The Fintech industry is at a rise with India moving towards digitisation and services becoming more customer-centric where the customer is the King, rather than the traditional approach of ‘one size fits all’. The Fintech industry comprises segments such as Bank Tech, Insurtech, Investment Tech, Robo advisors, Alternative lending, etc.
As per Inc42’s(leading media platform in India) recent report, Fintech sector has had the most funded deals in Q1 2021, out of which Insurtech has been one of investor’s favourites!
But, why has Insurtech lately been on a rise?
Let’s try and understand why!
Insurance is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
According to IRDAI annual report, insurance penetration in India stood at 3.69 percent in 2019 as against the Global average of 6%, one of the lowest across the world. The habit of saving is inculcated in Indians at a very early age as opposed to the western culture. Insurance is more of a savings product than an investment product. Then, why is India left behind in following its own values of saving money via insurance?
The low penetration has provided a huge scope for future growth in the industry along with the huge base of uninsured population. Although Covid’19 has hit the insurance sector hard with high pay-outs and fewer insurance policies in sectors like motor insurance, travel insurance, freight insurance, etc., there is scope for recovery by pursuing innovation, launching new products relevant in covid era, embracing technology as well as making use of Government’s push in bringing the distribution online as well as using web aggregators. Not just this, but the increase in FDI from 49% to 74% in the Insurance sector as per the Insurance amendment bill passed in the Rajya Sabha in March, 2021, paves way in securing the nation with necessary funds, additional technical know-how and innovation in the Insurance Sector.
Insurtech refers to the use of technology innovations designed to squeeze out savings and efficiency from the current insurance industry model. In a narrower sense, it means the combination of insurance and technology to bring game-changing solutions into the business.
There has been a shift occurring in the traditional business model of the insurance industry. Customers require faster, hassle-free and transparent claim settlement. The Indian insurance ecosystem is still adapting to the technology-driven pace of change, but it is notably visible that insurTech has started to redefine how the industry interacts with the consumers.
As per CB Insights, insurtech startups globally raised over $2.5B across 146 deals in Q1 2021. This record level of funding reflects a 180% increase compared to the same period last year, when fears of Covid-19 swelled, and a 22% increase compared to Q4’20, as investment activity steadily bounced back. In addition to funding growth, the number of deals this quarter also grew significantly, including a 52% year-over-year increase and a 42% quarter-over-quarter increase.
Global funding in Insurtechs has grown from about $2 billion in 2016 to $6 billion in 2020. In India too, albeit with a smaller base, funding has seen an increase from a modest base of $11 million in 2016 to $287 million in 2020. Government's policy of insuring the uninsured is gradually pushing insurance penetration in the country and proliferation of insurance schemes as well.Currently, there are 142+ InsurTech startups operating in India as per Tracxn.
So, what are the critical success factors for insurtech startups?
New players can enter the market by focussing on INNOVATION. It can be done in one of the three areas; Product, Process or Services.
Product - Integrate it as per the customer expectations
Process – Modifying execution of the promise of insurance in a seamless way with the help of automation, AI, Machine learning, Data analytics, Distributed Ledger Technology etc., thereby also reducing the cost of execution
Service – The claim services offered after the occurrence of a loss event so that the insured faces the least hardship. Customers look for personalised services just as they would receive from any other service.
Startups today are scaling rapidly and bringing new opportunities and competition to established players by addressing their pain points. Companies are leveraging the huge amount of customer data to create relevant products. Covid’19 has changed the mindset of the millennials and GenZ to take insurance more seriously than before which acts as a hedge against future risks. The people of this generation do not want to go out to specifically buy an insurance product out of the hundreds of options available. They want it to be done through a few taps on the phone! Several problems like this have given rise to new startups.
Let’s have a look at a few of them emerging from different pain points!
1. Policy Bazaar – Comparative Analysis
Policy Bazaar, India’s largest insurance marketplace, helps users compare financial products like life and general insurance, loans and credit cards. To enable easy and sensible comparison, the company has partnered with financial institutions disbursing loans and selling insurance in India. It helps get free insurance quotes, and users can compare plans based on multiple features. Users can also buy, sell, and store policies online. The platform provides an end-to-end solution to track policies and claims assistance. The company hosts over 100 million visitors annually and records nearly 1,000,000 sales transactions/month. Currently, it accounts for nearly 32% of India’s life cover & retail health business collectively. It raised $ 633.78M in March this year.
2. Digit Insurance - Smartphone enabled Self-service claims
The company seeks to build simple and transparent solutions, focusing on car, travel, mobile handsets, jewellery and bicycle insurance. Digit is an IRDA licensed internet first general insurer launched by Fairfax Holdings and Kamesh Goyal, a former executive from Allianz. Fairfax holds 45% stake in the company. It raised $ 207.49 M in January this year.
3. Acko - Personalized products based on data analytics
Acko is a tech-enabled automotive insurance company providing low-cost insurance products based on data analytics. Its insurance products include car comprehensive insurance, car third-party insurance, bike insurance, and Ola insurance. It offers cashless claims processing with doorstep pickup & delivery services
4. Riskcovery – Insurance-in-a-box using SAAS and API
It is an omnichannel “insurance-in-a-box” for consumer businesses that enables any insurance product to integrate across any customer engagement channel, seamlessly. As an enterprise product company with a B2B2C model, it enables customers with a SaaS and API-first platform, which optimizes all end-consumer touchpoints of insurance. It provides plug-and-play technology to its partners across sectors and industries. The pandemic has been an inflection point for them which accelerated digital adoption. Their API-first approach helps enterprise customers get access to highly relevant insurance products, through a completely digital process of underwriting, policy issuance, claim settlement and compliance. The company, founded in 2018 has raised $5M in its Series A round in March this year.
5. Turtlemint – Smart insurance with assistance
Turtlemint is an aggregator of insurance products. Users can search and compare various insurance policies available in the market. Users can buy policies using the site and also get assisted in their claim settlement. It raised $ 77M in March this year. It is also one of India's largest IRDAI insurance brokers. They have Mintpro, an online platform which allows individuals to enrol with it and become a POSP (Point of Sale Person) with Turtlemint. One can become an insurance advisor and make money anytime and anywhere selling insurance.
6. BimaPe – To make informed purchases
It is a card-based online insurance platform for Indian consumers. There is information asymmetry in insurance, one lacks understanding of the information as known by their agent or insurance provider. BimaPe helps in making informed decisions via its Wallet offering and helps in being aware and understanding what is sold to them. It aids in discovering existing insurance benefits on your cards, provident fund and much more. They are building one hub for your family’s insurance to overcome the problems of scattered paperwork, unclear terminology and unclaimed benefits. BimaPe is a very young company founded in 2020 from the problems realised because of Covid’19.
7. BimaPlan – OTC Low premium products
Bimaplan is a mobile platform that helps users secure affordable insurance plans in partnership with insurers, and builds a unique distribution using digital channels. In the past, insurance has not been able to target the middle-class due to high operational costs and lack of data. With the increased number of internet users via affordable smartphones, the reach can be increased. BimaPlan aspires to tap this market with its low cost policies. In march this year, it raised a seed round from Titan Capital, Y Combinator and other marquee investors.
8. Toffee Insurance – Microinsurance products/ Bite-sized insurance
Toffee Insurance is a new-age contextual microinsurance products firm. Its customer-centric products deconstruct traditional underwriting and pack relevant policies according to individual requirements. The company is distributing plans through different channels like APIs, mobile, and SMS transactions. Their current portfolio includes cycle insurance, income protection insurance, daily commute insurance, and dengue insurance catering to individuals with policies starting from as low as Rs. 300. The company has succeeded in issuing policies to 115K+ Indians, of which 80% are first-time buyers. Insurance does not have to be a heavy financial transaction, but can be as easy as buying a toffee!
They started ‘The Toffee Plan’ in 2020 which is a unique product covering health, life and household all in a bundle with bite-sized monthly payments on a subscription basis at a cost as reasonable as Rs. 600. It even covers hospitalisation expenses rising from Covid’19!
Traditional insurers offer capital, market reach, brand recognition, regulatory support and access, and infrastructure. Instead, Insurtech provides fast, innovative responses to market dynamics. The result is a restructuring of the traditional insurance value chain into an interconnected community that’s more modular, more flexible, and more attuned to the customers’ specific needs.
Advanced technologies like blockchain, cognitive intelligence, and next-generation robotic process automation provide ample tools to transform the process. For example, Guardtime in California which develops blockchain solutions across the cybersecurity, government, finance, defense and logistics industries, recently teamed up with logistics giant Maersk to implement a blockchain-based maritime insurance platform that will manage risk, use smart contracts and establish an immutable chain-of-shipping to help insurance companies thoroughly provide coverage.
Another company, FidentiaX from Singapore is the world’s first marketplace for tradeable insurance policies where the users are able to buy, sell or store their insurance policies on the company’s blockchain. Using tokenization, the blockchain-powered marketplace takes existing policies and puts them into the encrypted database. In real-time, users are able to cash out on their policies, buy policies from others or just find all their insurance information in one place.
Fizzy located in Paris, a flight delay insurance tool, which is a subsidiary of global insurance giant AXA, uses blockchain to ensure that members whose flights are delayed more than two hours are immediately compensated. The company’s blockchain supplements travel insurance that usually doesn’t cover financial loss due to flight delays. The tool uses smart contracts to lock in terms for payments and policy information. Users have only to enter their flight details, personalize their coverage and make a payment. Fizzy then uses blockchain to immutably verify flight delay data and compensate customers.
As per MarketsandMarkets, the blockchain in insurance market size is projected to reach $ 1,393.8M by 2023, at a Compound Annual Growth Rate (CAGR) of 84.9%. The future can also witness drones, and robotics disrupting the insurance industry other than Blockchain and AI. Though not very evidently used in the Indian insurtech yet, the trend is emerging.
Another emerging trend, the ‘Buy Now, Pay Later’ model which is essentially seen in the consumer durable market provided by credit lending fintechs could also be applied to the insurtech industry. With the financial hardships due to the pandemic, customers are looking for flexible financing options, especially the millennials. Max Life Insurance has introduced the model for the policies bought online. At times, applied policies end up being declined or postponed. Under such circumstances, the amount needs to be refunded which takes 8-10 days creating anxiety within customers. This feature helps customers purchase the policy in a hassle-free manner without worrying for the money getting blocked. Building trust is of utmost importance in the insurance sector. This feature has shown increased conversion, contribution of sales and better customer experience, with a reduction in grievance and refund related issues.
The Insurtech industry in India, though at a nascent stage, is ripe for innovation and disruption. The industry has a promising picture with the added benefit of several conducive regulatory changes in the way business is conducted. Even amidst the pandemic, the technologically advanced insurance services have made it possible for everyone, even for the people in the remotest corners of the world, to continue and start availing insurance services completely online, from the ease of their homes. It will surely further ease and accelerate the process with immense applications of technology in this industry as well as positive demographic factors such as growing middle class and young insurable population being aware of the need for protection and retirement planning!
With increasing insurtech startups, will the big insurance players stay back and spectate? Or, will they acquire these startups? Or, build value in their horizontal and vertical linkages? Best would be to collaborate with one another and create synergy so that the customers are the end winners! Wouldn’t that be something to ponder upon?
This article is authored by Lipi Panchmia
. Lipi is "Analyst - Portfolio Management and Research" at 100X.