Insurtech: Major Trends Which Can’t be Missed
Insurtech encompasses the application of innovative technologies and digital solutions to improve various aspects of the insurance value chain, including product development, distribution, underwriting, pricing, claims processing, and customer engagement.
The insurance penetration in India stands at around 4% of the total population. the IRDAI's annual report for 2022-2023 states that India's overall insurance penetration decreased to 4% from 4.2% in 2021-2022
Positive Outlook
According to Inc42's recent State Of Indian Fintech Report Q2 2022, India's Insurtech industry offers a $339 billion market opportunity at a 57% CAGR by 2025
India is poised to grow fastest among the G20 countries in the insurance sector for the next five years to 2028, with real-term growth of 7.1% in total insurance premiums, according to a Swiss Re report.
Owing to significant untapped insurance opportunities and innovative InsurTech models, the space is seeing growth in funding and is expected to hit $88 billion in size by 2030. Innovation in health insurance, coupled with the government’s digital efforts, will fuel market growth.
IRDAI Wants to Insure Every Indian by 2047
The growth in the insurtech industry is propelled by the IRDAI (Insurance Regulatory and Development Authority of India) push to open up the gates for the tech players to provide insurance. The IRDAI vision is to insure every citizen by 2047.
There are around 19 companies whose applications are still being evaluated by the regulator. Recently, Acko Life Insurance, Digit Life Insurance, and Credit Access Grameen. In January, Narayana Health got a health insurance license from IRDAI.
But the Road is not so Rosy…
Though IRDAI has provided opportunities to the tech firms but it comes with tough regulatory requirements. The process of obtaining licenses is facing delays, with challenges.
Within the startup ecosystem, challenges arise concerning foreign shareholding and the identification of ultimate beneficiaries in venture funds supporting these startups. As a consequence, the licensing process is experiencing significant delays. Some startups are in a waiting game, with pending funding rounds contingent on obtaining the required licenses.
Major Players in Indian Insurtech
As Insurtech gains momentum in India, major players are making significant contributions to the sector's growth and innovation.
New Focus
Embedded Insurance
Have you been offered flight delay insurance while booking a flight ticket or offered device coverage for damage while checking out a phone? Did you find insurance bundled with your railway ticket recently?
For insurance penetration to increase in India, the industry must set up an efficient and effective way of distributing these products. This is where technology plays a crucial role, ensuring that insurance is not mis-sold and sales are compliant to the standards.
Collaborative Effort
Insurtech companies collaborate with insurance brokers, banks, e-commerce portals, travel platforms, and electronic brands to embed insurance seamlessly into their sales processes.
Bancassurance Boosts Insurtech Collaboration for Embedded Finance
The bancassurance model opened up in 2022. Before 2022, the insurance regulator limited banks to partnering with only three entities for health, life, and general insurance. However, this restriction was lifted in 2022, allowing banks to collaborate with up to nine entities.
Investors Backing
Despite a funding winter in the startup space, insurtech startups have secured funds due to soaring embedded insurance business
- Zopper, transitioning to tech-enabled insurance in 2019, raised $75 million in a major 2022 equity round led by Creaegis, ICICI Venture, Bessemer Venture Partners, and others
- Riskcovry closed a $4.5 million funding round and plans a larger equity round upon profitability. Riskcovry, integrated with 40+ insurers, offers APIs for over 150 products
- In Early 2023, InsuranceDekho raised $150 million, one of the biggest fundraising in these times
- Founded in 2018, Loop Health has raised around $40 million to date. It is trying to become a major player in the health insurance space
- Nova Benefits raised $10 million in a series A funding in the year 2021 to expand its engineering, product management, sales, and customer success teams
- In the year 20222, Insurtech startup Turtlemint has raised $120 million led by Amansa Capital, Jungle Ventures, and Nexus Venture Partners
Revenue Model
Insurtech companies generate revenue by
- Selling insurance products and may charge fees for software deployment or offer additional services.
- Charging based on API usage. Insurtechs adopt API-usage pricing, charging fees based on clients' actual use of their APIs. This offers a flexible and scalable pricing structure in alignment with technology usage.
A Few Flag Bearers of Insurtech
Digit Insurance
Digit Insurance, a digital-focused startup, aims to simplify and transform the insurance industry.
Its total digital strategy helped the company reach 1.5 lakh customers in less than 4 months. Digit reported a net profit of Rs 17 crore for H1 of FY24, against a loss of Rs 63 crore last year, and also nearly halved advertising expenses to Rs 144 crore
Why Digit Has Been Profitable
- Digital Approach: Digit's full embrace of a digital model minimizes operational costs and enhances efficiency in customer interactions and claims processing.
- API-Based Model: Digit's agile API-based model enables seamless interactions with partners for functionalities like policy amendments and cancellations.
- Strategic Partnerships: Collaborations with major platforms like Paytm and Amazon expand Digit's reach, providing access to a broader customer base.
Acko General Insurance
Acko General Insurance, established in November 2016, is a private-sector company in India. It obtained its license from the Insurance Regulatory and Development Authority of India (IRDAI) in September 2017.
Acko provides various insurance products, including Motor, Health, Travel, Mobile, Group Health, Liability, Equipment, and Fire insurance.
Road to Profit
Acko reduced losses significantly by 87% to Rs 34 crore in the first half of FY24. Net claims incurred rose to Rs 400 crore for the first half from Rs 317 crore a year earlier. It also controlled advertising expenses, which remained flat at Rs 253 crore.
- Acko aims to replicate its success in motor insurance in health and life insurance.
- Established a separate business unit for health insurance with dedicated technology and experience teams.
- Aims to become the largest direct-to-customer (D2C) insurance provider for digitally savvy customers.
- Plans for potential IPO in 2-3 years, aligning with business line maturity and market conditions.
- Acknowledges challenges in the health insurance market due to medical inflation and rising healthcare costs.
What Lies Ahead
IRDAI Considering Managed General Agencies in Insurance
A Managed General Agency (MGA) is similar to a non-banking finance company in the banking space. An MGA can onboard customers, manage products, underwrite customers and also share the risk with larger insurance manufacturers.
The Insurance Regulations and Development Authority of India (IRDAI) is considering the introduction of Managed General Agencies (MGAs), similar to entities in the US and Singapore. Conversations with insurance intermediaries suggest the regulator's receptiveness to the idea.
If approved, MGAs would allow companies like Policybazaar and Turtlemint to expand their role from distribution to product manufacturing and customer lifecycle management. The move aims to increase insurance penetration in India, where it currently stands at 4.2%.
MGAs could offer customized products, address distribution challenges, and promote partnerships between tech companies and traditional insurers. While not a top priority for the regulator, MGAs are seen as beneficial for sector penetration.
Two Cents on Future
India's Insurtech sector reshapes insurance with collaborative efforts of industry players and regulators. Its growth signifies insurance industry dynamics and the potential for ongoing innovation. Supported by a growing market and regulatory frameworks, Insurtech in India promises a future of personalized and efficient insurance solutions.
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