The ABC’s of embedded insurance

A SOMPO executive discusses how this market is taking a slice of the insurance industry's $6.4t pie.

The market forecast by Statista, a German market and data statistics firm, predicted that the insurance industry could grow to almost $6.4t in 2025 from $5.5t in 2021—and it seems that the embedded insurance market is now starting to take a piece of that trillion-dollar pie as insurers partner with insurtech firms to "embed" their products and services into digital avenues for consumers to find.

But what exactly is this growing sub-market in the insurance industry?

In an exclusive chat with Insurance Asia, Daniel Neo, regional CEO of Sompo Holdings (Asia) Pte. Ltd and deputy CEO of Sompo International Holdings Retail, explained how embedded insurance could help reach the more digitally-hungry consumers in the Asia Pacific.

Could you tell us more about embedded insurance? 

Embedded insurance is the integration of end-to-end insurance products within a broader technology ecosystem or e-commerce platform. It allows a non-insurance company to offer insurance products directly through its platform, enhancing its value propositions and creating new revenue streams.

Through application programming interfaces, artificial intelligence, and modular software, embedded insurance will enable third-party products or service providers in any sector to seamlessly integrate innovative insurance solutions into their customer propositions and experiences. By enhancing value propositions and creating opportunities, embedded insurance can reach out to new or existing customers across digital touchpoints whilst simultaneously addressing many of the supply and demand issues and could act as a catalyst for wider industry business model transformation.

What Asia-Pacific markets, do you think, have a huge potential for embedded insurance?

For SOMPO, emerging markets such as Malaysia, Indonesia, Thailand, Vietnam, and India have been identified as potential markets for embedded insurance due to the increased preference for digital channels. Across APAC, we have found that consumers are open to engaging insurance solutions, including purchasing and making claims, through non-insurance platforms online. With embedded insurance fast becoming a key offering within the insurance industry as we see the digital appetite in APAC grow, there is a huge gap for insurers to tap on.

SOMPO strives to identify these markets and understand how we can meet the needs of our consumers. Through partnerships with insurtech players, we can reach our audiences through digital ecosystems that interconnect different stakeholders forming sets of products and services, packaging it into one integrated experience that allows users to fulfil a variety of needs.

What has SOMPO done for embedded insurance in Asia? Any interesting innovations you would like to discuss?

Some of our retail companies in Asia have already started offering embedded insurance through e-commerce platforms. For example, PGA SOMPO in the Philippines provides insurance solutions via Lazada; Sompo Insurance Thailand offers purchase and claims services in their LINE OA and the AIS telco; Sompo Insurance Indonesia works with Bukalapak to provide digital insurance solutions, as well as through their award-winning in-house lifestyle website, SompoKini since November 2020. However, we did not have a single digital platform with technology and ecosystems as extensive as Cover Genius that could be scalable across our global markets. So this partnership is a good launchpad for our growth trajectory.

You recently invested in Cover Genius. What does it mean for SOMPO?

The insurance industry has evolved over the years, especially more so in the last two years as the impact of COVID-19 has led to a shift in consumer habits; and more consumers are moving towards engaging insurance solutions through digital intermediaries or platforms. The partnership with Cover Genius will help Sompo further strengthen our strategies, enhance our value proposition, and build a sustainable market position in the fast-growing embedded insurance space. 

We envision the future of embedded insurance to seamlessly integrate innovative insurance solutions into third-party product or service providers within Cover Genius’ extensive ecosystems; and for us to gain access to more data to better understand customers’ evolving needs and preferences. This is especially relevant to the diversity in our global retail markets. 

Understanding how to better service customers virtually will allow SOMPO to tap into non-traditional digital affinity distribution that can be scaled across the SOMPO Group internationally.

Combining our underwriting capabilities with Cover Genius’ licensing and technology will create a compelling leadership position in the fast-growing embedded insurance market. We want our global retail business to be even more sustainable and competitive and create more brand value.

We will leverage Cover Genius’ full-stack capabilities and existing digital merchant partners to expand our global retail business by tapping into non-traditional digital affinity distribution that can be scaled internationally. We share common values with Cover Genius; we hope to work together to realise digital innovations and bring delight to our customers.

What does SOMPO look for when it invests in insurtech such as Cover Genius?

We have worked with Cover Genius on some past projects and were very impressed by the organisation and its global capabilities. Whilst we have the know-how and capabilities in underwriting, high-quality products and services, we need an insurtech company to further propel our business through more diverse and wider distribution channels across industries. We look for organisations that have demonstrated technological capabilities and the potential to offer integrated end-to-end insurance products within a broader technology ecosystem or eCommerce platform, one that is scalable globally. At the end of the day, we want more people to know about the SOMPO brand and to be accessible to our insurance solutions.

What do you think should insurers consider when investing in insurtech?

Insurers should consider the market that they are in and evaluate how they can work with insurtech to offer products and services efficiently. Markets like Singapore are considered mature due to their high insurance penetration rates, meaning that the market goal for insurers is not customer acquisition, but instead, streamlining and improving existing products and services. However, for emerging markets like Thailand, Indonesia, India, and Vietnam, the low insurance penetration rates and preferences for digital channels mean that incumbents can tap on insurtech to introduce digital products and encourage consumers to turn to digital intermediaries or platforms to purchase insurance.

Overall, technological capabilities are something that incumbents cannot replicate in a short amount of time without the help of insurtech players. Insurers looking to invest in insurtech should consider what their long-term strategy means in terms of digitalisation and product offerings. For example, AI capabilities can be used for risk-based assessment, and strengthen the underwriting capabilities according to the market, whilst data-driven insights can help insurers determine new products and services that would meet consumer needs. 

What lies in store for embedded insurance in APAC?

Whilst embedded insurance does not solve the protection gap, it addresses many of the supply and demand issues and could act as a catalyst for wider industry business model transformation. Distribution options as a whole fall on a spectrum of channels, including third-party and direct customers. 

Insurers are able to integrate seamless, faster claims management and payment processes—addressing many of the supply and demand issues that insurers were facing. In turn, insurers are able to redirect their focus on creating new products through the adoption of advanced technologies and improving customer experience.

Today’s embedded insurance is weaved into the basic needs that consumers have, but we anticipate its growth into other areas. One such example would be motor insurance. With the growing demand for self-driving cars, car manufacturers are now able to embed insurance into customers’ purchase processes. Over the next couple of years, the direction will likely continue to shift as technology continues to evolve rapidly.

We do expect to see embedded insurance excel in certain segments. The business-to-consumer model, for example, can tap on companies like telco or retail. With an existing customer base, insurers can directly reach out to these customers in the form of embedded insurance. 

From a consumer’s standpoint, embedded insurance will help in improving the overall digital customer experience when purchasing insurance or making claims. An enhanced and seamless digital journey can remove customer pain points, making the process an enjoyable one. 

Could you share with us some of your plans for the future?

SOMPO has plans to expand on its distribution channels in the embedded insurance space and affinity market to provide tailor-made solutions to our customers. We have seen that, whilst consumers expect services to be quick and convenient, the human element is key to insurance in some markets. Consumers want a well-balanced mix of solutions that cater to their needs at different customer journey touchpoints. We will continue to identify suitable and like-minded companies as part of our affinity partnership strategy to position SOMPO ahead of others in the embedded insurance space and advance the group’s brand value and digital agility.