you an easy way to begin generating cross-sell revenue allowing you to claim more value from each new deal.
Of course, before selecting any partner, it’s important to ensure that their technology and practices are compliant with all applicable regulations and consumer data privacy laws.
2. Pass value on to customers to build loyalty
It’s also important to note that embedded insurance programs don’t only offer value to your business. They can also provide significant value to your borrowers. What, exactly, this value looks like will vary from borrower to borrower, but can include:
- Time savings: With embedded insurance, your borrowers spend less time shopping around for coverage. Depending on the platform you partner with, you can provide your borrowers with quotes from multiple carriers in minutes instead of hours.
- Cheaper premiums: When an embedded insurance platform allows for comparison shopping, it will very often translate into lower insurance costs for your borrower. Customers who find homeowners insurance through Matic, for example, save an average of $642 per year.*
- Lower deductibles and better coverage: Similarly, automatic comparison shopping may translate into other benefits aside from lower monthly premiums. Borrowers may, for example, be able to get the same level of coverage offered by one carrier but with a lower deductible.
Providing your customers with added value through embedded insurance doesn’t just differentiate you from your competitors. It also engenders goodwill with your customers, which can be a powerful tool improving your retention rates.
This is especially true for mortgage servicers, who at the end of the day really own the customer relationship. By incorporating value-adding touch points into their workflows, you can begin to shift the customer’s perception of your relationship. When you can show your customers that you care about their well-being — such as, for example, by saving them $600 on insurance premiums — they stop viewing your relationship as being purely transactional and begin to view you through a beneficial light.
With this in mind, it’s also very important that if you implement an embedded insurance solution, you prioritize selecting a partner that offers an exceptional customer experience. The easier it is for your borrowers to get quotes and change carriers, and the more time and money they save while doing so, the better it will reflect on your business.
3. Realize faster closings and greater efficiencies
In the mortgage industry, time is money. By some estimates, the average mortgage takes 58 days to close and costs lenders an average of more than $10,900 — or about $188 per day. In other words, the longer a deal sits pending, the less profitable it will ultimately be for your business.
While there are many factors that might cause a loan to not close on time, delays associated with homeowners insurance are a big one. That means that any support that you can provide to your borrowers to help them quickly and efficiently find adequate coverage once their offer has been accepted by the seller will likely translate into faster closings and lower costs.
With embedded homeowners insurance, your borrowers getting coverage is no longer an afterthought — it’s a built-in part of the mortgage process, which you fully control. Save time and close loans faster by:
- Prompting users to purchase coverage: As soon as coverage becomes required for a deal to close, you can automatically notify the borrower (via text, email, in-app notifications, etc.) and prompt them to purchase coverage — dramatically faster than what is typically possible with mail notices.
- Eliminating the need for comparison shopping: Depending on the embedded insurance partner that you choose to work with, you may be able to eliminate the need for your borrower to shop around for the best deal. Matic’s embedded insurance solution, for example, automatically requests quotes from our 40+ A-rated partner carriers before presenting borrowers with a list of the best options. In seconds, Matic is able to accomplish what would potentially take your borrowers days to do on their own.
- Reducing the possibility of inadequate coverage: If a borrower purchases coverage that falls short of your requirements, sorting out the issue and getting the right level of coverage can add a lot of time to the close cycle. The right embedded insurance partner will be one that is able to integrate directly into your mortgage platform, where it can view the details of the transaction and determine how much coverage is required — removing this issue altogether.
In addition to empowering you to close loans faster, leveraging embedded insurance can also help you to generally streamline your business activities and realize greater efficiencies.
When you automate the insurance process, it means that your employees are sending fewer emails, conducting less follow up, and spending less time chasing paperwork like declarations pages for proof of insurance. In other words, fewer headaches means that they can spend their time on the revenue-generating activities that are most valuable to your business.
4. Reduce the risk of rate-lock extensions
If your borrower has agreed to a rate-lock and the deal fails to close on time, you’ll be forced to make a tough decision.
You could re-float the loan, potentially pushing rates higher than the borrower is willing to pay and imperiling the deal altogether. You could extend the rate-lock, charging a fee to do so, and engendering ill-will at what is really just the beginning of your relationship. Or you could extend the rate-lock for free, swallowing the costs associated with doing so.
Unfortunately, none of these are as ideal as the preferred outcome: Closing the deal on time.
Because embedded insurance helps you avoid delays associated with homeowners insurance coverage, that often translates into a reduction in costly rate-lock extensions. Matic partners, for example, enjoy significant reduction in turn time from application to closing — dramatically reducing the need to extend rate locks due to delays.
Offer embedded insurance to your customers with Matic
The mortgage industry is currently undergoing a challenging period of contracting demand driven by rising interest rates that have suppressed borrower demand. As a result, lenders, loan officers, processors, and servicers are all being pressured to streamline their processes to cut costs and boost revenues.
As discussed above, integrating an embedded insurance program into your processes allows you to work toward both of these goals at once, while providing real value to your borrowers.
That’s where Matic comes in. Matic makes home insurance a breeze for both lenders and their borrowers. All borrowers have to do is follow the Matic link (either emailed to them by a loan officer or built into the lender’s borrower portal), verify their identity, and hit the ‘get quote’ button. We’ll then get quotes from our 40+ A-rated carriers before presenting your borrower with a curated selection of their best possible options.
The best part? Integrating with Matic is simple and requires almost no technical work. Our flexible API integrations work with your existing technology and make it easy to connect with platforms like Roostify, LendingQB, Encompass, and Fiserv.
Interested in learning more? Request information or book a demo today!
*Average of the difference for Matic customers’ prior insurance policy and their new policy for all homeowners who found savings, submitted to Matic between June 2021 and May 2022. Includes homeowners who became Matic policyholders and where the customers’ prior insurance premium amount is known to Matic.
