Insurance needs its Agent Vinod
meanwhile Binod dekh rha hai: kaise "tech" lagake multiple inflate kara ja rha hai
Your insurance is meant to cover all the uncertainties in line; Yet the only things certain in life nowadays are death, taxes & a sales call for a term cover from PolicyBazaar…
For many years, insurance in India was LIC and its army of individual agents that was spread across the country. LIC had seen a shift from when no one cared for insurance to now, when the demand is relatively better.
Things have changed in the last few years because of the pandemic with the severity of the multiple Covid-19 waves giving a new opportunity to the insurance industry, especially in the life and health segments. The pandemic has made individuals realize the impact of sky-high medical expenses and changed perceptions about the importance of having a comprehensive health plan to ensure safety and financial backup to meet unforeseen medical expenses.
Even in the group health segment, insurance which was more of an optional benefit earlier is now an essential perquisite to ensure talent retention and boost employee morale and productivity.
Secondly, India is one of the most under-penetrated markets in the world. Its insurance penetration stood at 4.2% of the GDP in 2021 (up from 3.76% in FY20), significantly less than the global average of 7%, making it a very large market opportunity.
Thirdly, traditional insurers and brokers primarily focused on sales and distribution via the agents with commissions as high as 40% of the premium for some products. The space was ripe for disruption by distributing insurance digitally to a larger and previously uncatered audience in a cost-optimized manner. Also, these were expected to simplify the complex policy documents, claim settlement procedures and increase overall trust between insurers and customers.
Riding on this, the segment has seen total funding of USD 3.4 Bn (INR 28,000 Cr) over the last 6 years with ~42% of the funding coming in 2021 and 2022 alone.
Within the segment, B2C-focused insurtechs (insurance + tech) witnessed the highest share of funding. In the last 4 years, on an average, ~93% of the total funding was towards the B2C segment. This was on account of the following reasons:
- Higher operating revenues as B2C insurtechs do not have to share the commission with the agents
- Helped rapidly digitize the segment wherein the customers can enjoy an end-to-end tech-enabled experience for policy buying
However, despite the heavy funding in the insurtech sector, it continues to face challenges because insurance remains a push product with high acquisition cost in digital marketing leading to unsustainable cash burn models and a lack of end-to-end automated process from policy purchase to claims management leading to an overall broken experience.
This has resulted into few of the insurtechs shutting down or pivoting to a different model while players who have strong sales and distribution networks continue to grow.
a. Digital broker Insurance Dekho continues to rely on its army of tech-enabled field agents. As of 31-Jan-23, it had ~80,000 field agents covering 1,300 towns and 98% of the country’s pin codes. 85% of the company’s revenue comes from Tier-2 cities and beyond
b. Coverfox initially started off as a digital broker but was bogged down by high acquisition costs in the insurance aggregator space. It pivoted to offering a plug-and-play stack to other fintech, e-commerce platforms and insurers. It earns a commission of every policy sold via these players and charges a one-time platform integration fee. While the B2C product continues to operate, today ~60% of the company’s revenue comes from this new venture.
What the future holds?
A. Enable technology for agents
In FY22, individual agents contributed 65% in terms of number of policies issued in the individual health insurance segment and 77% of the policies issued in the individual life insurance segment.
Agents continue to remain a critical part as:
- Agents can comprehend the entirety of the customer’s insurance needs while taking into account the customer’s current life situation. The agent’s physical presence plays a critical role in closing a transaction with him/her continuing to act as the first point-of-contact throughout the policy tenure.
- Benefits of an insurance policy is truly realized when filing a claim. At this point, customers require someone like an agent who is as essential touchpoint.
- IRDAI which had earlier proposed capping on commission to agents and intermediaries has done away with the capping allowing insurers more flexibility to incentivize efforts of their agents and strengthen last-mile reach
The agents are getting increasingly comfortable with digital tools helping them leverage technology and making the customer interaction process more fulfilling.
B. Partnership driven approach will continue to rise
Increased partnerships between insurtechs and incumbents leverages the strengths of each other rather than disrupting the incumbents. More and more insurers are looking to partner with insurtechs to leverage data helping automate the insurance value chain and improve efficiencies.
In turn, the insurtechs get access to various insurance products and can easily customize them to suit the consumer's needs.
C. Growth of embedded insurance
Innovative distribution strategies such as embedded insurance are expected to grow. Embedded insurance allows insurers to reach many potential customers with improved underwriting due to wider product adoption, at the point of sales. Examples of these could include an online medical store recommending health insurance at the time of purchase, or an online platform such as Flipkart, or Amazon giving the customer an option to add a warranty at check-out when purchasing a mobile phone.
D. Penetration of technology in other parts of the value chain
In the last couple of years, there is an increased focus on other parts of the insurance value chain shifting the focus away from only sales and distribution. The space is also witnessing acquisitions by existing players for forward/backward integrations. For example, claims automation could be a key focus area with techniques such as OCR and AI/ML helping automate the initial claim assessment and improve processing times as well as help detect fraudulent claims
Key Takeways: Both the incumbents as well as new-age insurtechs are here to stay and co-exist leveraging the strengths of the agent. Agents who are open to adopting tech will see scale and thrive and the other will see their growth stagnate.
Author: Chinmay Marulkar
End movie credits:
Chief Editors: Hanu Bansal & Tushar Khandelwal
Fintech Mavericks: Aman Jain, Arnim Dhakad, Ashish Purohit, Harsh Gupta, Keroli Somaiya, Parin Detroja, Sneh Baxi, Nakul Agrawal
Disclaimer: The opinions and views presented in this article are purely personal and don’t represent views and opinions of author’s employer or any other organisation
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