How Embedded Insurance Is Changing India’s Insurtech Landscape

It took a pandemic to force multiple sectors to accelerate their digital agendas and insurance is no different. As per a recent global survey, 96% of insurance CEOs felt that COVID-19 served as the digital catalyst that fast-tracked digitisation of operations and led to the creation of next-generation operating models. 

A growing spate of insurance companies and ecommerce firms are now integrating artificial intelligence (AI), internet of things (IoT), big data analytics, machine learning, open application programming interfaces (API), and other technologies to deliver a hassle-free customer experience and transform the Indian insurance industry. Embedded insurance is only getting started, but it has the potential to become a trillion-dollar business.

What Is Embedded Insurance?

Embedded insurance is the real-time bundling and sale of insurance when a consumer purchases a product or service at the point of sale. This insurance could either be complementary (like a warranty) or a consumer may need to pay a nominal fee above the transaction cost. Embedded insurance is made simple and affordable through this issuance process, which also gives insurers access to untapped and underserved markets. 

For instance, rural India has a high demand for life insurance products, but traditionally, it has been difficult to sell these services there. With the advent of embedded insurance processes, insurers can now serve this untapped market by providing services like credit life insurance, hospicash, and personal accident Insurance through microfinance without having to rely on costly distribution channels like conventional banks.

How Is It Disrupting The Industry?

Embedded technology is changing the way people buy insurance by expanding opportunities and building strong customer journeys, making it easier for customers to access insurance or warranty products throughout the purchase cycle. 

Here are some examples:

• Online cab services are offering ride insurance for an amount as low as Rs.2 while you are making the booking. 
• Warranty and insurance products are being offered while purchasing electronic devices, appliances against theft, appliance protection, etc.
• Travel aggregators have embedded travel insurance for loss of luggage, trip cancellation or delay. 

Along with seamless purchase journeys, the breadth and depth of embedded products is rapidly increasing. 

Customers and Businesses Will Benefit

• Embedded insurance provides an easier purchase flow, as it’s an ‘add-on’ to the primary product. As a result, there is no need for a lengthy warranty form, and payment is made in conjunction with the main product. 

For instance, if a customer provides information to obtain a loan from a bank or a non-banking financial company (NBFC), that information can be used to issue insurance. This removes the need for additional paperwork and reduces the chances of errors.

• Embedded products are more personalised, complementing the main product’s attributes and tailored to the customer’s security needs.
• Businesses are also benefiting from lower ‘Customer Acquisition Costs’ because the customer is already purchasing the main product and embedding the insurance product expands their portfolio.

The inherent convenience and personalisation have ensured that India’s embedded finance industry will grow by 46% to INR 1,61,442 Cr by 2029.

Challenges With Embedding Products

However, the transition to embedded insurance is not as straightforward as it appears. Providing insurance in addition to the core product requires time, effort, and capital. In addition, some products are easier to embed than others. Products that require complex underwriting, such as life insurance, where health and behavioural considerations are important, will necessitate an understanding of customer behaviour and may be difficult to implement. 

As a result, a company must understand its product offerings, create a parallel technology stack to provide insurance and create a completely new business flow to resolve queries and provide integrated insurance services.

How Is Plug-Play Technology Solving The Problem?

In India, there is currently a 70% protection gap — the difference between the amount of insurance required and the amount of insurance purchased. Insurance companies are identifying these gaps and attempting to address them by incorporating smaller products into larger ecosystems. There is also the requirement to provide the appropriate policy at the appropriate time. Understanding customer needs allows insurers to create offerings that will persuade a consumer to purchase insurance for a product.

One way to bridge this gap is to develop a plug-and-play technology platform. This platform eliminates the hassle of developing an insurance product and allows the company to focus on its core value proposition. The technology determines the best insurance plan for a specific product, and the business decides where the insurance product will be added in the purchasing process. A customisable plug-and-play platform also enables sellers to embed insurance products without the need for additional coding, and an integrated analytics dashboard aids in the understanding of both business and user metrics.

This creates a win-win situation for both the customer and the business, as the customer is insured when necessary, and the business gains additional revenue without having to develop new technology.

Such tools enable insurers to build value-added digital distribution partnerships and embed transparent offers, resulting in relevant and customer-centric insurance offerings.

What Is The Future Of Embedded Insurance?

Insurance has the best chance of being purchased when it is provided at the right time or is bundled with the product. As a result, many ecommerce websites now bundle various types of insurance with their products to ensure customer ease of use and convenience. This approach will also play a significant role in efficiently exploiting the protection gap, resulting in the sustained growth of the embedded insurance market. 

However, for this model to succeed, businesses must strike the right balance between speed and efficiency of business operations, customer protection, and regulatory compliance. India is Asia-Pacific’s second-largest insurance technology market, and in the coming years, a greater number of partnerships between product and insurance companies will result in greater insurance penetration in the untapped Indian market. This will particularly be the case in rural and underserved areas, creating innovative and tailored offerings for a diverse consumer base.