Disrupting Indian Insurance Industry using Ecosystems
“Look deep into nature and you will understand everything better” — Albert Einstein
It is true that we as humans, always take inspiration from mother nature to design and build innovative and revolutionary products. Taking the inspiration from birds, we were able to design airplanes; building the shinkansen bullet train taking inspiration from the Kingfisher’s long beak shaped nose to reduce noise along with reducing electricity usage and reducing travel time [1]. There is a long list of such ingenious examples available from around the world. Like the above cases, James Moore in 1993 coined the term business ecosystems taking notes from the environment.
Ecosystems in Businesses
Like ecosystems that we observe in nature and environment, we now observe ecosystems play a role in businesses also. We observe multiple examples of ecosystems making a mark and turning the industry landscape on its head. AirBNB is a great example of how the hospitality industry (characteristic of high investments and high input costs) got disrupted with an innovative product that leveraged the concept of ecosystems. They created a platform that connects travelers to property owners with spare rooms that can be rented out. This democratized the hospitality industry as now it is possible for any one to enter as a service provider without any significant costs.
Similarly, another example that the general population is familiar with is that of cab aggregators. Everyone of us would have availed services at a point of time from one of Ola, Uber, or Meru cabs. They also use a similar model of connecting cab drivers with passengers and they too have democratized the process. Giving the ability to both riders and drivers with a rating mechanism to rate the other party, thereby giving powers to both sides of supply and demand machinery. This is the power of ecosystems. They are opening the world of business for the common masses without significant investment and assisting them to be self-sufficient.
These business models are emerging in nature and there are several issues in the structure. There are issues of labor laws and privileges that these cabs drivers are not entitled to as they are not considered as employees of the company but as contractors. These issues can be addressed by Government policies and regulatory measures. In short, ecosystems have power to disrupt industries and the government should assist the functioning of such business with proper regulations and incentives.
Ecosystems in Insurance
When we look across the Insurance Value Chain starting from Product Development to Policy Servicing & Claims Management we observe enormous amount of opportunities for Insurtechs, Start-ups as well as Third Party Administrators (TPAs) to make an impact. Below image provides and overview of the typical value chain for Insurance companies.
We observe opportunities of leveraging Artificial Intelligence and Machine Learning in areas of Underwriting, Policy Servicing and Claims Management. These applications can be explained with examples of a few use cases.
1) Underwriting- AI can be used in building engines that can assist in estimating premiums for new customers based on their risk profile. This risk profile can be further built using data that is available with the insurer through social media (if customer consent is allowed), using government databases etc.
2) Policy Servicing- Usage of AI based chatbots to improve customer satisfaction as well as have servicing. These personal assistants provide improved experience as customers are already using Siri, Alexa and other similar assistants. Insurers can utilize these technologies.
3) Claims Management- Building of anti-fraud algorithms to assist in management of claims and reduce the time taken to settle claims to within minutes, and in future to instant claims settlement.
The above cases are few use cases that can help an insurance company to transform their business. There is a long list of other technologies and areas of business where insurance providers can collaborate with other service providers or startups to build and leverage their ecosystem. The question is if the insurer wants to build in-house or to partner with a third party service provider. The answer depends on their strategy and appetite. But, the future of insurance shows that without transforming digitally, the reluctant incumbents may cease to exist and new players will takeover from them.
Government’s FDI Push in Insurance Sector
Government of India has recognized such trends in the market, and they allowed 100 % Foreign Direct Investments (FDI) for Insurance Intermediaries (Union Budget 2019–20). This can enable Indian Insurance companies to leverage services of Foreign players who would like to invest in the Indian market via innovative intermediaries.
Also, in the latest Union Budget of 2021–22, the Government has increased from 49% to 74% FDI limits for foreign players. This will ensure investments in the Indian market and increase competition among the insurance companies. This would force them to innovate and bring better customized products for the consumers in India. This move will benefit everyone in the long run in digitizing and revolutionizing the Indian Insurance Industry.
Conclusion
This initial article in the series “Disrupting Indian Insurance Industry using Ecosystems” conveyed the point of importance of ecosystems in business. How insurance value chain provides ample opportunities for new players to disrupt the Insurance Business. Government is providing support to nurture the ecosystem for India and IRDAI (Insurance Regulator) is also coming up with regulatory frameworks to assist the industry.
In the next article in the series we will dive deep into the complexities of the Insurance industry in India, why rural push is required and how can we increase the penetration utilizing the ecosystem that is being built currently.
References
[1] Biomimetic design: 10 examples of nature inspiring technology — Gertie Goddard
[2] Budget 2021- How higher FDI cap in Insurance will benefit policyholders- Live Mint
