Embedded insurance: Is it a game changer?

"Hi, I saw your profile pic. It's stunning, did you buy a new camera?" 

"I did. It's in my new phone!"

We all know the sale of cameras is slowing down. Fewer people buy them now, and only if they have a deep interest in photography. With the entry of smartphones, the scene has changed. There are possibly more selfie clicks than phone conversations on any given day. 

The same thing could happen to insurance too, if we learn to embed it economically and effortlessly in our daily purchases. 

The transformation is already happening, if we look closely into the emerging insurance landscape: 

Take a loan, get loan insurance embedded.

Open a savings account, get term insurance added.

Buy a flight ticket, and have travel insurance as an extra.

Go on an Uber ride, and get covered for accidents.

Why is it getting trendy to embed insurance into more popular products? The answer is simple. Like cameras, insurance remained on a pedestal, out of reach for many due to its complex jargon and needlessly high price. Embed the same into products we are familiar with, suddenly insurance becomes more tangible and easy to deal with. 

Insurance resembles a heavy wagon that needs a powerful engine of consumer products to pull it along the customer's lifetime journey. Embedding insurance is not a new concept- it's been there for ages. Embedding insurance with banking products was common in advanced markets. In India too, it's very widespread. 

But what's changing the game is, with the advent of digital technology, the bulky insurance sale process is getting easily moulded into the super quick consumer products sale process. While flight tickets and car rides are getting insurance embedded, food delivery and grocery purchases can surely follow.

What makes it so easy and popular is that ecommerce platforms already have so much customer demographic data like age, gender, and lifestyle habits, and can pre-fill and segment customers on better risk profiles than manual proposal forms could ever do. 

Older ways of underwriting are giving way to newer real-time data-based risk profiling. More accurate predictions help ensure customer mortality and morbidity (death and disease), two huge risks where penetration and coverage are dismally low.

But is it all sunny side to the story of embedded insurance? 

Regrettably no. Embedded insurance has three dark sides that strike at the very core of the affordability and utility of insurance. 

The ecommerce player embedding insurance into their product offerings (for example, travel portals for flight insurance) demands a pound of flesh unheard of in the real-world distribution of insurance. Their commissions take away 3/4ths or more of customer money, for the simple act of adding insurance to their product journeys. 

Further, customers have no choice but to select the insurance company of their preference. It's a tied deal bordering on restrictive trade practice where hardly any options are left to the customer to decide. They can either say yes or no. That's all, there is no choice whatsoever on carrier or coverage.  

Lastly, in the key moment of truth claims, customers have no idea whom to contact and how to claim against accident or damage. The ecommerce player takes no responsibility to handhold customers in their distress, except perhaps publishing somewhere in their portal a call centre number or email address. 

So what's the outlook for embedded insurance? 

I believe the answer lies in choosing the right technology. 

The embedding should not stop with a product sale, it should continue with further enhancement not only for up-sell but also for servicing. InsureTech should move beyond managing the sales process efficiently into addressing the real issues of personalisation and claim settlement. In such a case, embedded insurance would surely overtake standalone insurance, in numbers if not in size. 

(Dr P. Nandagopal is the Founder and CEO of B2B2C insurance platform Upsure.)