Episode 14 – Fintech – What drives Insurtech in India?
Macro movement to digital channels, demographics, data explosion and the rise of ecosystems
Been talking to some of the founders as well as investors in the space after Gramcover raised $7mn in their Series A round yesterday and multiple chats around what drives the overall fintech market in India threw up some interesting things.
Click here for my earlier, comprehensive piece on India’s Insurtech Landscape. While this is a standalone piece, read with the earlier piece gives a much better view of the piece. It can be read before or after this one.
Note – In case you are a fintech founder, looking to raise funds, I might be able to help. Reach out to abhishek@indiafintech.in. Would he happy to help. In case you are looking to invest in Indian Fintech, reach out.
So what drives the Indian Insurtech market?
With a ~3.8% insurance penetration (insurance penetration is calculated as percentage of insurance premium to GDP), India ranks lowest among its key peer countries like Brazil, China, and almost every South East Asian country. However, from a growth perspective, the a billion+ population with a growing middle class, favorable regulatory policies, and significant economic activity present considerable potential for the Indian insurance market to grow. According to IRDAI annual report 2019-2020, India’s total real premium growth was 6.9%, vs. 2.9% of the world’s average. Life insurance players are the largest ones, with a market share at ~75% of the total premium volume.
Along with Policy Bazaar and Digit Insurance, which are unicorns in the space, Indian InsurTech landscape comprises of policy aggregators, digital- native insurers, IoT insurance enablers, claims management, and infrastructure and Tech-Insur providers. By numbers of startups, aggregation and policy management has been the most active categories.
Indian Insurtech Space
Source: EY, Internet, Abhishek Kumar
Insurtech Funding across the rounds
Source: Internet, Abhishek Kumar
Overall, it looks like there are 4 broader growth drivers of Insurtech in India. Let’s dive into them –
1. Macro induced general shift of customers to online self-service/ assisted purchases than physical meetings, leading insurers to re-draw their distribution strategy. Overall, Covid has been a boon for the industry and has accelerated the pool of population who are now more tech/digital savvy and firms have been to lap up the opportunities here:
a. Internet based direct distribution channel: With an increase in the population of tech-savvy customers, the ready availability of online channel of advice and transaction capabilities is the need of the hour. Leading insurers like Religare are leveraging the direct distribution channel by enabling direct channels in different platforms like their website, mobile app, and even on third-party apps like WhatsApp.
b. Enabled distribution: Assisted distribution combines machine learning, data analysis, and NLP with cognitive technology to create persuasive messaging, marketing, and advice that enables the seller to drive better engagement.
c. Group affinity-based distribution channel: The affinity channel focuses on distributing products to a tightly connected group of consumers with similar interests. The network model has become more digital and tech driven. Technology is playing a key role in how affinity-based models can be leveraged.
2. Insurtech’s focus on designing a product eco-system, not just a product. This is interesting and circles back to convenience vs usefulness debate. Customers now wants experience and holistic offerings which in turn drive higher engagement across the customer lifecycle. InsurTechs are actively tapping into niche platforms and solutions and extending the capabilities to insurers. Thus, ecosystems are being created by InsurTechs between other businesses, insurers, and customers, creating a higher level of stickiness. There are broadly two kinds of play here:
a. Product eco-system moving into a one-stop-shop solution: An example of a one-stop solution is PayTm that successfully created a platform through which customers can purchase and manage their insurance and make payments for other things, including utility and purchase travel tickets. The ecosystem contains a host of complimentary services that help customers manage their day-to-day activity, which in turn feeds insurance, thus making the entire process work like an experience. It works like a Super App.
b. Value-added services: Many firms have recently started exploring ancillary revenue by providing complementary services. This includes home maintenance/assistance services, roadside assistance, or medical advice that sells with respective insurance types among other things.
3. Demographics. It’s all about the young guns working hard to move up the Social Ladder. Millennials account for 34% (440 million) of the total population, of which ~300 million are from rural areas. Millennials in rural India account for $220 billion worth of annual spending, of which ~$180 billion is discretionary, mostly because of the commoditization of internet connectivity and smartphones. The emergence of new-age professions like gig-work and social media influencers warrants a change in how the traditional insurance market assesses risk. Some of the ways Insurtechs are doing the same are:
a. Curating bite-sized insurance catering to a particular need or context: The bite-sized or small-ticket-sized products are gaining traction. Globally, there are several players which have seen immense success in achieving scale through bite-sized products. These products are primarily distributed through ecosystem partners. In India, too, players such as Acko are pioneering innovative constructs. Acko has tied up with more than 20 digital platforms across retail, travel, finance, point-to-point delivery, etc., to distribute bite-sized insurance. Toffee Insurance, Digit Insurance are some of the other key players here.
b. Offering Products that enable moving from protection to prevention: With the growing importance of holistic offerings, multiple players are adding a risk-prevention element to their offerings. InsurTechs provide holistic solutions to customers that help monitor and drive behavior towards lower risk. These include gym memberships, monitoring devices, and many such offerings. Telematics, driving analyzers, fitness bands firms are driving this trend and offers partnerships opportunities.
4. And yes, how can one not talk about Data! The explosion of unstructured data from social media and the IoT has resulted in insurers/ InsurTechs acquire a huge amount of data. This data can be leveraged to drive innovation and insights across the value chain.
a. Leveraging analytics to drive insights across the value chain: Personalization has become a critical capability in digital marketing. InsurTechs are leveraging data and analytics capabilities to drive innovation and excellence across the value chain, including marketing, acquisition, claims, etc. Players such as Mantra Labs have built AI-driven capabilities to maximize conversion across the sales funnel.
b. Sharper pricing and underwriting models leveraging rich data sources: For e.g., CropIn is enabling assessment of crop insurance and has covered over 2 million farmers22 and over 6 million acres of farmland across 52 countries. It processes farm-related information by combining machine learning, satellite monitoring, and weather analytics to provide customized reports and information that insurance firms use. Another global player with a similar offering is Tarla, which has developed sophisticated risk assessment models that indicate the risk level of the underlying geography, helping assess climate risks and impact on agriculture output.
Regulations have been a key driver in the space as well
Indian regulators, while being conservative on the deposit and overall credit side of the equation, have been surprisingly welcoming in allowing Fintechs to innovate. More so on Insurtech. Some of the milestone regulatory events that have supported InsurTech growth include the following:
The Union Budget 2021-2022 announced in February 2021 proposed to enhance foreign direct investment (FDI) limits in the insurance sector from 49% to 74%, a move intended at bringing insurance to a larger section of the Indian population. Earlier in 2015, the government had hiked the FDI cap in the sector from 26% to 49%.
In 2018, IRDAI published findings are recommendations of a working group for InsurTechs that postulated InsurTechs’ benefits in improving assessment in underwriting risks, fraud risk mitigation using AI and IoT, promoting better social behavior, and faster claim settlements. In 2019, the regulator launched insurance Sandbox that attracted InsurTechs and traditional insurers alike to innovate new products and distribution mechanisms.
So, what’s next?
Digital distribution of small premium and the short-term commitment insurance product is set to explode in coming years. I am super excited about insurance platform plays, including the ones catering to rural areas, such as Gramcover. Complex insurance products will still depend on assisted selling, and InsurTechs will move towards simplifying complex products to make inroads in these categories.
Another key growth area could be agent driven Insurtech firms. Indian insurance market, especially life insurance, is still driven by insurance advisors selling over 70% of insurance policies in India. InsurTechs will enable these offline insurance advisors with better analytics and digital distribution tools and create hybrid distribution channels.
Incumbents, larger core insurance firms will move towards creating their own API stacks and developing ecosystem partnerships. The aim would be to leverage distribution partner networks, faster customer onboarding, and improving go-to-market time with new offerings. See few insurtech infra firms doing well here.
Exciting times ahead.
Do reach out to abhishek@indiafintech.in in case you want to discuss anything!
Hirings in Fintech
Paytail, a BNPL player, is looking to hire across roles, including Product Associates, Developers and HR led. Reach out to Amit here.
Kudos, a lending infra providing lending as a service tech stack is hiring for Product. Reach out to Pavitra here.
Latest News in the Fintech Industry
SafeTree, whose objective is to protect individuals and corporate from financial risks through new, simple, and innovative insurance solutions, raised $1mn in Seed round. The company currently offers products such as commercial, corporate, heath, motor, life, home and travel insurance
GramCover an agri insurance-focussed startup with 1.7 Mn rural customers and assets worth INR 110 Cr in premiums, raised $7mn in their Series A round from Inflexor Ventures, Siana Capital and others
Fintech startup Progcap, which facilitates debt capital for underserved micro and small businesses, has raised $30 million in a Series C financing round led by Tiger Global and Creation Investments. Existing investor Sequoia India also participated in the round
Hyperspace, which offers BNPL and Credit card as a service stack, which helps fintechs, neobanks and companies define everything from their onboarding processes to card controls — basically the entire customer life cycle, has raised $1.3 mn from Kunal Shah, Better Capital and others.
Digital payments major, Paytm, has now acquired a 100% stake in Urja Money Pvt. Ltd., which provides a loan management system through its proprietary solution, CreditMate.