According to a global quarterly report by KPMG, last year, USD $24.7 billion was invested in FinTech companies across the globe. India too has witnessed a flurry of venture capital investments, particularly in the areas of SME lending, P2P lending, mobile wallets, payment services and robo-advisory. As a venture capital firm investing in startups “impacting the masses,” we have a deep interest in FinTech companies that can integrate large sections of the population into the formal financial infrastructure by providing more than just access to finance. One such exciting segment is insurance technology (or InsurTech) i.e., leveraging technology to make insurance more affordable and accessible.
Finally, a new era for insurance?
One of the oldest and most conventional industries, insurance has witnessed minimal disruption, other than online aggregators like CoverFox and PolicyBazaar that allow customers to compare policies from various providers on one platform. Large players continue to enjoy high bargaining power and dominate the industry. Until recently, insurance has been a “push-product” wherein agents must convince buyers to buy policies. However, startups are now experimenting with different approaches to claims management, underwriting and risk management, sales and distribution; all with the aim of developing more customized offerings to customers and reducing the providers’ costs in the process as well. The underlying hope is that these improvements will lead to ease and convenience that would change the cost dynamics in the industry.
From microinsurance to P2P insurance, companies in the West are developing innovative business models that could thrive in India.
Bringing the P2P model into insurance
While there are several companies trying to adopt the P2P model, one of the earliest companies that successfully implemented it into the insurance industry was Germany-based Friendsurance that began operations in 2010.
P2P insurance was conceived as a concept, to tackle two critical sales barriers in the insurance industry – high premiums and lack of transparency. Friendsurance groups customers with similar insurance needs and policies, pooling part of their premium which is used to settle small claims, as and when they arise. In the likely scenario that there are no claims for the defined period, members of the group get back a portion of their money from the pool. In the event of a larger claim that amounts to more than the pooled amount, the insurance company settles it. Therefore, members are always completely covered and end up paying lower premiums because of being paid back the unclaimed amount. An unheard practice in this age-old industry!
How well does this work? Friendsurance indicates that nearly 80% of its customers received some money back from their paid premiums. One customer received as much as $680 or 40% of the paid premiums back over a period of three years! Currently, this model is available for certain categories including auto insurance, legal expenses and electronic insurance but the possibilities and use cases are endless.
On-demand insurance for the growing on-demand service industry
Over the last 5–7 years, India has seen a remarkable increase in on-demand services from cabs to concierges that have created significant jobs for the “bottom of pyramid” population, increasing their incomes and improving their overall quality of living. All these improvements should ideally include an affordable insurance plan covering them, at least when they are on the job. The current issue is, however, insurance – if it exists at all – is in the company’s name and mainly covers the risks to the company. Can the on-demand concept be adapted to the insurance world, allowing for greater flexibility in duration and affordability of coverage?
Slice Labs based in New York makes this possible with just a few taps through its mobile app. Currently, the company offers insurance coverage to rideshare Uber drivers who opt to be covered once their trips start and home owners who rent out their homes on Airbnb and only want to be covered for the exact days that someone is occupying their house. These insurance contracts are therefore offered on a transactional basis with Slice doing the back-end work; they also design and price the contracts while insurance firms, partnered with the company, provide the actual coverage. This model can be easily replicated and scaled to cover the multitude of jobs that have erupted in India, allowing large sections of the population to be covered as well as opening previously untended markets for insurance companies.
Jumping on the microfinance bandwagon: Microinsurance
Micro-finance changed the face of financial inclusion dramatically making much-needed credit easily available for the majority of India’s population. A similar concept in the insurance industry is evolving through the pioneering work of Swedish company Milvik AB, operating as Bima Microinsurance that has developed a platform making insurance available to first generation insurance buyers through a plug and play technology integrated into the mobile operators’ infrastructure and paid for using prepaid credit or postpaid mobile bills. Bima offers life, accident and health insurance cover at affordable rates (as little as $0.02 per day), all delivered through mobile technology and an easy, responsive claims management system that promises a 72-hour turnaround. They also offer pay-as-you-go insurance and have recently launched mobile health services, giving consumers access to doctors and consultations over the phone.
Bima’s numbers are quite impressive, proving that there is a need for this in the global market and that consumers are willing to pay for insurance as long it is reasonable and convenient. They have already successfully reached 24 million customers across 16 countries. What’s noteworthy is that 90% of their customers are accessing insurance for the first time in their lives!
Takeaways for India
While the companies mentioned in this article, may or may not cater to low-income sections, the intention of this article is to steer focus on how these disruptive business models that leverage advanced technology can and must be adapted in India. According to National Health Profile 2015, published by the Central Bureau of Health Intelligence, less than 20% of Indians are covered with the most basic health insurance. While there may be several reasons for this abysmal penetration of insurance among the masses, it is indeed possible to significantly increase this number, if Indian startups create similar options in the market.