Choosing distribution models and partners will be key for Asia's insurance technology companies as they seek to expand their reach, but experts said would-be disruptors should think twice before entering into any long-term arrangements.

Insurtechs in the region face a "ground-up, growth grind," according to George Kesselman, president of Insurtech Asia, with startups racing to educate and tailor insurance products to new consumers. In particular, embedded business-to-business-to-consumer arrangements are increasingly becoming popular across Asia as they open new and potentially scalable distribution channels, Kesselman said in an interview. But one drawback is distribution platforms capture the lion's share of the value in such arrangements.

While an embedded model offers access to scale, it does not contribute materially in terms of profitability and is breakeven at best, Kesselman said. Kesselman expects the omnichannel approach, which combines both digital and physical journeys, as well as insurance product innovation, to be key drivers for distribution.

Caribou Honig, general partner at SemperVirens Venture Capital, said Asian insurtechs should not mistake scalability for sustainability, although Honig would not be surprised if insurtechs in the region pursue embedded strategies. Such approaches can be great options for insurtechs, given that brokers mostly work with incumbents, Honig said in an email. The direct-to-consumer approach can be capital intensive, Honig added.

More carrot than stick

South Korea's Carrot General Insurance Co. Ltd., which counts several industry heavyweights among its backers, used this embedded strategy at an early part of its existence, the company's CEO, Richard Moon, said.

The insurtech is working with Hyundai Motor Co. in a number of areas, including an auto insurance product for Kia's electric vehicles. The companies are planning to expand customized coverage for other models and looking into utilizing Hyundai's sales and distribution network to offer insurance.

Carrot has also worked with SK Telecom Co. Ltd., another shareholder, on distributing embedded travel insurance products, wherein SK's smartphone users can add Carrot's travel insurance at a discounted rate when they purchase international roaming services before going abroad.

Carrot's shipment return coverage is also available to online store owners doing business through the Korean super app ‎NAVER, which Moon said helped sellers boost sales as customers felt more at ease if they have to return items.

Super apps may not be super profitable

But Carrot's embedded insurance deal with NAVER may be the exception and not the rule. Experts said distribution deals with platforms like China's WeChat may not be profitable, though they can be used to achieve scale.

Alex Kimura, partner at McKinsey, said in an email that the effectiveness of so-called super apps as distribution channels is still being debated. Kimura said super app platforms have the advantage of providing a high-volume touch point due to their number of users. However, the question of whether insurance can become a common feature on these platforms boils down to whether they can provide the appropriate shelf space and experience for customers to engage with insurance products.

Super app owners such as Tencent Holdings Ltd. may have the upper hand regarding bargaining power, which could lead these companies to demand their own "rent," Honig said. While super apps have growing ecosystems of complementary services, they are becoming increasingly expensive as distribution channels and long-term partnerships, Honig added.

Still, super apps should not be ignored as a "powerful distribution opportunity" for insurance, Honig said, but they are likely "not an easy answer."