Published on 16 Jul 2023

Insurance firms looking at tailored solutions for consumers amid growth in embedded products

Insurance companies are increasingly looking at customisable solutions amid the rise in popularity of embedded insurance, which are products customers secure as protection for specific transactions.

One example would be AppleCare, where customers can opt to pay an additional premium in order to get coverage for the products they are purchasing.

A survey by embedded insurance company Cover Genius conducted in 2021 showed that 83 per cent of Singaporean digital bank customers would be highly interested in receiving embedded insurance offers based on their transaction data, with 58 per cent citing "convenience" as the primary driver for their interest.

The firm offers protection for consumers of digital companies such as Turkish Airlines, Ryanair and Booking Holdings, which owns brands like

Dr Shinichi Kamiya, associate professor in the division of banking and finance at Nanyang Business School at Nanyang Technological University, said embedded insurance adopts a targeted distribution approach and leverages existing distribution channels such as e-commerce platforms.

Functionally, it works the same way as traditional insurance, where a partner company collects insurance premiums and transfers it to insurers for future claims.

Cover Genius said they noticed that there was a gap in the insurance sector over the pandemic.

"During the pandemic, many players in the traditional insurance industry were unable to tailor their products to consumers and it was difficult to purchase with confidence," said Mr Chris Bayley, co-founder and chief customer solutions officer at Cover Genius.

"As a result, more flexible products such as embedded insurance emerged at that time and this has been sustained and evolved post-pandemic to be much more customer-centric."

However, Dr Kamiya said that embedded insurance needs to be delivered elegantly especially if a customer is not expecting to be offered insurance for a product they are purchasing, but is offered anyway.

"It can decrease the perceived value of those offerings by insurance marketing, especially if customers experience unexpected purchases of insurance," he noted.

Additionally, he pointed out that embedded insurance could be risky, as customers may not be able to make informed decisions due to the lack of information provided by embedded insurance platforms.

He said: "Platforms may not provide full information about a policy and customers may not have time to fully understand coverage and review their policies which may overlap with the embedded insurance.

"Therefore, customers may buy embedded insurance without adequate consideration."

He said companies need to also ensure customer data privacy.

"Embedding insurance at the point of need relies on the collection and analysis of customer data, which are also used to determine coverage and pricing.

"Since platforms are technically able to increase customer demand and maximise price, the ethical use of this data is paramount.

"Insurance companies should clearly communicate how customer data will be collected, stored, and used for insurance purposes," he said.

Dr Kamiya also noted how most traditional insurance companies were not implementing embedded insurance options at the moment.

"Embedded insurance will not be a major source of revenue for traditional insurance companies. The market for embedded insurance may be too small for them to commit at this point.

"And the costs associated with embedded insurance (for example, collaborating with business partners) is not negligible. However, different types of embedded insurance will emerge and gradually shift the insurance ecosystem," he said.

Income Insurance is taking another approach with embedded insurance, by looking at how it can close protection gaps of underserved individuals who may not have access to basic insurance.

This has led to a micro-insurance and investment proposition, where users could build insurance coverage by contributing micro-premiums each time they complete a lifestyle activity such as taking public transport or dining out.

Chief digital officer at Income Insurance Peter Tay told ST: "Over time, users can stack insurance coverage to build up their own portfolio and have the flexibility to stop and start coverage any time."

Dr Khoo Kah Siang, chief executive officer of Manulife Singapore, said embedded insurance is a response to consumer preferences for simplicity, transparency, and convenience.

"By embedding insurance at relevant touchpoints, consumers are offered contextual, easy-to-understand and simple-to-purchase solutions precisely when they need them," he said, adding that embedded insurance will become more customisable and convenient in the future.

Dr Kamiya said the future of insurance will rely heavily on data-driven decision-making, which will enable insurers to refine underwriting processes, pricing models, and risk management strategies.

"Advanced analytics and artificial intelligence will play a crucial role in leveraging this data for product innovation and enhanced risk assessment," he added.

Source: The Straits Times