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Insurance in Your Pocket: The Rise of Embedded Micro-Insurance
Insurance InsurTech

Insurance in Your Pocket: The Rise of Embedded Micro-Insurance

By Rajarshi April 05, 2024 - 31 views

Micro-insurance, particularly embedded micro-insurance is steadily becoming not just a way of ensuring financial convenience, but also an instrument for inclusion. Embedded insurance is steadily becoming a major sales channel for insurance companies and it enables access to a higher number of customers. As per several reports, the embedded insurance segment is expected to touch $700 billion in GWP (gross written premiums) by the year 2030, which is six times and more in terms of its present size.

Why Embedded Insurance Is the Next Big Thing

Embedded insurance means bundling the insurance policy with any service or product. This means that people need not explicitly or directly purchase insurance. This is where embedded micro-insurance across smaller ticket sizes and categories has become a way of including more people into the financial coverage ecosystem while covering various segments that are not otherwise provided by traditional insurers.

While purchasing any service or product specifically tailored to the needs of smaller consumers throughout underserved markets, there is always an option to purchase coverage at a lower cost. This is where micro-insurance can be integrated with other products and services. Easy and swift availability is a major benefit in this case as well. For example, purchasing a bus or railway ticket is an easy affair and does not cost a lot of money. If there is embedded micro-insurance bundled into the same, then the traveller gets covered for loss of belongings, mishaps, etc. Walmart, for instance, has a protection plan which is available for those buying its electronic appliances and products.

Some Core Aspects worth Knowing

Here are a few aspects of embedded insurance that are worth knowing more about.

  • A majority of non-insurance companies are tying up with insurers or insurtech platforms for providing embedded micro-insurance.
  • This is helping scale up the business while reaching out to more underserved populations.
  • It is also helping offer specific product/service/usage-based insurance which are not otherwise available in traditional insurance products.
  • For example, Airbnb has tied up with Generali, Europe Assistance, and AON for offering travel insurance. This offers coverage for travel delays, trip cancellations, baggage, and medical. There is three-year insurance from Allianz provided by the XC40 model from Volvo. These are only a few examples.
  • Insurance companies can expand their base and gain more customers by tying up with various aggregators and companies.
  • Insurance companies also benefit from lower distribution costs through integrated services.
  • Customers find this as a value-addition since they do not have to buy insurance explicitly.
  • This strategy helps engage customers better while making them feel more comfortable while buying coverage via their familiar service providers/brands.
  • Personalized and embedded insurance can boost customer experiences considerably, thereby scaling up brand loyalty considerably.
  • Insurance companies have to first identify a suitable non-insurance partner or partners throughout various sectors.
  • They have to identify products that are non-traditional and differentiated in terms of reasonable pricing and easier policy issuance/approvals.
  • Joint branding may be chosen or insurance companies can issue policies under the brand name of the partner.
  • Insurance companies should also integrate their procedure of policy issuance with the sales and checkout process of the partners.
  • Insurance companies also have to build stronger processes and platforms for taking care of payouts, assessments, and the influx of claims. The usage of analytics and data with ML or AI technologies will help in this regard.

A Little More About Micro-Insurance and Its Functioning

Micro-insurance is expected to touch a global market size of USD$118.13 billion by the year 2030, posting a compound annual growth rate (CAGR) of 5.91% between 2022-2030. Higher product customisation, technological evolution, and increasing collaborations with other entities have led to skyrocketing growth of micro-insurance along with the unlocking of newer distribution channel patterns. Providers in this space are already leveraging data analytics for creating newer products and services, while understanding the specific requirements of low-income groups.

Micro-insurance for smaller businesses should be linked to an anchor solution/product. This will enable higher value propositions for expanding the customer base, enhancing customer spends, boosting business administration and management, and enabling superior insights into income and revenues. It also facilitates easy access towards accounts and increases safety, while staying updated with the preferences of consumers.  Financial inclusion can be driven through partnerships with micro-insurance enablers or platforms. This will bring in more underserved customers and businesses that are outside the conventional insurance spectrum.

This is where embedded micro-insurance has a vital role to play. It helps draw entities and people who are more inclined towards using informal financial solutions. Digital infrastructure will be the driving force behind onboarding of customers and collection of data at the same time. Self-service models and patterns may also help customers enjoy higher flexibility along with more payment choices, especially while purchasing insurance as a digital product/solution bundled with other specific options. It can take the form of the following models.

  • Micro-insurance policies were traditionally based on premiums that were fixed, irrespective of circumstances or usage. Yet, technological adjustments have enabled usage-based insurance solutions. Customers can thus pay their premiums on the basis of their behaviour or usage. It will ensure flexibility, affordability, and customised coverage, particularly for customers who do not have regular incomes.
  • Mobile-based insurance can also be another application. This means that users can manage, buy, and claim policies via smartphones. This will simplify the whole process while lowering overall administrative costs considerably. It will make micro-insurance more accessible across underserved and remote segments/communities. It will make policy issuance and service delivery quicker, including claims. Customer trust will also get a massive boost as a result.
  • Micro-insurance can also be bundled with additional financial services in order to widen the customer base. Through fusing insurance with credit products, savings accounts, and remittance services, providers in the category can enable better and more extensive packages. These will take care of individual financial requirements, while covering several households as well.
  • Parametric micro-insurance surmounts issues like complex claims and documentation barriers for low-income customers. It connects policy payouts to predetermined outcomes or scenarios. These may include everything from health conditions to agricultural yields or even weather conditions. It will do away with long and complicated claims processes, thereby ensuring transparent and swifter payouts, especially in areas which are vulnerable to disasters.
  • With a major chunk of the workforce in the informal sector, particularly in India, there is a need for better security. Innovative and effective micro-insurance solutions can be tailored to take care of the needs of these employees. They can thus get coverage for health and life events along with disabilities and accidents. These solutions may come with more flexible options for payments along with personalised coverage along with a simpler enrollment procedure.

Hence, embedded micro-insurance has immense potential in terms of unlocking more financial inclusion and promoting further growth in the customer base for insurance companies alongside. It can be a game-changer for enabling higher security for more financially vulnerable individuals and households.

FAQs

Is embedded micro-insurance suitable for individuals with unique or specialized needs?

Embedded micro-insurance is suitable for those with specialized or unique requirements. It can cover unique aspects ranging from travel insurance to crop insurance, and more.

What types of products or services commonly feature embedded micro-insurance?

There are various kinds of services or products which come with embedded micro-insurance, including crop insurance, livestock insurance, farm insurance, fire insurance, theft insurance, death or disability insurance, insurance for natural disasters, and more.

How does embedded micro-insurance contribute to financial inclusion?

Embedded micro-insurance contributes immensely towards financial inclusion since it can enable a large section of the underserved population to access more coverage and security at a reasonable price and without directly purchasing an insurance policy. It ensures higher access towards insurance solutions.

How does embedded micro-insurance address the needs of underserved markets or regions?

Underserved regions or markets can have many of their needs fulfilled by embedded micro-insurance. There can be varying forms of insurance coverage purchased by vulnerable populations who cannot otherwise access or buy traditional insurance.

Can embedded micro-insurance bridge the insurance gap for underserved communities?

Embedded micro-insurance can seamlessly bridge the insurance gap for communities which are traditionally underserved. They do not have to spend beyond their means and go through the procedure of purchasing a traditional insurance policy. They can instead purchase embedded insurance for greater security while payouts or claims are simplified, since they are tied to specific outcomes. This naturally enhances financial inclusion across the spectrum.

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