Zurich foreshadows SME sector as a growth potential for embedded insurance

Zurich’s Roopa Malhotra champions embedded insurance, emphasising its contextual nature as a catalyst for customer awareness and adoption.

Insurers leveraging on embedded insurance’s capability is not enough to deter the widening global protection gap of $1.86t by 2025, with Asia-Pacific accounting for nearly half of all uninsured risk. Thus, insurers like Zurich forecast a trend where this cost-reducing industry will grow: small and medium enterprises (SMEs).

Projections by Ernst & Young (EY) suggest significant growth potential, with the embedded insurance channel expected to expand by up to 30% globally across P&C lines. Notably, there’s emerging potential for embedded insurance to extend beyond retail customers to segments like SMEs, presenting new opportunities in the Asia Pacific market.

“We’ll potentially start seeing embedded insurance for segments beyond retail customers, such as SMEs. That’s another part of the Asia Pacific (APAC) market that is ready to be explored in the right way in terms of opportunity,” Roopa Malhotra, head of Customer and Digital for APAC at Zurich Insurance, exclusively told Insurance Asia magazine.

Embedded insurance is deemed perfect to fill in the large insurance gaps within the region, said Malhotra. Ideally, its most adored aspect by the industry is its reduced cost of distribution — a common challenge amongst the region.

“The second strength of embedded insurance is the fact that it’s contextual. This means that it can create awareness around the need for insurance given it’s placed at the right time at the right point for the customer, making insurance a very logical thing to take up rather than something for which the customer needs to be convinced,” Malhotra explained.

The contextual nature of embedded insurance not only facilitates awareness but also fosters innovation within the insurance industry.

“Another important aspect of embedded insurance is that it fosters and will continue to foster innovation in insurance — which is often not as warranted in traditional channels,” Malhotra said.

“The reason is that it allows you to leverage multiple avenues through which insurance could be offered, triggering the development of newer products that may include concepts such as usage-based, parametric or micro-insurance. It forces the industry to innovate, and we are happy to look at it from a different lens and foster a culture of innovation within the industry,” she added.

Embedded insurance

The global embedded insurance market is expected to experience significant growth, reaching $296.9b by 2029, with a compound annual growth rate (CAGR) of 24.12% from 2023 to 2029, as estimated by Valuates Reports.

This growth is driven by several factors contributing to the adoption of embedded insurance across various industries. One of the key drivers of the embedded insurance market is its potential advantages for both policyholders and insurers.

Embedded insurance simplifies the insurance process, cutting administrative costs for insurers and saving money. It seamlessly incorporates insurance into products or services, improving the customer experience and boosting satisfaction and retention rates.

Insurers gain access to valuable data and analytics from embedded insurance, helping them understand customer behaviour and manage risks better. Real-time monitoring reduces the likelihood of claims and fraud.

On the other hand, customers benefit from hassle-free insurance coverage integrated into products or services, often without extra paperwork. Tailored coverage can meet specific needs, potentially resulting in lower premiums.

The seamless integration provides peace of mind for customers, knowing they are protected against risks.

Downside of embedding

A Conning report echoed the praise for embedded insurance distribution, which is seen as a transformative trend, simplifying insurance purchases and reducing coverage gaps for consumers and small businesses.

Although the potential benefits of embedded insurance have been somewhat exaggerated, the impact could still be significant.

Despite large investments in technology companies facilitating embedded insurance solutions, there has not been a major shift in business towards this model, except for extended warranties and some travel insurance.

Still, there is substantial growth potential in the personal lines market and standardised small business insurance coverage. For instance, the personal auto insurance market, valued at $179b, could see disruption if manufacturers offer insurance in-house, as Tesla has begun doing.

Conning outlined two scenarios for the growth of embedded insurance. In the first scenario, insurers and non-insurance partners focus on enhancing the convenience of insurance purchases without significant price changes, potentially supporting a $70b market by 2030.

In the less likely second scenario, non-insurance brands leverage expense savings to compete aggressively on prices, posing challenges for insurers using traditional distribution approaches.

Opportunities: big and small

Zurich’s strategic positioning revolves around a two-pronged approach.  “First, we will continue to both digitise and simplify our existing channels. It’s not one or the other — the protection gap and the challenges in front of us require everything to be working together,” Malhotra told Insurance Asia.

“At Zurich, we have invested in and launched Zurich Edge in Asia Pacific. It's our investment across not just technology, but people and processes as well, to tap into the embedded digital channels with the goal of having a strong omni-channel presence. And using Zurich Edge, we want to make sure we are connecting all [stakeholders involved] and can provide the customer with a choice, for both sales and servicing via their preferred channel,” she added.

The goal is to seamlessly integrate various digital channels and provide customers with a choice in both sales and servicing avenues.

Malhotra pointed out the diverse nature of the Asia Pacific market, underscoring the need for a localised approach in both staffing and product development to cater to the unique nuances of each market.

She stressed that relying solely on embedded insurance is not an ultimate solution. “Remember that embedded insurance alone is not a silver bullet,” she said.

Malhotra recommended an omni-channel approach to ensure customers have access to diverse customer support options and can purchase different types of protection according to their preferences.

However, challenges loom in the technology space, particularly concerning regulatory hurdles and ensuring a customer-centric mindset across all stakeholders.

As far as Zurich Insurance is concerned, it is committed to stay the course of data regulations to overcome the challenges, maintaining transparency, and implementing robust cybersecurity measures.

Malhotra explained that across various markets, there is a need to address regulatory requirements from both a speed-to-market and test-and-learn mindset. It is also important to learn from the process whether a solution that was developed in one market is viable in another market since the regulations may differ.

“The other challenge is ensuring everyone is taking a customer-first lens,” she said of the necessity to prioritise customer needs and satisfaction across all aspects of the business.

“At Zurich, we have a very strong customer-first focus, thus we use TNPS to track customer satisfaction at different engagement touchpoints. We also use a customer needs analysis matrix to ensure what we are building is something that the customer likes,” she added.

Parametric insurance, a key component of Zurich’s offerings, aims to streamline the claims process through predefined triggers. One of the primary challenges lies in establishing a consistent, centralised data source approved by local authorities within each market to assess whether specific parameters are met to initiate a claims payout.

This guarantees that all stakeholders are aligned on the same data points and criteria defining events warranting a claims payout. Additionally, having advanced technology capable of providing precise data readings is crucial in this process.

“We have developed a wide range of solutions, ranging from a parametric weather product for Indonesian farmers, to a parametric earthquake insurance in Japan and flight delay benefit for our travel customers,” Malhotra told the magazine.

Zurich’s long-term goal

Ensuring data compliance and security is paramount for the insurer. It initiated a global data commitment in September 2019 to foster trust in a digital society.

Malhotra emphasised their adherence to local data regulations, ensuring transparency with partners and customers regarding data collection. In digital interactions, obtaining proper consent is crucial, with variations across markets in the level of detail required.

“However, we are working towards simplifying the message, so that as a customer, you understand what consent you’re giving. And we take it very seriously,” she emphasised.

Looking ahead, Zurich anticipates a surge in embedded insurance adoption, driven by an increasing number of non-insurance partners seeking to integrate insurance into their ecosystems.

“I think tech companies and startups can provide solutions that can help established insurers like us to leverage the new, bespoke solutions that are in the field of generative AI in the field of machine learning, cloud computing, etcetera. One of the reasons we have a strong position around this is that we have invested a lot in making our foundation cloud-based.” Malhotra told the magazine.

Moving beyond sales, there’s a notable shift towards embedded servicing and claims, empowering customers and providing insurers with more engagement opportunities. Zurich is staying on this path, focusing on solutions centred on servicing and claims.