Insight 7 – Convenience vs. Value: a balancing act

Chapeau

Last year, we incorporated the embedded insurance model to our Global Consumer Study. To recap, “embedded insurance is the real-time bundling and sale of insurance coverage or protection while a consumer is purchasing a product or service, bringing the coverage directly to the consumer at the point of sale.”16 It has been traditionally associated with the purchase of white goods and in the form of extended warranties or breakdown cover. Following significant capital investment and seed funding, combined with technological advancements in the fintech and insurtech space, embedded insurance experienced its own renaissance.

Embedded insurance represents both a significant opportunity and challenge for insurers. On one hand, it serves as a low-cost distribution channel to reach and access a wider audience and customer base, owing to cutting-edge technologies. By integrating insurance products seamlessly into the purchase process of mainstream goods, such as concert tickets or Airbnb accommodation, insurers can tap into previously untapped markets. This expanded reach, coupled with the enhanced customer experience embedded insurance offers via tailored cover at the point of need, increases the potential for higher sales volumes.

On the other hand, insurers risk becoming dependent on partnerships with large, powerful distributors, such as retail companies, to get products out in front of shoppers. In some instances, insurers may find themselves in a position where their brand presence is diminishedand are perceived as interchangeable suppliers of underwriting capabilities. This could lead to a further commoditisation of the industry, where the focus shifts primarily to price and competition, eroding the unique value propositions that insurers can offer.

To mitigate these risks and leverage the opportunities presented by embedded insurance, insurers must strategically position themselves as trusted partners. By actively participating in the design and development of embedded insurance solutions, insurers can showcase their expertise, differentiate their offerings and maintain a competitive edge. Additionally, insurers should strive to establish strong customer relationships and brand recognition to ensure they remain more than just backend providers.

Value for money is valued most

Our Gen Z and Millennial audience are aware of the concept of embedded insurance. Nearly 70% are aware that insurance can be bundled within the purchase of a good or service, with older respondents’ experience evident through slightly higher awareness levels. Awareness does vary considerably between markets, reflecting different approaches by insurers and the insurance penetration of each market. The highest levels of awareness are in Taiwan (83.2%), India (83.2%) and Singapore (79.5%) while the lowest are in Japan (51%), South Korea (55.6%) and South Africa (56.4%).

Despite good awareness, as with last year’s study, the perceived high price and low value for money is the main obstacle for these generations in purchasing this type of cover. When asked about their experiences of extended warranty cover, more than half (54.3%) had refused to take this cover, with price as the top reason. Nearly half (44.9%) of those who turned it down said it was too expensive. Striking a balance between value and cover is essential. Developing innovative insurance products that meet the expectations and budgets of these generations will ensure they have the cover they need.

In their quest for value for money, buying from an established insurance brand is not as important to our respondents. More than half (50.5%) are happy to buy insurance from a new online-only insurance company, as long as it is cheaper or more convenient. A mere 15.9% of respondents prefer to buy from a well-known name.

Similarly, while selecting an insurer that has branches is a little more important than a brand name, at 20.6%, this average is swayed by higher results from the younger respondents. Amongst Gen Zs, 23.9% would prefer an insurer with branches. Perhaps, with limited experience of taking out insurance, they value the ability to discuss their options face-to-face.

Cover my ride
Ride-sharing apps such as Uber disrupted the taxi industry by introducing a convenient and affordable alternative for passengers. With a few screen taps, passengers can easily request and track rides with transparent pricing and estimated arrival times, providing a cure to the hailing a cab on the street pain point.

Similarly, the arrival of e-bikes and e-scooters from popular brands such as Lime or Tier in major cities has brought about change in urban transportation and mobility. These electric-powered vehicles have quickly gained traction in cities like Berlin and Lisbon as a convenient and environmentally friendly mode of transportation.

However, when sharing roads with cars, buses and vans, such modes of transportation inevitably come with risk. With this is in mind, we asked consumers about their appetite in paying a small surcharge, on top of their booking fee, for insurance cover to protect against accident or injury while using ride-sharing apps or public e-bikes and e-scooters. The willingness reveals an interesting trend among respondents. According to our survey data, more than half of the participants (50.8%) were open to adding insurance to their booking fee to protect themselves against accidents or injuries. Notably, younger respondents exhibited a higher level of enthusiasm for this option. Amongst Gen Zs, 53.6% expressed their desire for insurance coverage, while the number stood at 49.2% for Millennials.

Further analysis of individuals' risk appetite and its impact on their decision-making sheds light on two distinct groups: the highly cautious and those more comfortable with risk-taking. Surprisingly, these two groups displayed the highest likelihood of opting for insurance coverage when using ride-sharing apps. The percentage was particularly significant for the very cautious, with 62.7% supporting the inclusion of insurance. Meanwhile, those at the opposite end of the risk spectrum were not far behind, with 60.2% in favour.

Another significant factor influencing individuals' inclination towards insurance coverage was their driver status. Those who rented or leased vehicles demonstrated a greater willingness to pay the surcharge for insurance, with an overwhelming 73.6% of this group choosing this option. This inclination may be attributable to their experience with leasing vehicles, as they are accustomed to including various driving costs within a single fee, making the addition of insurance seem perfectly acceptable.

Additionally, a variable that highlighted differences in attitudes to such cover was employment industry. Those who stated they work in online business or e-commerce, or social media and content creation are most open to paying a surcharge at 64.7% and 66.6% respectively. Perhaps professionals in careers that are digital in nature are more comfortable, familiar and open to this type of app-based transaction. Those who receive financial support from families or student loans and scholarships as their main source of income were least interested at 33.7% and 37%. It would seem reasonable to conclude in receiving financial support, these segments are more sensitive to discretionary spending concerns.

These insights highlight the evolving mindset of individuals regarding insurance coverage in the context of ride-sharing and alternative mobility options. Understanding these preferences can assist insurance providers and ride-sharing platforms in tailoring their offerings to meet the specific needs and risk profiles of their customers.

Traffic safety experience

A closer examination of market-specific responses reveals intriguing variations in preferences regarding the inclusion of insurance. Notably, Indonesia, India and China emerged as frontrunners, with 78.2%, 74.9%, and 72.4% respectively, expressing their willingness to pay a slight surcharge for insurance coverage. In contrast, Japan, Australia and the UK demonstrated a contrasting preference, with only 23.3%, 31.9% and 36.3% respectively, opting for insurance as part of the booking fee.

One could argue a correlation exists between these responses and the safety of each market's roads. According to the World Health Organization17, where the global average is 17 road traffic fatalities per 100,000 of population, Japan (3.6), Australia (4.94) and the UK (3.21) have some of the lowest rates. In comparison, higher road traffic fatality rates in Indonesia (11.33), India (15.56) and China (17.36) may increase the desire to take out insurance. These statistics suggest that the desire to secure insurance coverage is amplified in markets with higher road traffic fatality rates, where individuals are more inclined to mitigate potential risks associated with accidents.

Good things come in small packages

The introduction of the Small Amount, Short Term Insurance (SASTI) in Japan following amendments in legislation and capital requirements has brought change in land of the rising sun. SASTI companies have emerged as providers of non-life insurance policies, catering to customers' specific needs. This unique business model primarily focuses on offering insurance coverage in smaller amounts and for limited durations. For instance, individuals make small and regular premium contributions by dedicating a portion of their daily spend to a preselected policy or funding it through round-ups when they use their bank cards. So, in essence, the more one spends, the larger one's sum assured pot becomes.

Japan has seen this part of its market grow significantly. It has also encouraged greater innovation: while household, life and medical insurances are the most popular, products also exist for more niche risks such as pet, earthquake, additional drivers, and dementia support. As of July 2021, there were 112 SASTI providers in Japan18, with players such as Aeon, Tokio Marine and SBI involved.

We asked our international audience for their thoughts on this. Would this novel idea be appealing to the younger generations around the world? Nearly two-thirds (63.3%) of respondents stated they would be interested in this type of product, especially across the younger age bands. For instance, 68% of our Gen Zs said they would be interested, whilst 60.7% of the Millennial cohort said they would be. Interest varies around the world too. Those in South Africa (80.9%), SE Asia (78%) and South America (76.9%) are the most excited about this type of product. This may reflect exposure to this concept, either in insurance or other financial services products.

The online world can be a cure and curse for these generations. Embedded insurance, if executed well, can be a cure for insurers too.

Key Findings

Price is the number one obstacle to Gen Zs and Millennials when purchasing traditional embedded insurance products such as extended warranties.

More than half of the participants (50.8%) were open to adding insurance to their booking fee to protect themselves against accidents or injuries when using ride sharing apps such as Uber or public e-bikes and e-scooters.

Nearly two-thirds (63.3%) of respondents are interested in a small amount, stackable insurance.

References

[16] Hurley, J. (2022). Embedded insurance: Definition, examples, benefits. [Online]. The Future of Commerce. Available at: https://www.the-future-of-commerce.
com/2022/03/31/embedded-insurance-definition-examples-benefits/ [Accessed 14 June 2022].

[17] World Health Organization. (2021). Estimated road traffic death rate (per 100 000 population). [Online]. Available at: https://www.who.int/data/gho/d... [Accessed 28 June 2023].

[18] Takahashi, S. , Ueda, M. , Murakami, T. , Takagi, T. (2021). Insurance and Reinsurance in Japan: Overview. Thomson Reuters. [Online]. Available at: https://uk.practicallaw.thomso... [Accessed 28 June 2023].