How Embedded Insurance will Transform Traditional Models
The digital era is upon us. The increase in the number of e-commerce platforms and traditional companies providing the option of selling their products online have provided the customer with an easy choice to buy anything from the comfort of their home. In the past few years, consumers have increasingly made higher-value purchases online for everything from cars to homes. With the proliferation of e-commerce services, it has become key to simplify buying insurance by integrating it into the purchase process. The pandemic has also fueled a shift to online purchasing, and increased demand for digital gave new impetus to embedded insurance products. In layman’s terms, Embedded insurance is the building of coverage or protection within the purchase of a product or service as part of the customer journey. Embedded insurance is about directing affordable, relevant, and customized insurance to the customers when they need it the most.
According to a report by Instech London, the embedded insurance market is forecasted to grow to USD 722 billion in gross written premiums (GWP) by 2030, more than six times its current size. The Asia-Pacific is the largest embedded insurance market. The region is home to one-third of the world’s population and one of the world’s fastest-growing economies. Due to the presence of an enormous number of uninsured populations coupled with strong growth in the fintech industry, a significant number of Insurtech firms are emerging countries such as Indonesia, Malaysia, Thailand, etc., are gaining the attention of the market players.
Ping An Insurance Group in China is the largest embedded insurance provider in the world. They created an extensive portfolio of platform ventures in sectors such as automotive sales, banking, real estate, and telemedicine and integrated them into its insurance platform. The company sold embedded insurance on these platforms, which ended up being the dominant channel for the sale of insurance products.
The generation is moving towards the concept of sharing economy, resulting in a change in the lifestyle of the people. In tier 1 cities, people are turning towards renting cars instead of buying them. Companies such as Revv and Zoomcar provide embedded insurance while renting cars. Similarly, in Europe and America, short-term e-scooter rentals have become quite popular. This comes as embedded insurance in those countries where it is a legal requirement.
With the advancement of technologies, insurance companies now have the ability to embed their products virtually anywhere. There is a risk situation through open APIs that software businesses to the plugin. Insurers can build their own platform, license a platform from Platform-as-a-Service providers such as Slice, Trov, Digital Insurance Group, Add insurance, and many others, or partner with a Managing General Agent (MGA) that specializes in embedded insurance.
Non-insurance companies embedding insurance into their products could threaten the incumbent insurers’ position. This will not be a problem if these companies end up providing their products to a larger number of people, as rarely do these companies have the capital requirement to risk providing insurance to all their customers, and only a few have succeeded in doing so. This will lead to an increase in the number of partnerships with insurance companies. One such example is Airbnb. Airbnb is building an embedded travel insurance offering with a reputable insurance carrier. Such partnerships will help expand insurers’ and Insurtech’s customer base and distribution.
For many end customers, the idea of purchasing an insurance policy to protect a new product can feel burdensome and an unnecessary effort. Insured products allow customers to protect themselves against uninsured losses with little to no involvement, which results in their peace of mind. There is a contrast between the amount of insurance that could have been purchased and the insurance that was actually bought. This is termed as a protection gap. It is relatively high in the risk pools of mortality, natural catastrophe, and healthcare. According to the Swiss Re Institute’s Research, this protection gap is worth $1.2 trillion and has more than doubled since 2000. The insurance companies need to proactively identify these protection gaps and work towards embedding their products in the broader ecosystem, where they will be able to proactively engage with their consumers and make it a solution where everyone benefits for both the insurers as well as the customers.
(Disclaimer: The author is a Business Consulting Intern in the Banking, Financial Services, and Insurance domain at Tata Consultancy Services Ltd.)
