Embedded insurance is empowering insurtech innovation

Prashant Tekchandani

Insurance is something that most people prefer not to think about, but the reality is everybody needs it. Embedded insurance, or bundling insurance coverage when buying a product or contracting for a service, is rapidly gaining pace as insurers try to shore up premiums and widen their coverage. Such an approach is a sure fire way to get people proper insurance coverage without the traditional insurance transaction pitfalls.

India is an under-penetrated and under-insured market. According to the Insurance Regulatory and Development Authority of India (IRDAI), life insurance penetration (the ratio of total premium to GDP) is about 3.2 per cent in the country, while general insurance penetration (including health) is at about 1 percent. According to a recent SwissRe report highlighting insurance density (per capita premium) in 2019, the Indian market has just $59 per capita premium for life insurance and $19 for non-life coverage, placing it 42nd just within the emerging market category.

Health insurance is still somewhat of a novelty in India, partly due to low awareness, lack of knowledge, and a belief that it is a waste of money when one is healthy. This often results in poor outcomes when illness or injury do occur, with individuals who can ill-afford large hospital bills having to pay for them out of their pockets.

Embedded insurance is a potential solution. Securing coverage via embedded insurance is non-intrusive, typically doesn’t require extensive documentation, does not have a traditional hard-selling representative, and in most cases, coverage can be secured with the click of a button.

Embedded insurance is particularly appealing to millennial and Gen Z customers who want easy, technology-enabled access. It also works for insurance carriers, as coverage is offered at the point of sale – offline or online – for an additional investment. A clear example of this sales model is travel insurance, where the coverage option is embedded within the airfare or hotel transaction.

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The behind-the-scenes action and innovations that facilitate this emerging product are considerable and constantly evolving, and insurtechs play an important role. In the last two years, the insurance sector saw significant levels of automation as lockdowns resulting from the COVID-19 pandemic drove insurers to adapt new digital processes and tools.

Insurtechs, sensing an opportunity, mushroomed as a result. A recent report from ResearchandMarkets.com pegged the growth of the Indian embedded finance market at 46 per cent annually, reaching 1.6 trillion rupees by the end of the decade. Simon Torrance, the author of New Growth Playback, described embedded insurance as a $3 trillion (238 trillion rupees) opportunity globally.

For insurers, embedded insurance is a faster way to establish their presence and bring their products to the market in less time than the traditional approach, which requires time to build awareness and trust among potential customers. Embedded insurance eliminates this step as it is already incorporated as part of some other service the consumer desires. Customers rarely scrutinise who is issuing the cover because they are interfacing with a service provider they already trust. This substantially cuts down on the time to market and costs associated with acquiring new customers.

One of the biggest innovations in embedded insurance is that it has become contextual. Gen Z and millennials have no qualms about letting the world know where they are, what they are doing, and their lifestyle choices. This is vital information that insurtechs cull to provide customised insurance solutions. Data is the fuel powering the embedded insurance engine. Armed with this knowledge, insurance organisations can ensure that the right product reaches the right customer at exactly the right moment. The amount of data available on many potential customers makes it easy for insurtechs to piggyback on this information to customise the offerings for their embedded insurance products.

One significant aspect of embedded insurance is that it has drastically lower onboarding costs for insurers. The lower acquisition costs associated with embedded insurance result in lower premiums, which can provide an incentive for people to buy insurance products. In places like rural India, where insurance penetration is low and data is less available, insurtechs are working with local micro-credit groups and micro-lending institutions to offer embedded insurance products at affordable rates.

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But it isn’t just policy issuance that can be simplified via embedded insurance. Claims processing can be even more tedious than issuing policies – both for the customer and the insurer. Many claims get stuck due to incomplete information provided at the time of issuing a policy. Embedded insurance can simplify the process by using authenticated data provided at the time of onboarding, resulting in a better experience for all parties.

The global insurance industry is rapidly moving towards a service model where products and services are offered, and can be accessed, remotely. It is not a stretch to suggest that the next step in that path is a wearable accessory that can assess an individual’s health (like a smartwatch) and send the details of the wearer’s health to an insurtech or insurance company, and that company can then instantly offer a custom policy based on the individual’s unique health profile. Such availability, with the associated cost benefits, could be a true game changer for India’s insurance marketplace.

Views expressed by Prashant Tekchandani, Senior Vice-President, Xceedance.

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