Creating a Safety-Net Culture in India
Why We Invested in Toffee Insurance
I made my first financial decision at age 12. I bought a small recurring deposit from a commercial bank using my pocket money. The product seemed very simple and intuitive: I had to pay a fixed amount each month and at the end of the installments, I would get a higher amount than the total I contributed, because my money had earned interest. As a kid, the concept of savings was easy enough to grasp and, more importantly, it meant increasing my spending power the following year.
While savings were easily understood, insurance was more complicated. Throughout my younger years, I made rookie mistakes: I bought insurance for investment and tax savings and was pushed to get insurance products I did not need by agents, family friends, or bank managers — which left such a bad taste in my mouth that I went through a long phase of wanting nothing to do with insurance. It was only after three professional degrees in financial services and many years of experience that I bought my first true risk mitigation product, an online life insurance, when I was well past the age of thirty.
New consumer research shows that the majority of Indians also struggle with insurance. In India, nearly 86 percent of rural households and 82 percent of urban households are not covered by any type of insurance. Most insurance policies are either government funded or employer provided. Around 3.4 percent of insurance penetration is either mandatory insurance, such as vehicle, or life insurance — unit-linked plans and other traditional products — that are mainly driven out of tax and investment incentives. Most insurers get around 40 percent of their premiums in the last quarter of the financial year. From this scenario, it is reasonable to conclude that consumers do not relate insurance to risk mitigation, which is the rationale behind this type of financial product in the first place.
On the flip side, however, is a real need that most people have to mitigate some of the risks they face on a daily basis. A 2017 Credit Suisse Global Wealth report claims that 92 percent of Indians have less than $10,000 in savings. Rising health costs and increasing lifestyle-related stress including diabetes, obesity, mental health, etc. make households vulnerable to financial shocks — which usually end up being more costly than the $10,000 in their rainy-day funds.
The interest thing about India’s lack of safety net culture is that the first insurance company in the country was established in 1676! Arguably, insurance has been around for 400 years and proven to be a must-have in the corporate context. So why it is so hard for people to insure themselves or their households?
Due to legacy industry structures, insurance companies often offer comprehensive plans with many providers, which makes products expensive. In addition, in order to get these comprehensive policies sold, insurers need extensive agent involvement, making this high-touch engagement cost prohibitive for small-ticket insurance.
On the consumer side, people try to avoid thinking about all that could go wrong and when they do consider scenarios, it is still difficult to get them to pay a significant sum upfront to protect themselves. And for the small portion of consumers who get there, when it comes to filing claims for one of those unexpected events, it often means learning that they paid for features that are actually not very useful or redundant.
That’s why we invested in Toffee Insurance, a financial technology platform that designs and sells bite-size, low-price insurance products across health, travel, and personal accident sectors specifically created with millennials and digital natives (20–35 years) in mind. Toffee wants to position insurance as a simple, fast moving, consumer good rather than a complex financial product that requires education from an agent in order to understand.
Toffee works with insurers to design products that are woven into the lives of their target-audience, such as a “seasonal dengue insurance” that would cover medical expenses in the case of contracting dengue during the summer, or a sports injury policy that allows you to join a co-workers football league with peace of mind. These products are designed for specific audiences, with use cases that are relevant to their lives. Since they are tied to specific events, they are easier to underwrite, making claims more predictable and easy to fulfil. The idea is to elevate the user experience to a 90-second purchase time with claims approved within two hours.
Toffee’s goal is to highlight ease of use and bring affordability and accessibility to its customers. They have simplified communications with potential customers, removing jargon and technical language from the process. Its low-ticket policies and positioning with impulse purchases could help improve adoption among millennials and, over time, create a better understanding of insurance and a culture of safety nets. The company is focused on fully leveraging digital distribution, human-centered design, and alternative data sources across the value chain to drive innovative product design, data-driven underwriting, and early fraud detection.
While many sub-sectors in financial services have been completely reinvented by technology, insurance in general, has not taken advantage of today’s advancements to modernize its operations or streamline consumer on-boarding. If successful, Toffee can very well spur a movement from insurers and large distributors to create change; bringing customer needs to the forefront in order to create simple, transparent, and customized products that create solutions. Furthermore, Toffee’s easy-to-use platform could inspire other industry players to upscale their customer experience, especially when it comes to claims management and sales.
Creating a culture that highlights the importance of safety nets is a fundamental step toward promoting household financial health. Using insurance to mitigate the risks we face should be a lesson learned early, so that we are all better prepared to weather shocks that can easily derail our financial lives — and curtail development opportunities. Toffee cofounders, Rohan Kumar and Nishant Jain are up to the challenge — even if it means turning an antiquated 400-year old financial product like insurance, into a hip and cool product.