Nearly 60% of global property remained uninsured following the first half of 2020. For many, the thought of securing adequate insurance is viewed as a costly, time-consuming, and burdensome process. However, in this great age of digital, there remains a bountiful opportunity for insurance companies to reach new realms of customers, only if they were to follow the suit of their financial counterparts.
Here to further explain how such a transition could take place, and the benefits to be reaped from it, is Andrew King, the Head of Hong Kong at the digital transformation consulting firm Synechron.
As the Head of Synechron Hong Kong, Andrew oversees the business to ensure commercial and operational success in the region, as well as supporting and managing some of Synechron’s tier-one global banking clients. He uses his in-depth understanding of the Financial Services sector and knowledge of transformational change to create innovative solutions for Synechron’s clients, helping them grow and become more competitive in what has become an increasingly digital industry.
Here, Andrew argues that the incumbent players in insurance will follow a similar path to their banking counterparts and will more frequently partner with third-party organisations and Insurtechs to evolve their digital journeys.
The rise of digitisation and migration to the Cloud is leading to a real shake-up in the financial services industry. With the increased demand for a better user journey, improved customer experience, and the growing expectation for easily accessible and digital ways to access finances, there has been a notable shift during 2021.
More and more non-financial companies are now offering financial services, known as embedded finance. This has opened up a myriad of new revenue streams for organisations as they reinvent their client offerings. This in turn satisfies the end customers as they are able to purchase financial products at the point of sale via the online merchant’s app or website.
With the projection that embedded finance could be a $7 trillion market opportunity by 2030, it is no surprise that it’s a trending topic. 88% of millennials and Gen Z’s access their finances via mobile devices, proving that convenience and digital availability are top priorities to these generations when making financial decisions. This has also been a key contributor to the acceleration of embedding insurance into digital offerings. In addition, it was found that millennials are more than twice as likely to buy insurance online compared to other generations.
The first stage of embedded insurance is actually a slightly older phenomenon whereby insurance is made available at the point of sale. For example, being offered car insurance for a rental car at the airport when you arrive for your holiday. In today’s digital world, where insurers struggle with strategies to engage with consumers online, we are seeing an increased interest in cross-selling of insurance products and services that are offered from non-insurance apps or businesses.
Finding Opportunity in Insuring the Underinsured
It is estimated that as of August 2020, the combined global insurance protection gap for mortality, healthy and natural disasters risk is $1.24 trillion. Furthermore, only 40% of losses in global economic property damage were insured in the first half of 2020, meaning the underinsured rate is staggering. Embedded insurance can help reduce the protection gap by providing a bridge to reach those that previously couldn’t access insurance. The previously uninsured may choose to become insured purely out of the convenience of having insurance made available as an add-on or native component. In addition, it can make it more relevant to the users’ wants and needs at that exact moment in time.
We are starting to see big tech companies, such as Amazon, providing embedded insurance products/services to those that may not necessarily have been able to afford or access it in the past. For example, Amazon has partnered with Insurtechs in India, where the protection gap is very high, to offer motor vehicle insurance. Moreover, the life insurance penetration rate in India is only 2.7% so it is likely that we will see big players like Amazon start to tap into the health insurance market opportunity too.
There is a long list of benefits embedded insurance can bring for the consumer. It can be cheaper and more convenient. Arguably, the most important benefit is that it’s more relevant and personalised to the customer as the offering is tailored to their exact needs. In addition, third-party apps and businesses that consumers interact with frequently can extract offer multiple data points for each of these consumers.
Online transactions have often been given a bad reputation because they remove the human interaction element. They have long been maligned as being too impersonal. However, personalised and affordable insurance solutions from these third-party organisations that have compiled lots of data on the consumer can be tailored and offer a cost-effective way to become insured – a win/win for both the insurance provider and the consumer.
There are also many commercial benefits embedded insurance can provide, as 58% of consumers are more likely to spend more with a merchant if they offer insurance at the point of sale. It also opens up an opportunity to insure the uninsured as consumers will see it as part of their overall purchase rather than an expensive afterthought that is time-consuming and inconvenient.
Embedded insurance can also translate to lower, longer-term distribution costs as there is an increased opportunity for greater exposure to more people and higher customer satisfaction. That satisfaction can make it far easier to retain clients. Importantly, the availability of more consumer data can reduce the underwriting risk, and automation of the underwriting process can also mean that underwriters are able to focus on more important areas, such as risk analysis. That can ultimately provide a better suite of insurance products and services.
Embedding insurance into a value chain of multiple services can also result in a reduction of claims as insurers can strategically piggyback on third-party digitally native apps which frequently have a high number of touchpoints and communication streams. With the increase of daily tasks being conducted digitally – online and on mobile devices – consumers are getting increasingly used to receiving consistent and frequent updates from businesses they interact with.
Emulating Successful Tactics, Countering Negative Perceptions
Take for example, Credit Karma, the digital personal finance company, that sends their users frequent notifications and updates on their credit score and suggests steps to take to improve scores. It is also commonplace in the Healthtech landscape, for users to receive a daily notification to tell you that you have hit your step goal and weekly advice on how to stay healthy.
Insurance doesn’t have the same positive relationship with a lot of consumers. There is usually a negative connotation that consumers have with insurance companies when they have any contact with their insurer. This, however, can arguably be a result of a lack of regular touchpoints, as communication usually only takes place only when there is a claim.
Insurers could easily change the narrative around consumers believing that insurers don’t want to help, or don’t welcome hearing from them, by sending out regular, useful advice, suggestions, and tips through third-party apps. For example, informing consumers that there has been a high rate of burglaries in the area and encouraging them to make sure their security systems are in check. A great example is health insurance companies that are offering a lower insurance premium for those that purchase and use a health tracker.
Leveraging the Digital Ecosystem To Reach Targeted Populations
Regular messaging by, and ‘push offers’ from, insurance providers who have partnered with a multi-services ecosystem provider is also a great way to get in front of a demographic that previously would have been more difficult to reach. Haven’t found a way to attract millennials? Health insurers have found that the most common smartwatch fitness tracker wearers in the UK belong to the millennial generation. In the latest reported findings in 2019, it was found that 37.6% wear a smartwatch, which was closely followed by Gen Z – the two generations that health insurers have typically struggled to secure as customers.
Research shows it is simply not a high-priority concern for these age groups. Such strategies can also reduce costs as it encourages people to be active, and hence less likely to develop obesity-related illnesses later in life which can require costly health care.
Maximising First-Rate Strategies for Third-Party Enterprises
Third-party organisations can expect to see higher customer retention and a higher volume of new customers, as a more seamless customer experience and user journey will make users more likely to be satisfied with the service they are receiving – and tell their friends and family all about it. It can also create brand new revenue streams as these insurance organisations will be able to differentiate from their competitors that don’t offer embedded insurance at the point of sale and increase their lifetime value.
The future is bright for embedded insurance, with an estimation that it could generate a market value of over $3 trillion. The future of incumbent insurers is likely to follow a similar fate to its banking counterparts by offering its technology as Insurance-as-a-service. Expect a shift in operating models as insurers will more frequently partner with third-party organisations and Insurtechs to evolve their digital journeys.
There are high hopes that embedded insurance will have huge societal benefits as it continues to combat the global problem of the underinsured, as well as the insured, making it more accessible to everyone in a very convenient way.