Apart from traditional segments like payments, lending, and fund management, India offers good potential in many other segments. One such key segment obtains insurance where InsurTech startups can have a deeper impact and possibilities to disrupt the market. India is attractive from an InsurTech perspective due to the size of its significantly underinsured population.
According to the global reinsurer SwissRe, Indian insurance penetration stands at 3.4% in 2015 compared to a global average of 6.2%. Insurance penetration refers to premiums as a percentage of GDP. The insurance sector in India was liberalized in 1999, which marked the end of the monopoly of LIC (Life Insurance of India, the largest public-sector insurance provider), and the number of companies increased from 2 before 1999 to 53 in 2016. Approximately half of these 53 companies provide life insurance and the other half-deal in non-life insurance matters.
As the second-most populous country in the world, India constitutes approximately 2% of the life insurance and 0.66% of the non-life insurance premium paid globally. Premium income witnessed a growth of 22.5% in 2015–16 (April 2015 to March 2016) and reached INR 1.38 trillion. The increase in savings of households and the growth of the economy is expected to increase premiums and investment into insurance policies.
Apart from the market potential, the government has been taking initiatives such as increased FDI limit to 49%, increased tax incentives for health insurance schemes, schemes to provide insurance for the unorganized sector workers that can be seen as favorable factors for increased penetration in the next few years. Government schemes launched in the last two years include the Pradhan Mantri Suraksha Bima Yojana, which is a personal accident insurance scheme and the Pradhan Mantri Jeevan Jyoti Bima Yojana, which is the government’s life insurance scheme. The two major schemes launched in the past two years offer basic insurance at minimal rates and can be easily availed of through various government agencies and private-sector outlets.
Fintech startups can play a major role in both enabling established insurance firms and in designing new types of insurance products. In terms of infrastructure, digital distribution is expected to save life insurance companies 10–20% in costs while it is expected to save 20–30% for non-life insurance companies. Also, the online channel is expected to drive 50% of life insurance and 75% of non-life insurance of the USD 165 billion of new insurance sales in 2020.
Currently, the sales and distributions are largely paper-driven, and startups that provide or build this infrastructure can partner with insurance firms to provide digital distribution channels. Apart from digital distribution, algorithms could be created for data capture and cross-sales, enhanced customer engagement and conversion, and enhanced underwriting technology, which could be provided for insurance firms to better price and segment their offerings.
In terms of product, with non-life insurance penetration at 0.8%, very few products exist for traditional segments such as crop insurance, micro-insurance, motor insurance, and health insurance sectors. Startups with strong underwriting capabilities can develop unique models for the Indian market and develop/design products that cater to the specific needs of the segment. Also, in non-life insurance, the emergence of IoT coupled with the smart city and connected devices initiatives of the government can lead to new underwriting models in the insurance industry.
Currently, PolicyBazaar and Coverfox are the two main InsurTech companies that have been notably doing well in India. The companies have formulated a unique aggregator model for both life and non-life insurance and have gained traction from VCs due to the potential for digital sales in the insurance sector. They are ensuring to educate customers not only on policies and their availability but also on the kind of insurance a particular customer needs, thus creating awareness for products in the consumer’s mind.
Payments and wallets are a highly competitive segment in India with a large number of global and local players. However, with 80% of the transaction still being done by cash, cost-effective digital payment solutions specifically in the micro-transaction services segment have a good potential for growth. To fight the large established Fintech players, access to capital would be a major requirement for new solutions enabling plain wallet services. With simple value-added services, insurtech startups in India can expect higher customer loyalty and traction.