Raising funds since we can't take risks on solvency, says Digit Insurance's Kamesh Goyal

"We cannot take risks with solvency. As of March 2021, the solvency was 201 percent. The more business we write, you have losses. By June 30, it would have become 177-178 percent. Then by September 30, it would be around 160-165 percent. And October is the festive season, which is strong for the auto business. So, we would have needed the capital," he added.

Goyal explained that the company was advised to raise a higher amount of funding so that it is sufficient for 18 months.

This fundraising is subject to IRDAI (Insurance Regulatory and Development Authority of India) approval. He said that the company expects the approvals to be in-place by September 2021.

"We don't know whether we will need these funds in October or December. But we wanted to have the regulatory approvals in place by September," said Goyal, an insurance industry veteran, who has spent more than three decades in the business.

Solvency margin is the minimum capital requirement for insurers. It is set at 150 percent by IRDAI for all insurers.

Unicorn status 

In January 2021, after Digit became a unicorn, the insurer said it achieved the USD 1 billion-plus valuation (Rs 14,050 crore to be exact) in three years of operations after existing investors pumped in Rs 135 crore of additional capital in January 2021.

According to Goyal, the current proposed funding round is one of the biggest in the Indian insurance industry, bringing the total capital infused into Digit Insurance up to USD 442 million.

Founded in 2017 and headquartered in Bengaluru, Digit has investors like TVS Capital Funds, A91 Partners, and cricketer Virat Kohli.

The company uses technology to simplify processes for their customers, like smartphone-enabled self-inspection and audio claims. It is 100 percent on Cloud.

Talking about the January 2021 funding, Goyal said that it was a small round and less than 1 percent of the equity was diluted.

"It was more of a price discovery. Once this fund raising is complete after requisite approvals, the parent company stake will go down from around 87-88 percent to 82 percent. External investors will hold about 15.5 percent while the rest will be held by employees," he added.

When the business was launched, Digit Insurance collected Rs 2.66 crore as gross direct premium in November and December 2017.

Three years later, as of December 2020, the insurer ended up with Rs 2,150.89 crore in gross direct premium.

It ended FY21 with gross direct premium of Rs 2,418.90 crore, showing a year-on-year (YoY) growth of 36.8 percent.

Business picking up

While there are concerns about a COVID-19 third wave, Goyal said that the insurance business is picking up.

IRDAI data showed that Digit had collected Rs 506.26 crore as gross direct premium between April 1-May 31, 2021, showing a YoY growth of 125.38 percent.

In May, its market share stood at 1.71 percent, based on these figures.

As of FY21, the combined ratio for Digit stood at 109 percent, which was broadly aligned to the industry figures for the fiscal.

When it comes to the business mix, Goyal said that motor insurance constituted 75 percent, fire insurance 13 percent and health 7 percent.

"While there was a dip in the auto business in April and May, it is now slowly picking up. The numbers for June will be better than last year where there was a strict lockdown," he added.

Though there is a rise in COVID-19 claims for the industry, Goyal said that he does not expect the overall claims ratio to worsen.

"Health insurance is only 7 percent of the premiums for us. This business will see losses but the claims ratio at an overall level will not worsen," he explained, without specifying exact numbers.

General insurance companies saw a 11.3 percent year-on-year growth in the gross direct premium for May 2021 at Rs 12,316.50 crore.

Here, Digit was among the top three fastest growing non-life insurers