The Indian e-commerce industry is poised to become the second largest in the world by 2024, thanks to a liberalised FDI policy for the sector, greater digital literacy and access, and a pandemic that forced more online purchases. Naturally then, competition in the sector is rising. The entry of big corporate houses, both Indian and foreign, into the e-commerce space has crowded the market for an estimated 5,000+ active e-commerce start-ups in India. It is evident that all e-commerce players must bring more to the table than just their wares, and this is where embedded insurance could make the difference. Simply stated, embedded insurance is the sale of insurance cover, as an add-on, along with a product, at the point of sale of the product.
Insurers in India have been quick to adopt embedded insurance through e-commerce channels, as more purchases are being made online. Embedded insurance is no longer just limited to buying insurance when booking flight tickets online, but also extends to buying cover when booking cab rides or train tickets, purchasing mobile phones, furniture, home goods or even shoes and spectacles over the internet.
On one hand, embedded insurance allows insurers to reach more customers without relying on expensive distribution channels such as banks, and on the other, it helps e-commerce companies sell products bundled with insurance cover, for a nominal or no additional cost to customers, thereby making e-commerce offerings more attractive. Considering that most e-commerce companies offer products at similar prices, providing embedded insurance could be a ‘value addition’ in the purchase experience for customers. In doing so, e-commerce portals would be able to highlight to the customer, certain future risks associated with the goods being bought, and simultaneously provide a solution for such risks at nominal costs, ultimately providing more personalisation to the customer. E-commerce entities looking to stand out of the crowd could also provide a seamless claim experience to customers, giving customers more reason to come back to them as opposed to another e-commerce player. E-commerce entities can easily leverage data pre-filled by subscribers when purchasing goods or services, for insurance purchase purposes, adding to the customer’s convenience of insurance purchase.
E-commerce companies already have valuable data of customers needed to make the targeted sales pitch for a particular insurance cover, which together with the ease of online purchases, makes embedded insurance a win-win proposition for insurers, e-commerce companies and customers.
The sale of insurance cover can provide an additional revenue stream for e-commerce entities, in a competitive market. Depending on volumes, this could mean significant revenues without substantial expenditure. The Indian population is grossly under-insured and thus the potential for revenues through the sale of insurance cover can be significant. However, e-commerce entities must bear in mind certain insurance regulatory considerations when analysing the value proposition for themselves.
Since underwriting and sale of insurance products in India can only be undertaken by entities licensed by the Insurance Regulatory and Development Authority of India (IRDAI), such as insurers and insurance intermediaries, unlicensed players such as e-commerce entities primarily offer embedded insurance by way of group insurance arrangements where the e-commerce entity acts as the ‘master policy holder’ and the customer is the ‘insured beneficiary’. Regulations permit insurance companies to pay master policy holders for leveraging existing infrastructure for data management, premium collection, issuance of certificate of insurance and claim settlement, while also prescribing maximum limits on what can be paid to master policy holders for these services.
E-commerce entities considering embedded insurance must also bear in mind that compulsory bundling of insurance products, i.e. forcing customers to purchase insurance as a condition for availing their product/service, is not permitted. They would also not be able to offer rebates of any sort to customers as inducement to purchase the insurance cover. The IRDAI also strictly regulates advertising of insurance products and how insurers may use third parties to distribute information about a policy.
Though it does not have norms dedicated to the regulation of embedded insurance, the IRDAI already closely regulates the administration of group insurance products. These norms cast all obligations on insurers, but also requires insurers to conduct surprise inspections of group policy holders to ensure compliance with the norms or to obtain a certificate of compliance from the auditors of master policyholders. With embedded insurance becoming an important distribution channel for insurers, e-commerce companies can expect insurers to look more closely at agreements with them, to ensure that IRDAI compliance requirements are specifically spelt out in these agreements for adherence by e-commerce entities to ensure that insurers themselves always remain compliant with norms.
The IRDAI has shown great intent to leverage technology in the insurance sector and has highlighted the need to use data for designing embedded insurance products. Its recent permission to life insurers to extend the use and file procedure to most life insurance products allows insurers to launch certain products without prior IRDAI approval. Opportunities like these can be seized by insurers, in conjunction with the real-time data to which e-commerce players have access, to respond faster to emerging needs of the market and in designing and pricing policies in a manner that will benefit policyholders and all players in the delivery chain.
This article was originally published in The Times of India on 10 July 2022 Written by: Anu Susan Abraham, Partner. Click here for original article
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