Life insurance Industry perspectives and considerations
Where are insurers in the evolution of embedded insurance options, and what does the future look like? In 2022, Celent took the temperature of eight leading executives in digital insurance, both property and casualty (P&C) and life carriers. Opinion on the market potential was varied with P&C executives being quite bullish on the potential, estimating it to make up more than 10% of the total insurance market, with life insurance executives being far more bearish than this.
The panel’s life insurance executives pointed to regulatory hurdles as common barriers to embedded initiatives. Gathering enough data on applicants to facilitate underwriting of embedded products is also a challenge, they reported.
Indeed, some P&C embedded offerings input data from easily accessible rating factors, such as driving data or miles driven collected by a tracking device. Helpful ratings factors for life insurance – such as age, gender, or medical history – are not as readily available when a customer opts in for an insurance product while buying a consumer product or service. Simple life insurance products can be priced without these factors, but such simplification can lead to higher prices for some subgroups relative to others. Another option to simplify the embedded insurance offering would be to consider accidental coverage only.
Given the simplicity required for the products, the size of coverage for embedded policies is typically small. For that reason, viable, successful embedded offerings need the ability to scale. Without scalability, the low premiums of embedded products will not sufficiently offset the costs incurred by insurers and their partners to launch the offering.
Another challenge connected to simple insurance products is that customers may misinterpret or misunderstand the limited scope of their coverage. This can lead to more submitted claims and more disputes about unsettled claims.
Despite these challenges, embedded insurance is and will continue to be an important and developing distribution model, especially in the many corners of the market currently underserved by insurance. Embedded insurance can serve as a much-needed step toward life insurance protection.
For example, in my home country of South Africa, the Association for Savings and Investments (ASISA) in partnership with True South Actuaries & Consultants estimated in their “2022 Life and Disability Insurance Gap Study” that the average South African income earner had a life insurance shortfall of at least R1 million and a disability cover gap of around R1,4 million. It’s worthwhile to note this is relative to an average salary amongst income earners of around R300,000 per annum.
In response, one of the country’s largest retailers partnered with an insurer to offer a simple funeral insurance offering bundled into the purchase of groceries for customers who use a loyalty card and exceed an annual spending threshold. The insurance is funded by the retailer as a loyalty reward for its customers. At the same time, the insurer gains visibility and credibility among customers, a population it can later approach with data-driven upsell offers for more tailored coverage.
As embedded insurance continues to evolve, our industry needs to be mindful of its key considerations and proactive about mitigating its risks. Embedded insurance is certainly worth further investment and investigation as a distribution strategy. By getting insurance into the hands of more consumers, our industry can help extend financial protection to underserved populations around the world. At RGA, we are eager to engage with clients to better understand and tackle the industry’s most pressing challenges together. Contact us to discuss and to learn more about RGA's capabilities, resources, and solutions.