According to ratings agency, AM Best, the growing use of embedded insurance in developed markets has provided a way to enhance product offerings and integrate risk protection directly into purchases.
According to a new commentary by the ratings agency, there are still significant challenges to overcome in the consumer-facing channel of the insurance industry. These include navigating regulatory constraints, establishing standardized and limited coverage, and keeping claims costs and handling at manageable levels.
Embedded insurance coverage is developed by a carrier, but distributed through non-insurance channels. It often complements another product or service that is offered, and also has a limited insured amount.
AM Best’s commentary, titled “Embedded Insurance Gains Profile as a Digital Option,” explains that the goal of embedded insurance is to offer insurance as an add-on option during a related transaction, establishing a level of trust between the distributor and the consumer.
According to Simon Torrance, a leading industry analyst, embedded insurance will generate $2.5 trillion in Gross Written Premiums by 2032 in Life and Property/Casualty businesses.
“Innovative use of technology by both the product provider and distributor is key, but gaps in capability between the two can exist,” Eli Sanchez, director, AM Best, commented.
“This can be a detriment in undeveloped markets where companies may struggle with not only creating an efficient digital approach with scale, but also accessing a broad and digitally oriented customer base.”
Major e-commerce players in Latin America offer extended warranties on electronics, with some also offering accident and health coverage.
In Peru, Chubb Peru provides coverage through a third-party retailer, with insurance obligations falling solely on the insurance company and the retailer receiving a share of revenue without involvement in claims handling, as regulated by local authorities.
In Latin America, regulations regarding insurance distributors vary, with some markets requiring registration with the insurance regulator and allowing participation in claims and premiums, which may affect the ability to sell embedded products as white label products.
AM Best states that embedded insurance remains an “evolving concept”.
“To support fast purchasing decisions, coverage should be easily understandable, its price affordable, and its enforcement clear,” the ratings agency noted.
