Embedded insurance gaining foothold gradually - Best's Commentary

KUALA LUMPUR, June 7 (Bernama) -- With the use of embedded insurance gaining greater global traction, United States-headquartered global credit rating agency AM Best notes that the role of regulation in protecting policyholders is critical and serves to encourage further acceptance of this distribution concept.

Embedded insurance coverage is developed by a carrier, but is distributed through non-insurance channels. It is also available across multiple markets, although it lacks common characteristics in terms of transparency, regulation and overall success. It often complements another product or service offered and has a limited insured amount.

In a new Best’s Commentary, titled, ‘Embedded Insurance Gradually Gaining a Foothold’, AM Best notes that in the United States, embedded insurance is starting to gain interest across the whole distribution chain and companies are working on facilitating its implementation. E-commerce and insurtech have given rise to specialty insurers that use embedded insurance as their main distribution channel.

According to a statement, across Latin America, leading online retailers offer extended guarantees on a range of electronic devices. Using blockchain, companies—mostly in Europe—are developing insurance solutions that can be embedded in noninsurance products.

Additionally, embedded insurance is similar to microinsurance in that it can foster financial inclusion and enhance insurance culture in less-educated or low-income segments of the population by normalising and promoting insurance coverages in goods that most view as essential.

According to the commentary, regulation is essential to the overall success and sustainability of embedded insurance, although practices vary from country to country. Regulations can determine whether certain coverages are optional.

Embedded insurance remains an evolving concept. “To support fast purchasing decisions, coverage should be easily understandable, its price affordable and its enforcement clear,” said Eli Sanchez, associate director, AM Best.

“For insurers, it should help diversify distribution channels profitably, while helping them develop specialisation in standardised insurance products.”

For more information, visit www.ambest.com.

-- BERNAMA