Digital Insurance in India: a landscape view
Acknowledging Acko’s meteoric rise, can Lemonade’s zesty neo-insurance model shape the growth narrative of India’s insurance industry?
You would’ve in all probability, watched this popular advertisement featuring a debonair Kumar Sanu selling insurance with a catchy jingle. His presence in this article plays a minor role of driving the message home (apart from being a clickbait, in some way).
A quick note: The article’s focus is on the general insurance sector, because it is more predictable from a growth point of view. On the other hand, life insurance is more of a product of financial discipline and savings.
Decoding Digital Delivery: the Buzz
A digital model for insurance has been a topic-du-jour in India and the rest of the world for some time now, and for many right reasons. The COVID pandemic reminded the world of various uncertainties, virtual conferencing has defined business in the new normal, payments and transactions are now easier than ever. Not to forget, the success digital models of insurance have witnessed in other parts of the globe.
Softbank-backed American insurtech Lemonade, founded in the year 2015 has grown to offer new age products such as renter’s insurance and pet insurance. 1 million customers, about 70% of them being under the age of 35: a dynasty built by selling insurance entirely online! Not to forget its limelight-grabbing successful IPO in 2020. German P2P insurance provider Friendsurance also operates fully online, having opened doors for new use-cases in insurance.
China has a success story here too: Shanghai-based ZhongAn operates on a pure digital model for property and casualty insurance. It has a customer base of over 450 million with the number of policies sold north of a whopping 8 billion. Without getting into the details of its astronomical valuation, it’s safe to say that ZhongAn, the largest of its kind, stands as a paragon for insurtechs across the globe. Some background here: its partnership with Alibaba has helped it widely sell a shipping returns policy to the latter’s huge customer base.
While this looks lucrative in terms of scalability and being new-age, does the zeitgeist of technology spell the possibility of digitization of insurance in India? I believe a more contextual understanding is necessary.
Insuring India Inc: Status quo
Insurance is a commoditized product governed by a highly regulated industry. India’s insurance penetration (ratio of premiums to the GDP) was pegged at 3.76% in FY20, with life insurance penetration at 2.82% and non-life insurance penetration at 0.94%. Such figures can only point to the fact that insurance in India is by and large a poorly understood concept. It remains a push product, and its benefits are only realized in the aftermath of untoward events.
This is where I would like to highlight the value agents and brokers bring to the table as a pivotal touchpoint: sale of insurance requires a contextual and empathetic understanding of the customer and helping the customer navigate through the various nuances involved. In the end, it is about bringing awareness, negotiating the right kind of coverage, and building trust in the process. Not to forget, agents are key to helping insurers attain high persistency ratios*, especially in health insurance.
(*Persistency ratio is the ratio of number of policies renewed to the number of policies issued. It indicates customers’ faith in the insurer.)
The flipside to the penetration figures is that the Indian insurance sector looks ripe for growth and disruption. The first wave of disruption was ushered in by web-based platform aggregator PolicyBazaar, which sought to educate the customer before going ahead with transactions of policies. The onerous task of picking your insurance product of choice was never easier. PolicyBazaar’s rise clearly points at one key theme: availability of quality data is the bedrock of the insurance sector, benefiting both the insured and the insurer.
The push for digital channels in insurance is evident from IRDAI’s announcement in February, advising all insurance firms to issue digital policies via DigiLocker in a drive to improve customer experiences, apart from its decision to increase the FDI cap in this sector to 74%. There has been a commendable thrust towards innovation by the proactive regulatory body.
It is undisputed that technology has enabled insurers to scale up their services by improving their operations, streamlining procedures, and reducing cost. It has also helped in underwriting process with clear risk profiling.
One example of a fully-digital insurer in India is Acko: bypassing intermediaries, distributing insurance policies to over 62 million unique customers and issuing 800 million insurance policies since its inception in 2016. A classic case of doing away with one-size-fits-all products and focusing on bundling like ZhongAn: it has partnered with the likes of Amazon (insurance on smartphone purchases) and Ola. Made for the digital customer, Acko’s chief product mix spans low-premium motor and smartphone insurance, and has recorded stupendous growth figures. However, it hasn’t dabbled in domains such as commercial and crop insurance yet.
The now insurance unicorn Digit has tested the waters in 2018 with its travel insurance product, in partnership with Cleartrip. This partnership sought to address key pain-points: the opacity of policy benefits, the paperwork, and the settlement time. Additionally, most policies mandate a minimum flight delay of 6 hours. Digit’s service comes almost as a panacea: it covers and automatically detects flight delays of at least 75 minutes, and sends an SMS prompting affected policyholders to make their claim. A picture of one’s boarding pass is the only paperwork required too! Such a scenario of partnership and bundling is where digital insurance can find its sweet spot.
Speaking of Digit, I bring my focus to motor insurance, the largest segment in general insurance. Motor insurance is an interesting space because it is statutory, and involves a huge ecosystem comprising dealers, surveyors, garages, and law enforcement. Digit has made a mark in motor insurance, by striking a balance between online and offline channels. Insurance is primarily third-party distributed, and Digit proved to be a cut above the rest by equipping its agent network with tools for customer relationship management and helping them profile the customers it prefers. Not to forget forging relations with various automotive dealers, as motor insurance is lucrative for dealers from a commission and after-sales standpoint. Parts of the claims process such as inspection and settlement are expedited by technological interventions. Digit’s success so far highlights the fact that offline distributors are a mainstay in such a complex ecosystem, with technology working in tandem. It surely has helped Digit emerge as a Top 10 motor insurance provider.
Concomitant Concluding Comments
A mix of both online and offline channels will be core in the growth of India’s insurance sector. Technology interventions of insurance have bore fruit only in parts of the insurance value chain. There is a conspicuous need for awareness, and involvement and coordination across the larger ecosystem. Insurance in the foreseeable future will thrive on a hybrid, omnichannel model. Incumbents in this sector are working exactly on that: reducing bottlenecks in the value chain by incorporating technology innovations, also assessing and improving customer experience. I see a potential for collaborations between insurers and insurtechs as their core capabilities rest on distribution and technology, respectively.
This doesn’t spell trouble for the sustainability of a fully digital insurance business, however. The focus of insurtechs should be on customers of the future: the more tech-savvy millennials, with novel micro and on-demand insurance avenues. Such ‘new-fangled products’ would be centered on lifestyle aspects, so that the customer cohort can ascertain immediate value. This is where technology can be a disrupting force.
Which brings me back to the fact that over the coming years, offline channels will still remain as crucial elements in the overall insurance ecosystem: there will be a stark transit from transactional, low-touch customer interactions to high-value and high-touch customer interactions aided by technology. Perhaps not selling insurance with a mellifluous voice like that of Kumar Sanu (an obvious perk in my opinion), but of relevance nevertheless. Although I am optimistic about technology playing a key role in this sector, I can’t help but opine that digital insurers should ask themselves a very fundamental question: are they in the technology business, or the insurance business?
(Disclaimer: The author is a Business Consultant in the Banking, Financial Services and Insurance domain at Tata Consultancy Services Ltd.)
Sources:
a. IRDAI website
b. Statista: Penetration of insurance in India
c. General Insurance Council dashboard
d. BCG report: India InsurTech Landscape and Trends
e. PwC report: Competing in a new age of Insurance (India centric)
f. IBEF report: Insurance Industry Market Growth in India
g. Company websites: Acko, Digit.
h. PolicyBazaar website
i. Online news articles (Economic Times, BusinessLine, Financial Express)
