Rethinking embedded insurance
Klaas Dijkstra – Chief Information Officer, Asia
Embedded insurance can realise this vision. The channel enables online customers to take out an insurance policy when purchasing an associated product, on a single platform and in a single online session without having to go to another app or webpage. The insurance component of this experience is literally ‘embedded’ within the online customer journey.
To date, most embedded offerings involve standard insurance policies, like travel insurance that is offered when purchasing a flight ticket, or coverage for home appliances when ordering these online. Buying such policies at the point of sale is not only extremely timely, it’s also very convenient — saving customers several hours’ worth of research to find an appropriate policy at the right price; while potentially saving them a lot of money should the purchased good or service become faulty, or later leads some form of financial loss.
It’s also well-timed because as a rule, people forget about the risk of damage and financial loss very quickly after purchasing an item. Plus very few people wake up in the morning and think about insurance, which is typically only thought about when buying a product, or having to replace or repair it. Embedded insurance bridges both experiences, and ensures customers are adequately covered should something break or go awry.
Increased access and inclusivity
The potential of embedded insurance is noteworthy in Asia. According to McKinsey & Company, 95% of the Asian consumers are digitally inclined, preferring to buy many items online. Simultaneously, government regulations and policies are increasingly supportive of embedded financial services including insurance, as well other digital initiatives.
A further driver is today’s insurance coverage gap. According to one estimate, this stands at 90% in Asia — suggesting that only 10% of customers based in the region, whether individuals or businesses, have adequate insurance. Admittedly, this will vary from country to country with more mature markets seeing much smaller insurance coverage gaps. A Lloyd’s report notes how the coverage gap is particularly acute in emerging markets like India, Vietnam and the Philippines — countries that are increasingly digitally literate, and where the number of internet users across all three markets (India, Vietnam and Philippines) collectively stood at over 855 million people in 2023. The opportunity to provide consumers in such markets with embedded insurance across an array of different lines is enormous.
This potential is reflected in investment dollars: funding for Asian insurtechs in the embedded insurance space rose 36% annually between 2019 and 2021; while venture capitalist funding into local insurtech start-ups increased tenfold between 2017 and 2021, when it totalled US$2.7 billion. By the end of this decade, embedded insurance in Asia is projected to become a US$270 billion market in terms of gross written premiums.
How might the channel evolve, and which insurance lines stand to benefit most?
Growth opportunities
Opportunities to expand embedded insurance across the region are plentiful. These include further growing mass-consumer segments like car and home insurance, which are already embedding coverage into third-party online platforms. Embedded insurance is advancing in the luxury market as well. For example, QBE recently teamed up with Oriental Watch and YAS to create TimeCare, comprehensive protection for luxury watch enthusiasts, which can be accessed online at point of sale, or at a later date. Uptake has been promising among Hong Kong-based luxury watch owners since its launch last year.
Arguably, the most exciting developments will be in less-standard areas within the business-to-business (B2B) space. Embedded coverage to meet the needs of the region’s small and medium-sized enterprises (SMEs) is predicted to fuel much of the top-line growth in this channel. However, I would go a step further in saying that embedded cyber insurance in particular, is a noteworthy opportunity at the moment for customers, intermediaries, and third-party online platforms — as well as for insurers like QBE.
Cyber risks are everywhere, and no company is immune to them. In the past, large companies operating in specific sectors were typically the targets of nefarious online actors. Today however, perpetrators are targeting companies of all sizes and across all industries. To counter these threats, SMEs could purchase cyber insurance through embedded offers. When buying hardware and software online for example, SMEs might readily obtain coverage at the point of sale — not only to protect these products against damage and other incidents like data theft; they could also purchase additional policies that cover other cyber exposures as well.
This is also the case for owners of consumer electronics devices like digital cameras and smartphones, where upon paying for these items, customers could purchase insurance that covers both physical and digital risks.
Knowledge shortfall
In the business insurance space, providers are already offering embedded coverage for certain products across several lines, but with limited coverage. That’s because the nature of most business risks is typically complex and unique to each customer. Equally, solutions to counter such risks are challenging to commoditise for insurers.
That’s because in the B2B space especially, there are a plethora of risks to consider. These differ from industry to industry, location to location, and from one company to another. There is also the likelihood that such customers don’t fully understand the range of risks and threats that they face, and will overlook certain risks due to their own knowledge shortcomings. It is widely acknowledged that companies of all sizes, especially SMEs, need a bundle of risk solutions to meet their everyday resilience needs. But knowing which ones to purchase is typically challenging for most company executives.
Whether pertaining to medical, commercial property or cyber coverage, many customers simply don’t know the extent of their exposures. Accordingly, they are ill-equipped to fully assess their risk profile, and are therefore unable to choose the most appropriate policies on their own. The huge potential of embedded insurance hence presents enormous challenges as well. How might these be overcome?
A seamless omnichannel experience
The solution to the current dilemma is to reposition embedded insurance as an omnichannel experience, where customers are able to browse insurance policies online as part of the customer experience, yet consult with an agent or broker when purchasing policies. Upon paying for a product or service online, a prompt to explore purchasing coverage could immediately appear, as it does with travel insurance for instance. And rather than lead customers to a point of sale, the call to action could present a telephone number to call or live chat with a sales representative to discuss the customer’s insurance needs.
Studies suggest this is the most plausible solution: this year’s QBE SME surveys for Singapore and Hong Kong revealed that 66% and 57% of SMEs respectively prefer an omnichannel customer experience. Typically, they fact-find using online sources, before speaking to an agent or broker to better understand their risks and needs, and purchase accordingly.
There is also the opportunity to leverage cutting-edge technologies like artificial intelligence and machine learning, which can quickly analyse and identify customer preferences, and offer appropriate solutions to policy holders. At the same time, there is an opportunity to embed insurance into the ecosystem that supports SMEs. For example, when forming a business, an accountant is required to incorporate the company, a bank is needed to create an account, and a lawyer may be required to create a constitution or company charter. In all cases, insurance providers can team up with such businesses to make the purchasing of insurance easier and timelier — whether bought online or in-person.
An exciting future awaits
Embedded insurance presents a ‘win-win’ situation to all actors within the insurance ecosystem: customers are able to browse and access appropriate policies with ease; intermediaries including brokers and agents can better service policy holders by providing in-depth information about complex and difficult to understand products, while helping customers purchase these in-person; and third-party platforms, whether an e-commerce marketplace or online travel agent, can greatly improve the experience extended to their customers, by offering product protection that is timely and appropriate.
As embedded insurance evolves, it will likely involve multiple touchpoints, both physically and digitally: more standard polices will continue to be accessed solely online; while more complex risk solutions will involve hybrid servicing models where online and in-person experiences co-exist.
And lastly, there is an important role for established and respected insurance providers like QBE, who can provide peace of mind to customers that should a genuine claim be lodged for a policy purchased through an embedded channel, it will be honoured.
It’s an exciting time to be working within the insurance industry!