As with other financial services, the way Indians avail insurance, too, has seen a sea change over the past few years with online aggregators and insurers increasingly becoming the preferred choice. With the pandemic playing accelerator for Indians buying insurance online, the insurtech industry is growing in size, and fintechs venturing into insurance are growing in number.
These companies are aggressively looking to expand in the insurance space and are optimistic about the growth prospects in India’s underpenetrated market.
It has been well documented that illnesses and sudden hospitalisation can cause a dent in people’s savings. Without insurance, these expenses burn a hole in the pocket that may not be easy to fill.
Yet, not every Indian is aware of this or has the means to include insurance in their plans for the future. India thus has a huge gap to fill. The pandemic, however, was a rude shock for the world and made many realise that health or life insurance is not an option anymore but a necessity to protect families against unforeseen events.
Fintech players are riding the wave, but in this highly regulated sector, growth and innovation will be slower than for other financial services such as payments, digital banking, credit or mutual funds.
Growing insurtech play
The insurtech space is made up of insurance broking platforms such as Policybazaar, Paytm, Coverfox and digital general insurance companies, including Acko and Digit. Platforms such as Policybazaar and Turtlemint also help consumers compare policies before choosing the right fit.
Insurtech has been part of the funding boom of 2021, which saw a large number of fintechs grow in valuation and many smaller players secure substantial early-stage capital.
The year saw two insurance players turn unicorn, starting with Digit, with a valuation of $1.9 billion. Within months of joining the unicorn club, Digit’s valuation tripled to $3.5 billion after another fresh fundraise of $200 million in July.
The other company was Acko, which became the most recent unicorn with a valuation of $1.1 billion.
But it’s not just unicorns. Players such as Onsurity, Turtlemint, LoopHealth, Plum Insurance, GramCover etc saw an influx of investor interest in the year led by large venture capital firms.
Apart from pure insurtech players, leading fintech companies are also upping their insurance game. Paytm’s insurance arm raised Rs 920 crore from global reinsurance firm Swiss Re in October. Digital payments company PhonePe changed its corporate agent insurance license to an insurance broking license, allowing the platform to offer more products and function as a direct insurance broker.
Buy Now Pay Later (BNPL) player ZestMoney also ventured into the insurance space with a corporate agent license in August this year.
What is driving customers to buy insurance online?
Ritesh Shah (name changed) always bought his car insurance from one of the traditional insurance companies. But he has switched to an online player for the last two years.
“The premium I am paying now is significantly lower. Secondly, the user interface made it very easy to understand the plan. They clearly listed what is included and what is not included in the plan,” says Shah.
What is drawing users to these companies is their focus on simplifying processes after studying the challenges faced by customers while buying insurance.
Vivek Chaturvedi, Chief Marketing Officer and Head of Direct Sales at Digit Insurance, cites an example: “We went through how many clicks a customer needs to purchase car insurance. We were surprised to find that it was 72 clicks.”
Digit then decided to reduce this so that purchasing insurance becomes as easy as checking out on Amazon. Other companies, too, are innovating with this approach.
The other key challenge for a customer is in the first step itself — understanding the insurance plan and its benefits. Customers are always concerned about paying too much and getting very little in return when the need arises. This is why investors and fintech ecosystem players are betting big on the space.
“Digital insurance companies are able to offer plans with much lower premiums because they are cutting down on physical distribution and other layers. Once their operating costs are lower, they are able to offer insurance coverage at a much better premium,” says Amit Nawka, Partner for Deals and Startup Leader at PwC.
Earlier, health insurance was a benefit one could only get if their employer was a large corporate. Now, with players such as Plum, even small and medium enterprises are purchasing group insurance policies for their employees.
Sachet-sized insurance plans are also gaining traction as they are easy to purchase and understand and are tailored to customer needs. Like buying travel insurance while booking plane tickets or e-commerce insurance. Products catering to new-age needs — for example, pet insurance — are also attracting the younger crowd.
The opportunity in numbers
India is one of the lowest penetrated markets when it comes to insurance. India’s insurance penetration was pegged at 4.2 percent in FY21, according to Swiss Re’s sigma world insurance report. This is in contrast to the global average for insurance penetration, at 7.4 percent.
Life insurance penetration stood at 3.2 percent, while non-life insurance penetration at 1 percent. India’s insurance density, which is the premium per capita, stood at $78 in FY21, the world average for insurance density for the period was over 10 times higher, at $809.
With the lion’s share of the population still not insured, the opportunity for online players is huge. Lower premiums and greater reach as India’s digital adoption and smartphone usage grows rapidly is helping fintechs seize the opportunity.
“With our user base and ability to deliver insurance at a low transactional cost, we are on the verge of expanding very rapidly into the hinterland, as well as cities,” says Gunjan Ghai, Vice President and Head of Insurance at PhonePe.
A report by Mordor Intelligence projects that the insurance market in India will grow at a compound annual growth rate (CAGR) of 7 percent till 2025. The overall market size is currently at around $250 billion, of which insurtech players form only 10 percent.
Of the expected growth, Jaikrishnan G, Partner and Head of Financial Services Consulting at Grant Thornton, expects insurtechs to grab the lion's share of the new business.
“At least 30 percent of first-time insurance buyers over the next few years will be the younger population in the age bracket of 16 to 21 years. They are digital natives and their buying experience and expectations around their experience will be completely digital,” says Jaikrishnan.
He expects insurtech aggregators and brokers to grow five-fold over the next few years. Back-end service providers and pure tech insurance service provider companies are likely to see year-on-year growth of around 50 percent as capabilities will have to be added to cater to growing demand.
Turtlemint, for one, is planning to invest significantly on the distribution and technology fronts in the coming years. “We are currently distributing upwards of Rs 2,000 crore in premiums. In the next five years our aim is to grow that to around Rs 15,000 crore,” says co-founder Dhirendra Mahyavanshi.
Customer trust, product placement challenges
Insurance in India is seen as a white elephant by customers largely due to experiences such as lack of transparency in plans, difficulties in claim filings and minimal education within the customer base on how to make these choices.
“Because of the inefficiencies of the market, which are driven by lack of trust and data asymmetry, there is a lot of cross-subsidy that happens within insurance portfolios. An ideal insurance portfolio would price you exactly for the risks that you carry, and price me for exactly the risk I can carry,” says PhonePe’s Ghai.
Insurtech players form the bridge between companies and customers by using data to price risks better and simplify products.
“Everyone is very happy to make it as easy as the customer wants, whether it is digital or non-digital players. The trust issue comes from service claim ratio, i.e. how easy is it for you to derive the benefits of insurance products,” says Jaikrishnan.
However, he adds, “I wouldn't say those are pain points, those are the frameworks within which all these companies need to operate.”
Roadblocks in innovation
While insurtech players are raring to change the landscape with newer offerings, they have to do so within the framework of regulator Insurance Regulatory and Development Authority of India (IRDAI).
IRDAI supported innovation through the regulatory sandbox approach in 2020, which saw 22 insurers submitting over 170 proposals. IRDAI also enabled video-based KYC for insurers. Getting approvals, too, has become faster for insurance players.
However, the sandbox model came with certain limitations. Insurers could only sell those products for six months, up to Rs 50 lakh worth of premiums or 10,000 policies. The parallel investment in technology is quite high.
“If you are thinking of disrupting the industry, you will end up spending a lot of money on building technology,” says Digit’s Chaturvedi. “Based on the sandbox limitations, chances are your technology costs would be more than the product that you will sell.”
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