Life in the digital era is always moving, there is a deluge of notifications, tons of stuff to stream and listen to, constant alerts, and the ability to plan trips and vacations from home at the swipe of a button. As the times have changed, so have financial & insurance product offerings. The insurance industry has realized the need for embedding financial services into various insurance and bank products, which includes embedded insurance. This specific type of insurance has the potential to simplify the purchasing process for consumers, customize products, provide insurers with greater control over what they sell, and help drive a very ethical relationship with the end consumer.
Embedded insurance is a highly discussed topic in the insurance industry today, largely due to advancements in technology, changing consumer behavior, and the increasing popularity of e-commerce. Embedded insurance provides customers with fast and reasonable coverage by bundling insurance protection with the purchase of a third-party good or service. Insurers can provide a smoother, more effective product delivery experience that contemporary consumers enjoy and demand.
Even though embedded insurance is not a new concept, it is a term that most people may not be aware of, but would have been a part of at some level, especially if you are booking cabs on ride-hailing apps, ordering food, and booking tickets online. Insurance policies are baked into multiple travel, health, and delivery apps.
Embedded and bundled insurance is a type of insurance that is included as an add-on to a larger product or service. It is often offered as an added convenience for the customer, allowing them to eliminate risk in an accident, or a luggage mishap. Blended insurance combines multiple types of coverage into a single policy.
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Embedded insurance is making insurance products more robust for the end consumer by consolidating multiple types of coverage into a single policy, offering cost savings and customizations to fit specific needs. However, it is important to ensure that the insurance product being bundled with any financial product has some utility for the end consumer and is not being bundled just as a push sales tactic where the consumer has little to no say. A tested product with a defined minimum claim ratio can be a way around that, an insurance product with a minimum claim ratio of about 30-40% indicates a risk management value being added to any product it is being embedded with.
In many cases, banks tend to sell compulsory insurance with bank loans. This means the customer lacks choice and the product often results in limited claims. A move towards ethical selling of embedded insurance will change this situation by ensuring a better claim ratio and risk management for the end consumer. Barring the minimum claim ratio, one other way can be to study the consumer’s current risk profile and plug the existing gaps in their risk management.
While embedded insurance originally focused on warranty and gadget coverage, it has expanded to include more comprehensive coverage options. This allows customers to easily and conveniently obtain insurance coverage as part of the purchasing process, without having to navigate a separate insurance marketplace.
As technology continues to evolve and data privacy concerns are addressed, embedded insurance is expected to expand to other sectors as well. This could help streamline the purchasing process for customers and provide them with greater peace of mind by ensuring that they have insurance coverage in place for their purchases.
One of the benefits of embedded or bundled insurance is that it is convenient for consumers. For example, a travel website could offer insurance for lost baggage or flight delays, while car dealerships offer auto insurance policies as an add-on. This makes it simple and intuitive to get insurance coverage, without searching for a new policy, thereby saving time and effort.
The success of insurance companies revolves around trust. The primary reason a customer buys insurance is to have their claims covered in case of accidents. Embedded insurance has a simplified claims process as the policy covers multiple products or services under a single head. This makes it easier for the policyholder to file claims and receive compensation faster.
Embedded insurance is also a cost-effective solution. Since it is bundled with another product or service, the customer may be able to secure a much lower rate than if they purchased the policy separately. For example, a car dealership may be able to offer you a lower rate on auto insurance since it is offered with the purchase of a new car.
Historically, offering insurance products in rural India has been challenging, but microfinance and services such as credit life insurance, hospicash, and personal accident insurance have helped the end consumer in the remotest corners of the country gain access to the various insurance products available in the market.
From a business perspective, it can also lead to lower ‘customer acquisition costs. Reports suggest the embedded finance industry in India will grow by 46% to Rs 1,61,442 crore by 2029.
Embedded insurance providers have the ability to create tailored insurance plans that are more relevant and cost-effective by leveraging customer data that was previously unrecorded or not digitized in paper-based insurance offerings. These providers can adjust the features and costs of the insurance plans based on the data, and also have the option to cancel the plans if they are not feasible.
One of embedded insurance’s most significant benefits is that it is helping in raising client satisfaction and trust in the insurance ecosystem. Insurance companies now have the chance to advertise their goods and services to people who need them.
Embedded insurance plans are helpful and could be a great tool to increase insurance awareness and penetration in India. Embedded insurance is poised to bring about considerable changes to the industry in the upcoming years. Customers can enjoy the convenience of quickly buying insurance coverage without repeatedly providing their personal information. In the meantime, partners who sell insurance coverage along with their products or services can earn extra income while enhancing the customer experience & trust in the insurance ecosystem.
(By Ankur Nijhawan, CEO, AXA France Vie India Reinsurance Branch)