According to ratings agency, AM Best, with the use of embedded insurance gaining greater global traction, the role of regulation in protecting policyholders is critical.
The firm said in a new commentary that regulation is essential to the overall success and sustainability of embedded insurance, however, practices vary from country to country.
Embedded insurance coverage is developed by a carrier, but distributed through non-insurance channels. It is available across multiple markets, but lacks transparency, regulation, and overall success.
Moreover, embedded insurance often complements another product or service that is offered, and also has a limited insured amount.
AM Best also noted that regulations can determine whether certain coverages are optional. As in some cases, the insurance is already included free of charge, but in other cases, the client decides to obtain it.
Furthermore, the commentary highlights how in the US, embedded insurance is beginning to gain interest across the whole distribution chain, and companies are working on facilitating its implementation.
This can be seen across Latin America, where leading online retailers are offering extended guarantees on a range of electronic devices. At the same time, by using blockchain, companies, mostly across Europe are also developing insurance solutions that can be embedded in noninsurance products.
AM Best states that embedded insurance remains an “evolving concept”.
Eli Sanchez, associate director, AM Best, commented: “To support fast purchasing decisions, coverage should be easily understandable, its price affordable and its enforcement clear. For insurers, it should help diversify distribution channels profitably, while helping them develop specialization in standardized insurance products.”
AM Best, said: “Ultimately, a deeper understanding of the product, risks and applications on the part of regulators will guarantee that functioning of the insurance contract remains adequate and lead to greater acceptance of embedded insurance.”
