The extensive adoption of technology by consumers during the pandemic have led companies to shift their business online. Insurers are integrating technology with their business to deliver hassle-free experience for consumers, and offer insurance solutions that are personalised to customers’ needs. With the adoption of Artificial Intelligence (AI), Internet of Things (IoT), big data analytics, Open API, and other technological advancements, insurtech is elevating customer convenience, thus transforming the insurance industry. What is more, the face of insurtech is changing with embedded insurance emerging into the scene.

Embedded insurance is a significant application for insurers and third parties to advance the penetration of insurance in untapped Indian market, particularly in rural and underserved areas. Embedded insurance is real-time bundling and sale of insurance cover or protection while a consumer is buying a product or service at the point of sale. For example, when someone buys an electronic product, one has the option to purchase an accidental damage cover/theft protection plan. So, what exactly is driving this shift and how is embedded insurance making the entire insurance buying and selling process hassle-free?

Here are the factors that have propelled the adoption of embedded insurance in India, transforming the insurance business for better.

1. Access to untapped markets: Embedded insurance opens new markets for insurers, which were not accessible to them earlier. For example, the need for Life and Health related insurance products is high in rural India. However; the challenges for an insurance plan to be sold in a traditional manner are equally high in these areas. Thus, a very few insurers have been able to make inroads in the rural market. On the other hand, due to embedded insurance processes, many insurers are now able to offer Credit Life Insurance, Hospicash and Personal Accident Insurance to customers via the microfinance industry and reach the untapped rural markets.

2. Simpler on-boarding process: As embedded insurance mostly rides upon a parent product, the on-boarding process for an insurance plan can be simplified to a large extent by leveraging the information collected during the sale of the parent product. For example, if a customer has given their information to procure a loan from a bank or an NBFC, the same information can be used to issue an insurance to them, provided the customer gives their consent for it. This removes the need to fill additional forms (whether physical or digital), and reduces the chances of erroneous or incomplete applications being submitted to the insurer.

3. Lower customer acquisition costs: On an average, an insurance company spends around 20% of its revenue while acquiring customers, although this cost adds up towards the premium charged for an insurance plan, which is ultimately paid by the customers. But since embedded insurance leverages an existing channel for a parent product to acquire its customers, the effective cost of customer acquisition is much lower. This lower cost results in lower premiums for customers and improves the margins for the insurance company, thereby giving them a cushion for higher loss ratios.

4. Hassle-free insurance claim process: As the information of the customer is the most accurate and verifiable, the likelihood of claims getting rejected is relatively much lower. The claims process also becomes simpler because data collected during the on-boarding stage can be leveraged during the claiming process. Moreover, the customer service agent becomes empowered to do much more than just record the claim information.

5. Data-driven product creation: Underwriters love data and that’s exactly what embedded insurance offerings provide them. With data points being available, (that earlier were not either captured or if captured, were not digitised in a paper based insurance offering) underwriters and product managers can create customised, more relevant and optimally priced insurance plans. Additionally, they can also modify the features and pricing of these plans, and even withdraw the plans if they are not viable. This in turn offers more flexibility and room for error to insurers, thereby, fostering innovation and creativity.

What’s next?

The scope of embedded insurance is immense as it not only contextualized the product constructs, but also make insurance affordable and easy, through a simple issuance process. India is the second-largest insurance technology market in Asia-Pacific, accounting for 35% of the US$ 3.66 billion insurtech-focused venture investments made in the region (source: S&P Global Market Intelligence). Over the coming years, more partnerships between insurtechs and insurance companies will result in greater insurance penetration, especially in the hinterlands and will also help in creating innovative and bespoke insurance offerings for diversified customer segments.

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