InsurTech in India: Quarterly Update – July to September 2020

Hey, folks! This article is my quarterly round-up of InsurTech activity in India; the Q1 edition was very well received, and the previous editions on LinkedIn have received over 30K views!

InsurTech Fundraising

With $135.6 million in primary capital entering the ecosystem, this quarter has been rather active on the ‘late’ stage.

1. PlumHQ and i3Systems raised their respective seed rounds.
2. Acko’s $60 million Series D funding has been doing the rounds for a while—so much that I wrote a piece titled “Blitzscaling Insurance with Acko” in June. I’ve commented on the ~$400–$500 million valuation & their FY 2021 progress a bit later in this piece.
3. InsuranceDekho: CarDekho’s insurance venture received $20 million from its parent company.
   • Interestingly, Chinese insurance giant Ping AN led CarDekho’s $70 million Series D in December 2019.
   • Perhaps, there is some ‘knowledge transfer’ here, given Ping An’s investment in AutoHome (Chinese equivalent for CarDekho)?

Techstars London alumni Inspekt Labs raised a $600K pre-Series A. 

Policybazaar ‘raised’ $130 million ($50 million primary infusion & $80 million secondary purchase) from Softbank. Rumour has it that Google is looking to infuse capital into Policybazaar at a valuation of $1.5 billion.

I find it fascinating that Policybazaar’s valuation in private markets today is $1.5 billion; however, it is looking at a NASDAQ IPO valuing the company at $3.5 billion in ~12 months! And, it looks to raise another $250 million at a $2 billion valuation. Putting my strategy hat on, Google x Policybazaar seems to be a perfect fit. The graphic below summarizes my thesis; Policybazaar could act as Google’s ‘insurance protocol’ in the Indian market.

My extended piece on Google x Policybazaar can be found here. Switching gears from fundraising, let’s look at how regulation is ‘giving flight’ to InsurTech in India (in some cases like drone insurance, quite literally so).

Regulation-as-an-Enabler

If you’re not keen to delve into the regulations, feel free to scroll past the next two images where you’ll find a summary!

PS: Applications for cohort II of IRDAI’s InsurTech sandbox are open!

Summary of key regulations

1. Digital signatures are acceptable for ‘risk-only’ (i.e., non-savings) life insurance products until December 31, 2020; this is perfect for ‘sachet’ term life products sold on ‘Bharat’s digital platforms.’ E.g., Khatabook, Pagarbook, and BharatPe (insurance experts may point out the “group” structure already sidestepped this—yes, you’re right too!)
2. KYC (Know Your Customer) can be done via video and via Aadhaar offline e-KYC for general (i.e., non-life) insurance; anything that brings the ‘expense ratio’ down in insurance (i.e., online KYC) is welcome!
3. Guidelines on wellness benefits in insurance:
   • Wearable-linked insurance products must not be co-branded with Technology partners. :(
   • Activity points can be redeemed for rewards and premiums discounts on renewals. :)

The wearable guidelines set the tone for exciting ‘payer + provider health ecosystem’ plays—more so in light of iSPRT’s National Health Stack initiatives such as the ‘gamifier health policy.’

The above graphic explains how regulation is helping innovation take flight—it is exciting to see drone insurance take off in India; Digital Sky may just become a reality.

Neo-Insurer Performance

Acko and Digit commenced operations at roughly the same point—as they approach their third-year anniversary, I felt a small section on their performance does justice to their respective growth.

Digit: All Guns Blazing

Fairfax-backed Digit Insurance has written $141 million (₹1046 crore) in premiums for FY 2021 YTD (i.e., ~ 4 months). In FY 2020, Digit wrote $296.73 million in premiums; my FY 2021 estimate for Digit’s premium sits between $400 million and $425 million.

Data from regulatory filings suggest:

1. Fire and Health insurance are major growth drivers:

• Digit has been working on its commercial insurance book (evident from the growth in its Fire and Liability business).
• Digit’s emphasis on Group health insurance products and its COVID-19 insurance serves as an explanation for the growth in its health business.

2. Diversification away from Motor:

• Positive news from an investor lens—Digit is increasingly becoming less reliant on motor insurance, which powered its early growth (now evident from flattening figures).

Digit’s projections are astounding for a company that began trading in September 2017—exactly three years ago! Their experienced ex-Allianz management team has a strong mandate—raising $84 million at an $870 million valuation in January; this would imply a forward premium multiple of ~2x, which is hardly generous given its growth potential.

Acko – Pandemic struck?

Acko’s recent raise values the company at ~$400 million to $500 million in this recent funding round. Acko has written $14.98 million (₹1046 crore) in premiums for FY 2021 YTD (i.e., ~ 4 months). In FY 2020, Acko wrote $50.41 million in premiums; I am hesitant to provide an FY 2021 estimate for Acko’s premiums since their business has dipped 10.2% due to COVID-19.

Data from regulatory filings suggest that Acko’s health insurance business has taken a hit. This comes across as a surprise to me, given how the health insurance segment has grown YoY on account of COVID-19.

Assuming Acko is able to deliver $50.41 million in premiums for FY 2021 (its FY 2020 figure)—Acko would be valued at a forward premium multiple of 10x—nearly 5 times that of Digit! It would be unfair to compare both companies quite literally, given Digit’s focus is on offline, commercial, and broker-sourced business, whereas Acko’s focus is on ‘pure’ digital and digital partner-driven business. However, this comparison was a helpful exercise for me.

Bonus: Paytm & Insurance

On July 7, 2020, Paytm announced its move to acquire Raheja QBE Insurance for ₹568 crores (i.e., $76.1 million). This move certainly baffled me—they acquired their insurance brokerage license in March this year!

I have written about ‘Paytm & Insurance’ at length here.

I’ve always marveled at consumer FinTechs treating ‘insurance as a feature, not a product’ by foraying into insurance distribution. However, could buying an insurance company become the ‘next frontier’? Navi did so with DHFL Insurance.