“There are decades where nothing happens; and there are weeks when decades happen” – Lenin
In the past three months, India’s insurance regulator has published 42 circulars; the regulatory sandbox has 49 on-going pilots and (in some cases) insurance companies have launched new products (e.g., standalone COVID-19 cover) within weeks.
All of the above has taken place while the offline-heavy Indian insurance industry has witnessed ~10% YoY declines in premiums for April and May 2020 on account of COVID-19.
This article summarises what has happened in the Indian InsurTech ecosystem during the first quarter of FY21 (i.e., April—June 2020); here are the broad topics:
- Product innovation
- Regulation as an enabler
- “UPI for Insurance” and “Insurance as a feature” themes
Put quite simply, this has been the most active quarter (by deals volume), albeit deal size remains smaller—a sign that there is more “early-stage” activity within the ecosystem.
Aside from the companies mentioned above, Acko is expected to raise $60 million to $70 million at a valuation range of $400 million to $500 million from Munich Re Ventures. The $500 million price tag would value Acko at ~10x its trailing GWP (which was $52 million for FY20).
Albeit this price multiple is much steeper than Digit’s x3 (i.e., $900 million valuation on $313 million GWP for FY20), I think Acko’s price multiple is justified; I shared my thoughts on the company here.
Quite broadly, innovation in insurance is split between innovation on the distribution (i.e., novel distribution channels, Acko x Ola, MobiKwik x Aegon Life, etc.) and fundamental product innovation:
A couple of notes on why I chose the above products:
Riskcovry x Glance: If you’re an Android user, you may be familiar with the concept of a “screen locker.” Effectively, Riskcovry’s API layer has enabled an end-to-end insurance purchase journey on Glance (i.e., purchase of COVID-19 insurance product without leaving the “home screen” of your mobile phone!).
Acko “crowdfunding premiums”: Under Tranche III of the sandbox (more later), Acko is allowing customers to allocate part of their tip to Ola drivers and Zomato (food) delivery execs towards premium payment for health insurance. (P.S.: A similar concept has been pioneered by Grab in Singapore; underwritten by local insurer NTUC Income; wherein each trip completed by the driver results in a top-up to the driver’s critical illness insurance by Grab, i.e., “real employee benefits for the flexible workforce.”)
Pay-as-you-fly drone insurance: A first in India, HDFC Ergo seems to have gone ahead of the regulator (more later) to offer Third Party Liability to drone operators on the Tropogo marketplace. (P.S.: India had previously banned BVLOS flights; beyond visual line-of-sight; this is no longer the case with some pilots via the “Digital Sky” initiative.)
Concepts such as “wearable-linked health insurance” and “telematics-based motor insurance” are reasonably well established in the West. Via the regulatory sandbox, Indian insurers are starting to experiment with such offerings:
Some notes on the above:
a. GOQii as a default provider
- With four pilots for wearable-linked health insurance live, GOQii has a head start over any other wearable or wellness provider in the market.
- At a price point of ₹3500 (top-range), GOQii’s devices are x10 cheaper (and arguably, with their OTT ecosystem & social network, x10 better) than the Apple Watch, which tends to be the default for Western insurance schemes (e.g., Vitality).
b. State of “on-demand motor insurance”
Clarification #1: Telematics data is (as yet) not being used to price your insurance premiums (unlike what Root Insurance does in the USA).
How does it work? As of now, most products allow you to buy “mileage caps” (i.e., you could save if you drive below the “average” number of miles a policy is priced at), which isn’t the most innovative—but, a step forward.
Edelweiss Switch: In my exploration, the most advanced offering since it offers you a choice to buy into “driving days” rather than “mileage” (and so, one of the best quote experiences I’ve had in ages!).
Product Innovation is closely linked to the regulator, whom we will look to next!
You should pay close attention to insurance regulation in India; unlike the “seek forgiveness rather than permission” mantra, past events have driven a conversation attitude in the insurance industry, i.e., “seek permission (from the regulator) rather than forgiveness.”
In light of the above, the regulatory sandbox is a welcome move; since January 2020, the regulator has approved 67 pilots. In the month of July 2020, all 67 of these pilots would be “live.” On that note, I believe a short infographic on the tranche III of the sandbox might be useful.
For a more detailed read on the IRDA InsurTech sandbox, do check out an earlier deck here.
As highlighted before, the IRDAI has posted 42 circulars this quarter. I will briefly touch upon the key circulars. (Note: I would highly recommend you review this section even if you find regulation boring. Because I can promise you there’s a lot of “cool” stuff.)
a. Win for UIDAI via e-KYC Approval
- Given the COVID-19 lockdown (~ 2 months), the IRDAI “approved” the use of Aadhaar for e-KYC (electronic/paperless Know-Your-Customer) for insurance purchases.
This is hands down a terrific move. Traditional KYC costs ₹150; e-KYC via Aadhaar costs ₹20 (i.e., x7 improvement), which is a huge boost for micro-insurance & platform-led (low-ticket; high-volume) insurance sales.
b. MSME Fire & Perils Policy
What is this? Fire & Allied Perils Insurance covers loss to a business on account of fire, theft, accidental damage, natural catastrophes, etc.
What’s happened? The regular has come up with a “standard” version of the Fire & Perils policy (in the past, insurers built multiple add-ons to cater to large corporate clients, the typical audience).
Why does this matter? A standard product makes it easier for digital-only, platform-led, or PoS distribution of these products to MSMEs (the “small” and “micro” SME segment, which typically haven’t had access to such insurance cover).
c. Drone Insurance
- The pilots under the “Digital Sky” initiative imply that drone operators require some insurance (Tropogo x HDFC Ergo are pioneering this).
- The Working Group will come up with some standards for such policies (e.g., how motor drivers are mandated to have third-party liability cover, and the same is likely to apply to drone operators).
(P.S.: on drone insurance, check out Flock Cover in the UK. For the MSME insurance distribution, I’m very excited to see a Coverwallet-style play emerge; they sold to Aon for ~ $400 million last year!)
View on drone insurance: Hari
highlighted that even with 1 million drones in India, at a ₹500 p.a. charge for third-party liability insurance, the market size would be ~ $6.6 million p.a. (which is very small). I guess the reason why it is important to have a framework for drone insurance is because of the high risk that they present (e.g., the case
of a drone disrupting Heathrow!) and to enforce that underwriters provide cover to drone operators (just like how third-party cover works for motor insurance).
Aside from the above, further regulation in Health insurance might spark a “UPI moment.” (More in the next segment.)
a. Arogya Sanjeevani Policy
- This product is likely to mark a turning point for health insurance in India; its launch happened to coincide with the COVID-19 pandemic (which saw demand for health insurance rise sharply).
- There are some concerns around the inclusion of COVID-19 as an insured peril; however, medium to long term, this product will become like the “UPI rail” for health insurance.
b. Teleconsultation Approval
- A major issue with any medical product or service is getting “payer” (i.e., insurance) approval to reimburse the same across its plans.
- Effectively, the IRDAI has mandated that insurers reimburse patients for teleconsultations as they would for a F2F consultation, which is a huge win for the telemedicine sector in India!
(P.S.: There was a debate around the inclusion of outpatient mental health treatment; this move by the IRDAI gets me excited about the prospects of “digital therapeutics”).
c. Standard COVID-19 Policy
- The insurance community is split on this announcement (there is a valid argument that COVID-19 losses are unknowable at this point hence it is unfair to place this risk on private insurers instead of the Government acting as the “insurer of last resort”).
Parallels to National Health Stack:
A discussion with Rahul
reminded me that NITI Ayog’s National Health Stack
aligns with the standardization of health insurance that the IRDAI is pushing. In addition, this standardization is particularly exciting given the Policy Markup Language (PML) component of the Health Stack, which aims to make insurance policy wordings machine-readable; more on this here
UPI for (Health) Insurance
At this point, you’re probably fed up of me saying “UPI for insurance”; the graphic below summarizes my thoughts on the topic:
My thesis here is that:
a. We’re seeing the insurance “product” get commoditized, i.e., we’re seeing standardization of:
- Policy benefits
- Definitions of exclusions
- Claims handling
Arguably, the Arogya Sanjeevani policy is a “bundle” of the above “standardized components.” Therefore, in health insurance, we're likely to see the basis of competition shift from “product” to “price” and “service.”
b. On “price”:
- Hong Kong’s Voluntary Health Insurance Scheme (VHIS) is a good example of where we could be headed. They, too, have launched two standard health insurance products.
The VHIS has opened up an attack vector for digital insurance companies (e.g., Bowtie Insurance) to compete on a “level playing field” where “brand” matters less than “price.”
- We’re already seeing a class of specialist micro-insurance players, e.g., InsureFirst, Gramcover, and BimaMandi, which are likely to benefit from this product owing to the “regulatory trust stamp” and simplicity it entails.
c. On “service”:
- We’re seeing early signs of activity within the sandbox via GOQii in the wearables segment and telemedicine approval (possibly other digital therapeutics next?).
UPI is based on democratizing payments. The IRDAI recently permitted payment of health insurance premiums in installments (monthly, quarterly, bi-annually). This move will democratize access to insurance for weaker economic segments. Interestingly, the Bharat Bill Pay Service (BBPS), which focuses on recurring payments via UPI, is working on insurance premium payment as its next use case.
The secular shift of the “competitive axis” in insurance from “risk transfer” & “product” to “risk management” & “service” will throw open the playing field to non-insurance entities (specifically Big Tech companies; I had written about this here.)
It has been an action-packed quarter for InsurTech in India led by regulatory action and accelerated by COVID-19. I’d like to leave you with the infographic below, highlighting the extent of activity in the ecosystem. From payments apps & existing InsurTechs supporting the distribution of COVID-19 insurance, we’ve seen three new startups emerge: Nova Benefits, BimaMandi, and ProtectMeWell!
The theme that is likely to unfold in the next quarter is “Insurance as a feature” (more here). This write-up is by no means a comprehensive one—apologies for any omissions; I look forward to your feedback, thoughts, and constructive feedback.
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