The maturity mismatch in digital insurance

The maturity mismatch in digital insurance

While Australia has a fairly mature D2C market across personal lines insurance products, the same cannot be said for some other markets in the Asia Pacific region where intermediated sales are more common. This can be, in part, attributed to the higher levels of financial literacy of the Australian population in comparison. Conversely, our Asia Pacific neighbours have experienced better consumer trust in platform-based solutions rather than D2C, which has driven growth in robo-advisers and embedded insurance to levels we have not yet seen in Australia. One reason might be that the platforms have already established consumer trust (eg. one example which comes to mind is being a widely used payments app), and so there is almost no friction when that platform also offers insurance.

This mismatch of digital insurance maturity across markets creates competitive advantage for insurtechs in Australia looking to expand into other markets as well as for insurtechs in neighbouring countries looking at coming to Australia.

Co-incidentally, the timing is also opportune. Recent research depicted below shows consumer perception of insurers being digital lags behind all consumer markets so there is lots that can be done. On the plus side, it can only go up from here.

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It is worth noting this change has probably come a few years early due to the coronavirus pandemic, which has accelerated the pace of digital adaptation by the population as depicted in this chart:

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Does digital distribution work for all insurance products?

Today, digital distribution takes place in a few different ways:

  • Traditional insurers driving D2C uptake in digital sales funnels, whether with or without the help of insurtechs as technology partner or insurance intermediary
  • Insurtech MGAs driving new products and D2C distribution through digital means
  • Embedded insurance offerings in other consumer segments, a B2B2C model. I also consider connected insurance models fall in this category.
  • A “​Shopassurance“​ model where an online retailer partners with an insurance carrier to add insurance to their online channel

By digitising distribution, the ‘human touch’​ is reduced but this does not mean it has to be eliminated altogether. Advice is still important, relevant and highly sought after by consumers. However, it is important to recognise that this does not apply evenly across insurance categories.

The below chart from the World Insurance Report 2021 shows that roughly 1 in 4 customers require a high level of advice for purchasing Car and Home insurance products, compared to 1 in 3 customers for Term Life and Health insurance products. Across all personal lines , millennials and Gen Z want more advice compared to Gen X and older.

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Source: Capgemini & Efma World Insurance Report 2021

The opportunity for low advice products

Products where consumers do not require a high level of advice before purchasing an insurance product may be well suited for an embedded insurance offering. Embedded insurance refers to the bundled sale of an insurance product by a non-insurance intermediary, such as a retailer. Products that have worked well in an embedded insurance offering include device protection, extended warranties, shipping protection and travel insurance.

This method of distribution allows a product to be marketed to the masses in a different consumer segment, driving consumer awareness and insurance penetration. However, a key challenge is that the embedded insurance generally has to be ‘bite sized’​ and affordable so that it can blend into the existing customer experience for that distributor (ie. retailer). For this to be commercially viable, premium usually needs to be low and cover is usually discrete. Profitability depends significantly on volume.

Insurers do not have to necessarily sacrifice profitability though and may need to play the long game to maintain a healthy portfolio. One way might be to learn from the embedded insurance experience and determine what data can be gained about consumer profiles, risks and claims experience, and translate this into underwriting levers.

Another trending distribution method for products which require low advice is the InsurTech MGA, which are often monoline. The rise of the monoline InsurTech MGA within insurtech ecosystems around the world is a phenomenon that has taken place over the past few years. These companies provide protection for a specific category of risk although some are beginning to branch out into other segments. Some examples include Bought By Many (pet), OneDegree (pet and fire), Lemonade (Home and Contents) and Hippo (Home and Contents). In Australia, recently launched Honey Insurance (Home and Contents) is an example.

The rise of the monoline InsurTech MGA within insurtech ecosystems around the world is a phenomenon that has taken place over the past few years.

The InsurTech MGA, often starting out as a monoline MGA, is able to competitively target a market segment by delivering a compelling business proposition. The business slogan is somewhere along the lines ‘We are taking on the traditional insurers in <insert insurance product>, try us, we are different and better’. However, it would be remiss not to mention that the InsurTech MGA is a reversal of what insurers have traditionally wanted to do. For decades, traditional insurers have sought to bundle insurance products in order to provide a ‘one stop shop’ for their customers, offering bundled discounts in the process. InsurTech MGAs represent a de-bundling of insurance offerings. How will the monoline InsurTech MGA survive in this kind of market? This might explain why some InsurTech MGAs which started as monoline now have more than one product (eg. Lemonade, OneDegree).

One potential outcome is we may see consumers buy insurance products from different InsurTech MGAs in the short to medium term, creating a fragmented purchasing experience, until other insurtechs provide a ‘wallet-style’ solution, providing a unified experience in the long term. Such a unified experience might be facilitated by open insurance.

Higher advice products

Higher advice products can also benefit from digital distribution but it may involve:

  • Assisted purchasing, utilising both technology and human elements
  • Breaking down more complex products into ‘bite sized’​ chunks so they can be embedded into insurance offerings

Higher advice products exist in commercial lines insurance which in Australia is still heavily intermediated.


We are yet to see in Australia digital insurance distribution of a nature and scale observed in other markets including South East Asia, UK and the USA. However, as discussed above, there is a significant opportunity especially in low advice products for embedded insurance and monoline InsurTech MGAs to grow in the local marketplace. The success of these insurtechs in nearby markets suggests that their entry to Australia is probably not far away.

This post was originally published on LinkedIn:

Tim Chan is an insurance & insurtech lawyer at global law firm Norton Rose Fulbright and Founder of The InsurTech Lawyer blog. He regularly advises insurers and startups on emerging legal issues affecting the industry. Follow Tim on Twitter: @timinsydney