A red-hot insurance topic in 2023
The need to create growth and new revenue streams is driving the implementation of embedded insurance solutions. However, there are a variety of risks and consumer-specific considerations.
FAnews spoke to Ola Oyekan, PhD, Microinsurance| Mass Market Specialist, RGA South Africa (RGA Americas Reinsurance Company, Ltd., South Africa Branch) about embedded insurance, the challenges and opportunities for insurers in implementing embedded insurance solutions and more.
Differs from traditional models
According to Oyekan, embedded insurance differs from traditional insurance models in that embedded insurance is the bundling of insurance into the purchase process of another product or service. “Embedded insurance offers are strategically presented when relevant life events motivate customers to consider insurance coverage and ensure that customers can access insurance when and where it matters most.”
“Embedded products are typically offered as supplementary products to the customer aggregator’s main product and are usually a natural fit to the main product. Several compelling case studies are emerging in the market. For example, a grocery retailer offering funeral cover with benefits in the form of grocery vouchers. Other examples include banks and mobile network operators embedding insurance into existing products and services offered to customers,” she said.
The key benefits of embedded insurance, according to Oyekan, are that embedded insurance has the potential to drastically change the way insurers interact with customers. It eliminates the unnecessary paperwork and often time-consuming traditional process of applying for insurance. By integrating insurance sales into existing consumer processes, embedded insurance could significantly lower customer acquisition costs and, in turn, improve the affordability of coverage for customers. Hence, the benefits of embedded insurance for customers include reduced cost, greater accessibility, and better coverage.
Opportunities for insurers
Embedded insurance, Oyekan says, has been described as the next logical step in the evolution of the insurance industry and is often touted as a silver bullet for improving coverage access for underserved consumers. The market potential of embedded insurance is huge with global estimates of $3 trillion in market value over the next ten years. Life and health insurers have been slower to adopt embedded products when compared to their property and casualty counterparts, but the sector is catching up fast with several compelling case studies emerging.
“Embedded insurance could help insurers to acquire new customers, drives innovation and growth, provide opportunities to cross-sell or upsell existing products, offer competitive advantage and promote customer trust,” she says.
Some key considerations
According to Oyekan, a typical embedded insurance ecosystem comprises a customer aggregator (e.g., banks, mobile network operators, retailers etc.,), an insurtech partner and an insurance license holder to underwrite the risks.
When looking at the challenges and/or considerations for embedded insurance, Oyekan says there needs to be an alignment of objectives among ecosystem partners. “In many cases, the embedded insurance product design is led by the customer aggregator (non-insurer). Therefore, alignment of objectives and interests between the insurer and customer aggregator is crucial to ensure that products are designed to meet customers’ needs, competitively priced and fairly sold. In addition, customer aggregators and insurers need to agree to align upfront on the customer journey. Another key consideration is regulation. In particular, for loyalty-based embedded insurance, it is crucial is to ensure that the product structure is in line with regulatory definitions and does not result in the inducement of policyholders. Regulations vary by region but can include restrictions on non-insurers selling insurance products and limits on sales compensation structures.”
“A simple and seamless customer journey is crucial for the success of embedded insurance. Hence, insurers need to partner with brands (customer aggregators) and insurtech platforms that can seamlessly handle sales, policy admin and claims. Insurers also need to ensure the seamless integration of data between the customer aggregator, insurtech platform or third-party data sources to determine the risk and set the pricing for the products,” she continued.
“Regular customer engagement is a key factor for building trust and transparency. Customers need to understand the concept, benefits, and value proposition of embedded insurance products. To improve customer engagement, customer aggregators and insurers can use an omnichannel approach (via physical and virtual, direct, and agent-based channels) to provide a cohesive experience and consistent information across these different channels - with variations built-in for an individual customer’s needs and preferences. Regular surveys and awareness campaigns also go a long way toward reminding policyholders and their beneficiaries of the coverage in place, its value to them, and how to claim a benefit should the unforeseen happen. Insurers should also do their part to regularly scan local death records for unreported claims and make payouts to beneficiaries,” she added.
A viable lead source for intermediaries
Commenting on embedded insurance’s impact on the role of brokers and advisers in the insurance industry, she said that the embedded sales process is quick, with little to no advice being provided at the application stage, so the insurance product should be simple, easy to understand, and clearly tailored to the customer’s identified need. Therefore, embedded insurance is tailored to simple products such as funerals, hospital cash or simplified life cover.
Complex products, however, such as life cover, critical illness, and disability cover – still require the relevant financial advice provided by agents and brokers.
For the brokers and advisers looking to understand and navigate the embedded insurance landscape, Oyekan said, customer aggregators and insurers utilise loyalty-based embedded products to drive retention and create a pool of clients for future upsell or cross-sell opportunities. This ‘pool of clients’ creates a viable lead source for advisers and brokers to sell more complex traditional products offered by the insurer.
“As embedded solutions emerge, it could eliminate the need for agents and brokers to hunt for direct prospects or leads, thereby bringing a shift in the future where most of the broker’s time will be spent on advising and servicing customers. Therefore, it is imperative for advisers and brokers to stay abreast of the developments in the embedded insurance space, as it creates several benefits to all parties within the insurance landscape,” she concluded.
Writer’s Thoughts
Clearly, there are opportunities in this space. Do you believe embedded insurance, is the next logical step in the evolution of the insurance industry and the silver bullet for improving coverage access for underserved consumers? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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