Embedded Insurance and the Evolving Role of Reinsurers: Adapting to a New Era
CA Chandrasekaran Ramakrishnan
Technical Consultant, Reinsurance Practitioner, Member, Reinsurance Advisory Committee of IRDAI
One of the most anticipated transformational reforms in the Indian insurance sector in recent years was the "Bima Trinity," a visionary initiative introduced by the former IRDAI Chairman. This reform package comprises three key components: Bima Sugam, a unified digital platform offering a one-stop solution for all insurance needs; Bima Vahak, a distribution model aimed at boosting insurance penetration in rural areas; and Bima Vistaar, a bundled composite insurance cover designed for mass-market consumption. While the Bima Trinity reflects an ambitious and forward-looking vision, concerns remain regarding regulatory overreach, operational feasibility, and financial sustainability. Whether or not this initiative fully materializes, it is evident that the Indian insurance sector is undergoing significant transformation.
Among the most talked-about developments shaping the future of insurance is embedded insurance, a model where insurance is offered seamlessly as part of a customer’s purchase journey. This could be during the checkout of an e-commerce transaction, while booking a flight, buying a smartphone, or even while subscribing to a newspaper.
Emerging Use Cases in India
Recent examples from India illustrate how companies are experimenting with this model. A Tamil daily newspaper has offered personal accident and household insurance to its annual subscribers, effectively blending content subscription with protection. Similarly, Union Bank of India launched a term deposit scheme requiring a minimum deposit of ₹10 lakh for 375 days at an interest rate of 6.75% p.a., bundling it with a health top-up cover of ₹5 lakhs over a deductible of ₹5 lakhs.
Globally too, embedded insurance is reshaping how coverage is sold and delivered. The focus is increasingly on customer convenience, reducing friction at the point of sale, and offering protection when and where it is most relevant. Yet, despite these advances, insurance largely remains a “push product”, with limited customer understanding of what is being purchased.
While much of the attention is on improving customer experience and distribution, there is a deeper, less visible transformation taking place in the reinsurance sector—an evolution with far-reaching consequences.
Reinsurers and Embedded Insurance: Five Key Impacts
1. Program-Based Underwriting:
A Shift from Traditional Models Embedded insurance is moving away from traditional reinsurance models toward program-based underwriting. In many mature markets, these models rely on Managing General Agents (MGAs) or fronting carriers. Reinsurers must adapt from conventional treaty-based capacity deployment to more customized arrangements, such as quota share or excess of loss support for these digital-first, high-volume portfolios.
2. Nature of Embedded Insurance Products
Most embedded insurance products are low-ticket in nature. They offer low sums insured, attract low premiums, but often experience high frequency and low severity of losses. Additionally, these policies are issued in a fragmented and rapid manner. To cope with this, reinsurers need robust data ingestion and real-time analytics to price and monitor these portfolios effectively.
3. Data-Driven Pricing and Real-Time Monitoring
Embedded insurance generates millions of micro-policies, often in real time. Reinsurers, therefore, evolve from being just capacity providers to becoming data partners. Access to granular transaction data enables dynamic pricing, real-time portfolio monitoring, and trigger-based loss management, especially in the context of parametric covers.
4. New-Age Partnership
The ecosystem around embedded insurance is expanding. It involves general and life insurers, insurtechs, fintech players, and MGAs. Reinsurers are now required to engage in white-labeling products, co-developing solutions with digital platforms, and forming strategic alliances beyond traditional boundaries.
5. Reputational Risks
As insurance becomes embedded into other purchases, there is a risk that customers may not fully understand what is covered, who the insurer is, or how to file claims. Poor servicing by the fronting insurer or platform can damage the reinsurer’s reputation, especially if the risk chain is opaque or the distributor lacks deep insurance expertise.
Challenges and Considerations
Scaling embedded insurance is not without its challenges. Pricing discipline and effective claims servicing by the primary insurer are critical to retain reinsurer confidence. Additionally, the digital nature of these products presents unique hurdles to retrocession, since many retrocessionaires may have limited appetite for such granular, fast-moving risks.
Global embedded programs can also create compliance challenges, operating across multiple jurisdictions with differing regulatory standards. Reinsurers must stay informed and aligned with local laws, as well as responsive to evolving digital trends and customer expectations.
Embracing the Future: Embedded Reinsurance
Embedded insurance signifies a structural shift in how protection is conceived, distributed, and consumed. For reinsurers, this transformation is both a challenge and an opportunity. Success will belong to those who embrace data-centric underwriting, develop flexible and tech-enabled solutions, and proactively participate in building ecosystems with new-age digital partners. Reinsurers cannot remain with supporting traditional programs alone, they should get ‘embedded into innovation’
Practicing Chartered Accountant, Registered Valuer, Certified Forensic examiner, Social Auditor
3moEmbedded insurance also opens up new challenges for accounting by stripping the 'insurance' component and the rest from risk-return trade off. The insurance will then need to dovetail IFRS 17. The rest will go thru IFRS 15 revenue from customers. The risk component, financial instrument component also has to be segregated. This insurance component then will need to be in tandem with reinsurance for matching principles of insurance with reinsurance. Embedded derivatives - instruments, embedded leases all go over similar 'stripping'. In embedded derivatives the equity, debt is stripped where the presumption is first compute debt the residue is equity. Perhaps a similar approach has to be done seeing which is prima facie the driving component. Generally is the revenue non-insurance item which is identified then the residue is insurance component warranting further risk-return trade off break down. Embedded insurance also throws open new regulatory challenges to IRDAI. Consider below reasoning - a newspaper topping subscription with insurance cover. Is IRDAI indirectly allowing agency/broking business sans any licensing/capital compliance? In agency/broking business regularity-frequency is not the benchmark definitely.
Claims Specialist- India at XLICSE, India Reinsurance Branch I combine a strong customer focus with a solution-driven mindset to achieve results
3moAs always an informative post sir. Thank you for sharing. Such embedded /bundled insurance plans have an edge with all its share of challenges as an insurer/ reinsurer. The question is will it support having more penetration and awareness of Insurance and its offerings? It is to be seen in near future when more such plans are ideated and initiated.
Advocate, Supreme Court of India, New Delhi
3moHelpful insight, as usual. I want to know from you as to how you visualise that fronting insurer's mishandling would damage the reputation of reinsurer. Want your expert advice.
Insurance Industry Expert | International Insurance Leader | Deep Expertise Across All Functions including Underwriting, Reinsurance, Marketing, Claims, Finance & Strategy | Committed to Industry Excellence
3moExcellent article Sir. Embedded and micro seems the way forward to attract customers looking for simpler, daily needs type commoditised solutions. For insurers, reputational risk is paramount, and for reinsurers, black swan accumulations and claim spirals. Due to nature of the business, one will need extremely robust and efficient software to manage risks effectively!