October 16, 2020
A tremendous InsurTech opportunity is waiting to be realized as India’s insurance sector is expected to reach a market size of $280 billion by 2020. With a conducive regulatory environment, the entry of new FinTech and InsurTech players that crystallize innovative business models, and incumbents embracing technology to develop a unique set of differentiated offerings, India’s InsurTech sector is on a course of transformation in both life and non-life insurance space. In this article, we look at some snippets from MEDICI’s new India InsurTech Report 2020.
India’s share in the global insurance market is estimated at 1.7%, and it is expected to grow to 2.3% by 2030 (Swiss Re). India’s total real premium growth rate, which was 9.3% vs. 1.5% of the world average in 2018, tells a promising story for the growing insurance industry in India.
However, India’s insurance penetration is around just 3.7%. Why? And, how is India fixing this low level of insurance penetration?
If we look at the insurance industry's growth in the last two decades since the deregulation of insurance in 2000, it becomes clear that insurance sector growth had stagnated for half a decade. The insurance sector reported a consistent increase in insurance penetration from 2.71% in 2001 to 5.20% in 2009. What followed was a story of years of decline in the insurance sector.
The Indian insurance industry has witnessed marginal growth in insurance penetration over the last four years. In 2015, insurance penetration stood at 3.44%, which increased to 3.49% in 2016, 3.69% in 2017, and 3.7% in 2018. The level of insurance density was at its peak at $64.4 in 2010, up from $11.5 in 2001. Even though there was a slight decline subsequently, it gradually recovered to $74 in 2018.
In the fiscal year ending March 2020, India's life insurance companies clocked 11.36% growth in their collective premium income at $684 billion. Gross direct premiums underwritten by non-life insurers grew 11.67% in this period. While these numbers indicate a positive trajectory for insurance growth, there are some underlying problems in the market—distribution being one of them.
A detailed analysis is available in our new India InsurTech Report 2020. Access the full report here.
Rapid digital adoption in India (est. 829 million internet users by 2021) has created much-needed opportunities and infrastructure for insurance players to reach Indian customers. However, traditional insurers are still struggling with simplifying policy terms, settlement procedures, mutual trust deficits of buyers and sellers, and differentiating products that can help customers buy without much confusion. This is where InsurTech players have identified their opportunity.
The InsurTech landscape in India is in a nascent stage. Distribution challenges continue to be a major hurdle for insurers. The lack of customer trust remains a roadblock for the InsurTech segment (especially life insurance), and industry players find it a hard nut to crack. However, recent success stories from Indian InsurTech players paint a promising picture.
India has over 110 InsurTech players spread across different subsegments, such as aggregators, claims management, digital-first insurers, software white label and infrastructure APIs, and IoT. InsurTechs are solving the affordability challenge by innovating small-ticket and low-duration insurance products. ‘Bite-size’ insurance, also termed as ‘sachet’ insurance, is growing fast. It is frequently bought as a feature with many different products and services in the market, such as travel and e-commerce.
Note: Illustrative only
The past three quarters in 2020 indicate reduced funding in Indian InsurTech startups. We believe the funding situation will improve in the coming quarters, considering some very positive growth is being recorded by Indian InsurTech players in terms of the number of policies sold or distributed by InsurTech players since the dawn of the COVID-19 crisis.
Aggregators and online first insurance players (Acko and Digit) have been the most attractive sub-segment for InsurTech investors. Policybazaar, Acko, and Digit are also the top three highest funded InsurTech players in India.
The India InsurTech Report 2020 provides a detailed analysis and commentary on historical funding and segment- and stage-wise funding trends in Indian InsurTech.
Collaboration history between insurance carriers and InsurTech startups is very nascent. In the last two to three years, we have witnessed insurance companies setting up accelerator programs to tap into the InsurTech ecosystem and help them to accelerate or co-develop products under their guidance. Some interesting partnership examples include:
Check out the India InsurTech Report 2020 for a detailed list of key partnerships here.
The foundational digital blocks offered through the India Stack viz. Aadhaar, UPI, DigiLocker, and Account Aggregation have delivered tangible value to the growth of insurance products and services in the country. The insurance sector has been the pioneer within financial services in integrating with DigiLocker at scale. UPI has been instrumental in making the last mile of payments easier while purchasing policies as well as for recurring premium payments. Aadhaar-based e-KYC is now permitted for paperless issuance of policies, thereby reducing user onboarding costs and increasing inclusion.
Detailed Coverage on The Emerging Opportunities:
Industry Expert Opinions and PoVs in the Report:
Grab your copy of the full report here.