The Case for InsureTech in India (1 of 2)
In the vast contradiction which has come to define insurance – an industry that pegs high on the Fortune 500 index and embarrassingly low on customer satisfaction rankings – startups are fast rising to the magnitude of the opportunity.
As entrepreneurs continue to work around onerous regulatory and capital reserve requirements in insurance, insurtech as a standalone vertical has gained traction among venture capitalists and strategic investors alike (primary insurers and reinsurers) – total deal flow averaged $1.7 Bn/year from 2014 – 2016, up 580% from the 2011 – 2013 average, according to a recent report by Oliver Wyman and Policen Dirket.
This post seeks to highlight the case for disrupting insurance in India , one of the fastest growing markets in the world. Drawing from conversations with local insurers and reinsurers in the country supplemented by my observations and research while building Zensure, the article draws upon two themes in the context of insurtech – a) Why now? b) Areas of opportunity today in India (Part 2 of post).
Why Now?
1. The Big Picture: India is one of the most attractive insurance markets in the world today. With low insurance penetration levels, hovering around 3.0% – 4.0% in a country of 1.25 billion people, the rate of premium growth has captured many eyeballs in the industry. For example, in life insurance alone, a poorly performing industry vertical in many parts of the world, India recorded new premium collections of $20.5 Bn in FY 2016, up 23% from the previous year. Further aided by promising macroeconomic indicators, a stable government focused on insurance inclusion, and a fast emerging middle class better versed with the benefits of risk management through insurance, the opportunity to capture first-time buyers through technology cannot be missed.
Point of note: Industry experts are aiming to increase insurance penetration to 5% of the country’s population in the next 2.5 years. A 100 bps growth will roughly equate to 12.5 million new insurance customers up for grabs.
2. Reinsurers enter India: In what was a previously closed market, the passage of the Insurance Amendment Act in 2015 allowed global reinsurance players to establish and own their branches in India, paving the way for 13 reinsurance providers including Hannover Re, Munich Re, Swiss Re, Scor Se and RGA to set up shop in the country. With reinsurers fast becoming important strategic partners for insurtech entrepreneurs across the world, not least because of the actuarial, regulatory and capital reserve support afforded by these companies, Indian insurtech startups will now have similar access to these resources.
Point of note: Practically every global reinsurer has an innovation program/incubator running in America or at their home office today, which provide good points of access for first time insurtech entrepreneurs. Per my research, Swiss Re’s insurance incubator in Bangalore is the only India specific insurtech program running in the country, although one can expect announcements from leading reinsurers in the next few months.
3. Emerging Insurtech ecosystem in India: The insurtech landscape in India has arrived at a sweet spot, with the existence of startups that have already fought (and are fighting) battles to educate existing stakeholders (regulators, primary insurers, and investors) in the market. However such startups are few and far in between, as evidenced by data primarily gleaned from Coverager – further, many of them have not been around long enough to capture an entire silo of the market, leaving plenty of opportunities for serious insurtech players to learn from history and actively participate in shaping the future of insurtech in the country.
Point of note: Per existing data sources, there are no more than 25 insurtech startups active in India today – 7 enablers, 17 intermediaries and 1 primary insurer.
Of the existing intermediaries, a disproportionately large number are focused on online quotes, aggregation and lead generation for insurance companies, whereas a number of recent enablers are deploying conversational AI (read: bots) with their insurance partners.
A list of insurtech startups currently active in India along with details around their operating focus and investment activity can be found here.
Concluding Thoughts: An industry that naturally lends itself to a free cash flow positive business model and where customer satisfaction is a gaping hole, insurance has been recognized as a leading frontier for tech disruption in mature markets. Yet, with high barriers to entry, insurtech entrepreneurs have recognized the imperative for forging strategic partnerships early in the lifespan of their startups.
India is no different. The magnitude of the opportunity cannot be missed – travel around Bombay or read the local newspaper in Delhi and you will encounter a farrago of insurance marketing copies (all with bad design). With a more open market, underscored by a growing presence of reinsurers and an emerging insurance ecosystem, the time is right to disrupt. Part 2 of this post will touch more on such opportunities – stay tuned!
