India has significant penetration gap in insurance cover across all sections of society. Insurance penetration for health and life insurance is less than 5% and further those having insurance policies, do not have adequate insurance as per their needs.
One of the reasons for low penetration is high cost of distribution of insurance products, resulting in higher insurance premium for customers.
India continues on the path to becoming a digitally driven economy with close to 600 mn active internet users. With the rise in digitization, organizations today are using technological breakthroughs and have made significant progress in e-commerce, payments, lending, WealthTech, etc.
Vikas Anand, CEO of SafeTree (A brand name of A2V Insurance Brokers Private Limited), an InsurTech based out of Gurgaon, mentioned that digital infrastructure can provide a great opportunity to provide insurance to vast majority of Indians. Embedded Insurance refers to abstracting insurance functionality into technology so that third party organizations can seamlessly incorporate attractive insurance solutions into their customer buying journey. This results in ensuring more affordable, relevant and personalised insurance to customers of the third party. Embedded Insurance is about bringing demand and supply for risk mitigation solutions more closely together within contexts that make insurance more relevant, and therefore more attractive.
Few travel aggregators in India have smoothly embedded travel and related insurance in their buying journey. It was recently reported that India’s leading travel aggregator saw a 270% increase in sales of insurance products since January 2022.
Internationally many organizations have successfully integrated insurance into their customer offerings and now constitute a significant part of their earnings. In China, the ANT Group manages a digital financial services platform with an enormous customer base due to the ubiquity of Alipay. Ant Group focuses on understanding the needs of its consumers, educating them about the value of insurance and then designing compelling solutions for them with its suppliers. It now offers 2000 customised, affordable and flexible life and non-life products from 90 different insurance suppliers. With this embedded strategy, Ant is closing the protection gap and, as a result, its insurance arm has become the largest online insurer in China with over 500 mn customers.
BIMA is a great example of embedding affordable health insurance into the mobile telephony ecosystem, closing the protection gap for 35 million Africans in 2020. Interestingly, 75% of these customers are accessing insurance for the first time.
In US, a home security hardware company also started selling home insurance for its customers. This combination had been very successful, resulting in a wining proposition for all stakeholders; the customer got lower insurance cover with a simplified buying experience. The hardware company got an additional profitable revenue stream and this increased customer retention and loyalty. Further the insurance company got access to low-risk customers and created an alternative distribution channel. They have now started selling motor insurance to their clients.
Customers of Fintech players and e-commerce platforms can significantly benefit by getting access to customised financial products with lower premium due to reduced operational costs of embedded technology.
Mr. Anand also highlighted that product suitability, claims process and technology are critical components for a successful Embedded Insurance model. Since insurance is a push product, it requires careful understanding of customer needs and construct a product with unique features at a competitive price.
SafeTree Insurance has recently developed an embedded product for a new pesticide brand that offers personal accident insurance to rural farmers who buy their product. This combination has the potential to enhance the pesticide company’s brand value by providing a unique offering and going forward, such tie-ups will go a long way in reducing the penetration gap in the country.
Experts believe by 2030, Embedded Insurance will be a $3 trillion market opportunity and in China approximately 50% of the insurance market will be distributed as embedded insurance.
Mr. Anand believes as India is Asia-Pacific’s second-largest insurance technology market, there will be a greater number of partnerships between product and insurance companies in the coming years, and this will result in greater insurance penetration in the underserved Indian market.