Online platforms offering low-ticket insurance covers: Implications for policyholders

Payment apps have become ubiquitous and insurance is increasingly being offered on such platforms. When you recharge your mobile balance or pay an electricity bill, a compelling insurance policy is offered to you – dental insurance of Rs 10,000 for Rs 1000 a year, for example. The types of insurance covers range from personal health to burglary protection policies. This is an unusual way for consumers to consider and purchase insurance. Traditionally, insurance buying is driven by tax savings, contractual or legal requirements, and was done after detailed comparisons. The question that emerges in this new form of buying is whether this in the interest of the policyholders. How are these platforms able to offer a substantially lower price? Why are these policies not available on the insurer’s own website?

 Platform products

Businesses with a large customer base can form a group to offer insurance to its members. Insurers refer to these as group-retail, ecosystem, platform or affinity products. A group policy offers economies of scale. The cost savings thus derived are passed onto the members. The product construct of a group-retail policy allows customized benefit design for each policy. Insurers can do this at their end, without a regulatory approval for each policy. This gives insurers higher flexibility to iterate. Rates are set based on loss experience of the specific group, without impacting the commercials of other platforms.

Insurers cannot offer these products on their website directly, as membership of an existing group is a prerequisite. Instead, insurers offer retail products on their website. Retail products go through a tight regulatory scrutiny as these are sold to general public. Any change, rightly so, gets reviewed by the regulator before it is launched. For individual policies, such as health insurance, prices are fixed for a particular age-group, no claim-based loading is allowed and the policy is life-long renewable.

Group-retail policy is not a novel concept. Historically, banks used to offer health insurance products to their savings accounts holders. Price of this group-based product used to be a fraction of the retail product. This trend then caught up with credit cards, which would bundle large personal accident covers with their offerings. Then, travel aggregators would offer travel insurance bundled with airline tickets and holiday packages. Now, with every app-based taxi ride you can choose to get an accidental insurance cover for a nominal charge of Re 1. Riding on technology, e-commerce firms, new-age NBFCs, and payment apps can amplify the reach.

Affordable policies

Currently, the big proposition of an ecosystem product is its low ticket size. The entry-point for the policy is designed to be affordable and within reach of masses. Policyholders are able to buy a health insurance product for as low as Rs 800 per year. For someone with no prior coverage, this is a great start. The other advantage is that these products are focused on areas untouched by traditional policies – for example, daily hospital cash, or OPD coverage for specific vector borne diseases. Further, these products tend to be mostly fixed-benefit oriented. Documentation requirements for claim in fixed-benefit products are minimal. As soon as the underlying event gets triggered, the claim becomes payable.

The biggest criticism of affinity products is that, in many cases, it may be an accidental purchase. Users may not even realize if the check-box is selected and the insurance policy gets embedded into the transaction. This may lead to customer disputes later. The other issue is about discovering a sustainable price. In order to design a compelling proposition, companies may offer a very low price initially. This provides a huge cost savings upfront. However, if the insurer decides to increase the price on renewal, platforms would have little choice. The other issue is about customer perception. Buying a small ticket-size insurance may give a false assurance to the policyholder. In reality, key risks may remain uninsured. Instant digital purchase takes away the needs analysis that an advisor used to provide.

Some of these issues can be mitigated. Platforms need to ensure that along with ease, the buyer is involved in the purchase decision. This could be done by having a requirement of filling a small proposal form. Platforms should ideally deal with multiple insurers to offer a comparison to buyers and reduce over-dependence on a single insurer. Finally, the product design should offer tangible benefits to the user. This can be assessed by the loss ratio of the product. Utilization helps in creating a positive feedback and encourages repeat purchase.

Platform sales can solve the distribution problem, which is the biggest impediment for higher general insurance penetration in the country. It also provides the necessary context for the buyer to see insurance cost in the light of sum assured at risk.