Asia is home to a mix of mature, growing demographic segments and high growth, developing insurance markets.
The region has a significant insurance protection gap in terms of protecting life, health, and other risks adequately. According to a recent survey, the insurance gap in Asia is forecast to widen up to $889 billion by 2025.
Embedded insurance, which is best suited for simple and transparent products with a straightforward claims process, is widely considered by the insurance industry players as the most relevant opportunity to tap into new untouched customer segments to reduce this protection gap. Moreover, it could revolutionize how insurance products are distributed, largely by non-insurance brands worldwide. While western markets are more developed, the Asian market is catching up rapidly in this space. The Asia Pacific embedded insurance industry is expected to grow steadily over the forecast period, recording a CAGR of 20.7% during 2022-2029.
Embedded insurance is a popular concept and brings in all stakeholders in the value chain, including customers, third-party distributors, and insurers.
The lack of insurance awareness, trust and affordability are the key factors behind the protection gap.
Embedded insurance changes these dynamics by coupling real-time insurance offers when a consumer purchases a product. End-users are offered personalized and relevant insurance directly at the point of sale (POS), promising a quick sign-up process and no paperwork. Once a claim is triggered, the process is simple and hassle-free because the data collected is accurate and verifiable. It is then leveraged for faster payout, which is the key driver for end-user satisfaction.
For instance, a forerunner in the fintech space in India has promised a two-minute sign-up process and no paperwork for auto insurance.
For third-party distributors
Asia is experiencing a remarkable surge in insurance technology products (insurtech), aiming to bridge the insurance gap with embedded products.
India is the second-largest insurance technology market in Asia-Pacific, accounting for 35% of the $ 3.66 billion insurtech-focused venture investments made in the region. There are many insurtech companies in the APAC market that are raising funds to scale their platforms, providing the infrastructure for product distribution and claim management, and some of them offer technological support for product design, pricing, underwriting, and API integration which needs to be provisioned ahead of embedded insurance product launch.
For third-party distributors, it is a new way to differentiate, attract users, and generate new sources of revenue and growth. For example, a pioneer insurtech in China offers delivery protection for the SME sector for just 50 cents. The insurtech has sold over 50,000 policies related to business interruption to small businesses since the pandemic.
There are several insurtech players in the APAC market that are licensed by insurance carriers and able to offer insurance-as-a-service and white-label solutions.
Embedded insurance is both an opportunity and a threat.
On the positive side, the availability of IoT data, enhanced analytics, cloud-connected insurance platforms and open APIs gives insurers access to wider base of customer data and insights. This, in turn, opens access to untapped markets and reduces the protection gap. As customers are most likely to buy coverage, it leads to high conversion rates and lowers customer acquisition costs. On the negative side, they are becoming a trivial capacity provider to non-insurance brands and turning insurance into an even more commoditized business.
For example, the biggest embedded insurance provider in China persuaded the government to allow social insurance to be embedded into its Good Doctor platform. Other players launched several “one-click-buy” propositions, where customers can add insurance when they send money to their loved ones, pay a bill, or get a cab ride.
The road ahead
Embedded insurance is clearly the next biggest wave that will spur significant innovation in the sector.
Though embedded insurance solutions fill protection gaps to some extent, they could be more comprehensive and potentially create un- and underinsured risk pockets. Insurers need to scan through product portfolios to find products that could be embedded, assess the ecosystem partners’ credibility for embedded insurance fitment and strategize whether to maintain their own brand or accept rebranding. It’s an opportunity space to innovate and anticipate more partnerships between insurtechs and insurance companies, which lead to greater insurance penetration.