PremiumDespite many years of progress, 92% of risks that should be insured in India are not, a phenomenon known as the protection gap, and 75% of people either do not have health insurance or have coverage that is totally inadequate.
A decade ago, insurance executives lived a charmed life. The industry operated more like a private club than a competitive industry, with its own rules and its own jargon. Occasionally, an expensive catastrophe or the regulator’s unhelpful insistence on ethical practices would interfere, but mostly they enjoyed plain sailing.
A few years ago, an anxiety began to take hold. Industry veterans began to speak in hushed tones of an upcoming wave of “insurtech", involving tech-enabled business models that would sweep away their comfortable sinecures as surely as digital photography undermined Kodak. The executives did what they could to digitize their own business models, but mostly they braced for impact.
As time went on, there were only a handful of success stories. China’s ZhongAn became a $10-billion behemoth (although only by taking easy business from its parent Alibaba). India’s Policybazaar became an independent success and is now a multi-billion dollar listed company. But few insurtechs scaled to a meaningful level. Google failed with an eccentric venture into the Indian price comparison market. When US firm Lemonade lost 70% of its value after listing, it seemed as if the threat of insurtech had been exaggerated.
But now an insurtech revival appears underway, and it is India and her entrepreneurs that form the epicentre of this transformation. An example is InsuranceDekho. The business has reinvented the concept of a traditional insurance agency through a digital platform that allows customers to choose products from almost any insurance company in India. Historically, insurance agents were tied to a single insurance company, seriously limiting customer choice. Policies sold on InsuranceDekho’s platform are serviced digitally without the cumbersome paperwork and delays that used to characterize the industry. No surprise that the company is growing at pace, and generating annual premiums of ₹2,000 crore, while creating livelihoods for some 70,000 agents in the tier 2 and 3 towns in which it thrives.
India also has two new digital-first insurance underwriters. Digit began in 2016 and generates ₹5,300 crore of premiums in motor and health segments, and is valued at over ₹32,000 crore. Acko—an Amazon-backed rival—clocks some ₹990 crore of revenue.
But, why the resurgence of insurtech businesses? First, the Indian insurance market is enormous. The combined life, general and health insurance markets total a staggering $130 billion and, yet with penetration still low, the growth opportunity remains effectively infinite. At the same time, state-owned insurers, traditional companies and vested interests still dominate, leaving this vast market ripe for disruption.
Second, Insurance Regulatory and Development Authority (IRDA) chairman Debasish Panda has been both vocal and effective in his support for the move to digital, as he seeks to make insurance more affordable and inclusive. This has included mandating the dematerialization of all insurance policies, insisting on e-KYC and even preparing its own digital insurance exchange in the form of BIMA Sugam. Finally, the industry enjoys a deep sense of purpose. Despite many years of progress, 92% of risks that should be insured in India are not, a phenomenon known as the protection gap, and 75% of people either do not have health insurance or have coverage that is totally inadequate. Put simply, low- and middle-income Indians are forced to lead risky lives where adverse events, such as hospitalization or accidents, can be financially devastating. The ability of insurtech firms to solve for this is essential to reducing inequality and enabling India’s rise.
The new cadre of businesses that are benefiting from these tailwinds will deliver enormous benefits for all stakeholders. The IRDA will find that the digitization of the industry makes it easier to track, bringing some of the old challenges out of the darkness and into the light. For talented individuals, insurtechs provide attractive places to make a career. Most importantly, customers can look forward to products that have their best interests at heart from an industry that was once famous for putting itself first.
That India is surging ahead of other countries in this area should be a matter of pride. It may be winter for insurance veterans, who still rely on outdated traditional practices, but for the rest of us, an insurtech summer has arrived.
Stewart Langdon is a partner at LeapFrog Investments and co-head of South Asian investments.
