India is a fascinating market that has made tremendous strides over the past number of years in innovation within the financial services sector, primarily focused on financial inclusion for the 1.3 billion population.
Financial inclusion, as defined by the Reserve Bank of India, ‘is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent transparent manner by mainstream Institutional players’.
One of the biggest pain points to tackle for citizens of India when it comes to financial inclusion has to do with payments. We have covered this extensively at Daily Fintech with initiatives like Aadhaar, Demonetization and Digital India that have helped to push the needed forward. There are many others too.
In addition to payments, Insurance in India has also been making strides in both innovation and premium growth.
However, as mentioned by Bernard last week, India sometimes does not get the headlines that China gets when it comes to Insurtech.
After some research this week, my hypothesis is that India’s day in the sun is coming, albeit we may be a few more years until we really see it shine.
An overview of the India Insurance market
This presentation from the India Brand Equity Foundation (IBEF), gives a great overview of the India Insurance market.
Up until 1999, when the Insurance Regulatory and Development Authority (IRDA, aka India’s regulator) was formed, Insurance in India was sold through two entities, Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
Today, there are currently 24 Life companies (including LIC) and 33 Non-life companies (health is classified as non-life in India).
At the time of the IRDA being established, foreign direct investment (FDI) for Insurance was opened, however capped at 26%. This is what helped open up the Indian Insurance market to foreign investment.
In December 2014, this was raised to 49%, opening the investment floodgates even more.
Insurance penetration for 2016 was still low at 3.4% (2017 slightly improved to 3.49%). Life Insurance premium has been growing at a CAGR of 12.49% since 2002 and Non-life premium at a CAGR of 11.05%. Assuming this trajectory increases, then we should see penetration rise as well (assuming these are not just cross-sell/up-sell policies to existing policyholders).
Of the Non-life sector, Motor and Health Insurance are the top two products, garnering 39% and 24% of the premium respectively.
All stats above are from the IBEF presentation.
Distribution channel mix
Though these graphs are from 2014-2015, these give a reasonable overview of the Distribution channel mix for both Life and Non-life in India. (if someone has more current graphs, please send!)
As one can see from the graphs above, agents, banks and brokers play a dominant role in the Insurance sales process.
India socio-economic and other indicators
I found the below chart to be quite interesting, and telling as it relates to the growth stories of Insurance in both China and India.
Perhaps this relates to the reason we have not seen as many headlines in relation to Insurance in India as in China. Individuals in India don’t have the same spending power/wealth as they have in China.
This is not to say that the income equality is that much better in China, however the poverty profile in China (3.1% of the population) is much better than that of India (close to 20% of the population).
With that being said, the middle class in India is growing rapidly.
Couple that with that fact that over 1 billion people have a mobile phone in India, with 33% having a smartphone, as well as all the innovation in the payment space – and we have ourselves that is ripe for an explosion of growth in the Insurance sector.
The two-fold customer challenge
Pulling all this together, India faces two challenges as it relates to increasing penetration:
- Middle Class and Affluent – the profile of people in this category are quite similar to other parts of the world. They may have a home and/or car. Many have a bank account, mortgage and credit card too. The challenges and opportunities for this segment within Insurance in India are similar too – how do we provide these customers with more personalized products in a way that they choose to interact with their providers?
- The challenges in this segment in more developed parts of the world (specifically the U.S. and Europe) also involved changing perceptions of Insurance. My take is that this is not as big of a challenge for the Indian market due to the fact that they have only had an ‘open market’ for less than 20 years and penetration is so low – meaning people have not had so many ‘bad’ experiences with Insurance (yet)
- The unbanked population – The unbanked population is likely also the un/underinsured population. They face the same challenges and opportunities as above – how do we provide these customers with more personalized products in a way that they choose to interact with their providers? This group also has an additional challenge – how do we educate them on Insurance? The next Insurance product that they are buying will likely be their first one. And with that, they need to see the value very, very quickly.
Solutions for the Middle Class and Affluent
On the Life side, LIC dominates market share. The other private companies have started innovating in a number of different ways, focusing on a more interactive customer experience. Coverager has done a great job summarizing the moves by the different carriers there. I think Bajaj Allianz Life is one to watch in this space.
On the Non-life side, we have seen new full-stack digital startups Acko (previously reviewed by Daily Fintech, and recently funded by Amazon) as well as Digit Insurance, which was launched officially earlier this year. These are the first two digital full-stack offerings in the market and I expect there to be more in the future.
As Bernard pointed out in this article back in 2016, however, ‘The online insurance comparison model does not count as innovative these days and has low barriers to entry. The point is that in markets such as India with so much new demand for insurance from an emerging middle class, just making the selection process easier can create a big business.’
So, what about the unbanked & un/underinsured? What do we do for them?
That’s where microinsurance comes in.
Solutions for the Unbanked and Un/underinsured
Earlier this year, I spoke with Peter Gross from MicroEnsure on the concept of microinsurance. Recall, the definition he provided to me for microinsurance is ‘Insurance for emerging customers’. The most important elements of serving this population is providing them with Insurance that they understand as well as the ability to get it easily (this is where mobile and internet come into play).
One startup out of India that is looking at this space is Toffee Insurance. Toffee is set up as an intermediary and this allows them to work with up to 9 Insurance companies (3 Health, 3 Life and 3 General).
Rather than setting up as an aggregator, Toffee’s CEO Rohan Kumar told me they decided to go this route because they wanted to have a different proposition in the market. They also realized that by offering ‘bite-sized cover’, they could provide customers with Insurance that is relevant and contextual to them while not being too expensive. This helps introduce these customers to Insurance in a simple format.
For distribution, Toffee has three different channels:
- Through digital partners in which they can offer their Insurance product at a time when the person is likely to need it (think: embedded Insurance)
- Through offline lead channels (clinics, cycle shops, etc). These offline leads are activated online (meaning the person will ultimately buy online)
- Direct through their site.
I’ve chatted with Rohan a few times and really like his spirit and vision of the industry. If you’d like to see more, take a look at this Tedx Talk that Rohan gave recently.
While the innovation from incumbents will continue and aggregators will grow, this will only serve a certain segment of the population (which, still, is in the hundreds of millions).
However, to go in line with the government’s aim of more financial inclusion, as well as a more connected India, microinsurance will be a huge catalyst for growth.
Bernard, who has spent a ton of time in India (including living there) shared with me, ‘The opportunity lies in the growth. Where else can you find a big market with double digit CAGR? Most of this growth will go to digital offerings. This rightly has investors, entrepreneurs and incumbents salivating’.
The expansion in payments and e-commerce (Flipkart, Amazon, etc) we are seeing in India will help to grow Insurance as well, especially as the landscape becomes interoperable.
With this being said, explaining new ways of how to make payments to the unbanked is a bit easier than explaining the fundamentals of Insurance to the un/underinsured population (in my opinion).
Stephen Goldstein is an experienced Insurance executive and Insurtech dealmaker with a core focus on growing revenue, launching go to market initiatives and advising industry leaders.
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