Bengaluru-based insurance startup Digit is on track to break even by the end of this year, buoyed by lower operating costs, massive equity funding rounds and improved business metrics even in the middle of the Covid pandemic.
According to Digit Insurance Chairman Kamesh Goyal, while it has been a tough year for the entire insurance industry, Digit has managed to expand its business by 30 percent. Two major products have helped drive this growth: Covid health insurance and fire insurance, with both the books witnessing strong growth in terms of premium collection.
“For motor insurance we have not degrown (contracted) — there has been very small growth; for health and fire, we have grown very well. Also, our overall cost of business has come down, which will help us drive towards profitability,” he told Moneycontrol during an exclusive interaction.
Goyal pointed out that over the last few years, motor insurance had slowed down and that trend has continued. Further, with retail vehicle sales being down, the vehicle insurance business has also been affected. However, Goyal is hopeful that by next March or April motor insurance growth will get back to normal.
Overall, the industry, which was growing at 13-14 percent came down to zero because of Covid19, said Goyal, an insurance industry veteran. The industry is also suffering because of the massive drop in interest rates, which has had a direct impact on the interest income earned by insurance companies.
“Overall, I will still say that the general insurance industry is much better off compared to a lot of other industries. If the economy, which is showing some signs of a pickup, continues with the current trend, we can hope to see growth coming back,” he added.
Digit Insurance shot to fame during the first few months of the Covid pandemic by bringing an insurance policy against the viral infection to the market. While its first product was launched within the regulatory sandbox environment, Digit eventually got the green signal for a group insurance policy against Covid.
The sandbox programme is one where products are launched within a restricted environment first to see how they work among a limited set of consumers and then taken live following regulatory approval.
The sandbox product had a limitation of a total premium of Rs 50 lakh, and was hence exhausted quickly. Following that, the company worked with many corporate clients to sell its group insurance policy against Covid.
“We have sold the cover for 20 lakh individuals, working with 40 to 50 large corporate clients for this. The total premium collected is around Rs 130-140 crore,” Goyal said.
While Digit did not make any money on the sandbox product, Goyal is hopeful that the group insurance policy will not show a major loss. For him, even if it does ‘fairly well’, the company leadership will be happy. The real picture will only come out after another six to seven months, when the year-long policy cover will run out.
“We saw claims starting to come up between August and September. Post September 23, claims started to fall, and now there is talk of a second wave, so we have to wait and see how things pan out,” Goyal said.
The product helped Digit establish business links with many large companies across banks, cooperative societies, FMCG companies and others. This helped Goyal earn a lot of goodwill among corporates, retail insurance buyers and his employees.
On the right track
Digit Insurance was given its licence to operate as an insurance manufacturer in 2017 along with another startup insurance company, Acko, which was launched by Coverfox founder Varun Dua. Goyal got Prem Watsa-backed Fairfax as Digit’s major investor and raised massive funding in rounds from Fairfax and other venture capitalists. As of today, Digit has raised more than Rs 1,600 crore in equity funding, thereby making it among the most-funded insurance companies in the country.
Further, with Goyal, who has worked with insurance giants such as New India Assurance and Bajaj Allianz General Insurance, at the helm, the company set up a strong team and quickly launched multiple general insurance products to disrupt the market.
“We are 4.9 rated on Facebook by more than 10,000 people, which shows that we are on the right track in terms of service quality,” said Goyal. Further, to ensure high standards of customer service, Goyal has also maintained a strong call centre, which can attend to customer calls.
He said that while the industry might be moving towards virtual assistants, Digit continues to stick to the philosophy of attending to customers through phone calls and WhatsApp.
The company has seen a fall in follow-up calls from consumers around claims status checks, which means that regular updates to customers through WhatsApp and email have helped.
Goyal wants to build Digit into a sustainable and profitable business, with high standards of customer service. While the company incurred losses in the first few years because of massive investments in technology and team building, it is now bearing the fruits of those investments.
According to financials shared by the company, the total insurance premium earned by Digit in FY 2019-20 stood at Rs 1,241 crore. The total revenue generated last year by the company stood Rs 2,252 crore. It has crossed over 1.4 crore customers and has settled claims for 2.6 lakh of them.
Digit is seeing a fall in its operational expenses. At the same time it is witnessing strong growth in premium collection, which has helped the company strengthen its financial position. Goyal stressed that break-even will be attained mainly by calculating the finances through international accounting standards or IFRS accounting norms.
Further, Digit is also seeing around 25 percent of its overall policies being consumed by tier-three India, which indicates that people from across the country are slowly getting used to investing in insurance products.
“There is disruption happening in the distribution space and there is a lot of investor interest in this sector as well. Overall these are good signs that the insurance industry in India will grow,” he said.