Why majority of third-party online insurance aggregators fail to raise VC capital
While travel, retail, music, and education have caught the attention of consumers and investors in India, a segment like insurance has not moved much from the status quo where it was five years back. If we look at the space more than 20 players have forayed into it but barely a few have managed to keep the wheels running. Well-funded companies such as policybazaar and MyInsuranceClub have been able to pull it off well as they had raised a few rounds of capital, however other players including Zibika failed to gather investors’ interest.To understand the fundamental issues in online insurance aggregation space, YourStory spoke to Vivek Doraiswami, founder, Zibika over phone. Zibika started in 2007 as an insurance aggregator, however the company went offline as it was unable to secure funds to get going. Following the fund crunch Doraiswami moved to Policybazaar and TVC Skyshop as a CEO. Though, his passion and love for Zibika intact. In 2012 Doraiswami restarted Zibika with his own saving and decided to begin the process of revival in early 2012 along with co-founder, Pawan. Edited excerpts of the interaction:
Tell us about Zibika's journey right from its inception in 2007 - the ups and downs.
The basic premise for starting was to build a quality online insurance platform. However, with the limitations in revenue options in insurance in 2006/07, we had to get other verticals under loans, deposits, mutual funds, etc., online as well. Thus, Zibika ended up as an end-to-end personal finance aggregation site with insurance comparisons as well.
Insurance for comparison online was almost non-existent back then. However, being a very small startup with limited resources, we spent too much time on product development and could not get to revenue stage in time in order to grow further. After trying a bit, we slowed down and went offline as we were unable to raise capital to go forward. My team separated and I went to doing some odd jobs (Director, Policybazaar, CEO-Internet, TVC Skyshop Ltd.) and eventually after accumulating some savings decided to begin the process of revival in early 2012 along with my current co-founder, Pawan.
Raising fund is extremely difficult in insurance and financial aggregation. Why it is so and how did Zibika sustain without raising any investment that long?
I cannot speak for others, but what I have understood is that getting funded implies showing revenues. It does not matter if the business will remain cash flow negative on an infinite scale. Because, the theory is that in Internet companies profits will come someday and when it does it will be on an unprecedented scale. Investors seem to be fine with this.
Unfortunately, in the context of insurance, it's a lot more complicated than that. The effort needed to just get a site online that can in comparison to an online shopping site deliver the basic goods is vastly more complex technically. It is time-consuming and needs tremendous capital or at least tremendous sacrifices to be on par. None of this is really understood in the current context. To give you an example, to build an online airline ticketing site, it takes HTML pages, account management and using an actual ticketing issuance system which is provided by leading GDS providers (Global Distribution System) like Amadeus, Galileo, etc. In the insurance context, Zibika is the GDS and the online ticket comparison site both built in-house.
What has it taken to keep Zibika alive? Perhaps it's madness, perhaps it's wishful thinking.
But that apart it has been my life savings, my wife's earnings and a lot of sacrifices made by the team and our respective families. We are hopeful that insurance will come into an area of interest for investors in India soon enough, we will just have to be patient and hang on till then!
What about competition? Do insurance aggregators compete with insurance companies directly and in which ways does it affect aggregator business?
The trouble with online insurance is the gap between marketing costs and revenues when perceived as an insurer vs when perceived as an online comparison site. Insurers can afford to write off nearly 100% of their First Year premiums (which they will rationalise over 4-5 years having apparently acquired the sale) towards marketing acquisition costs. How can we compete with that, when our revenue is the commission income ranging from 10-20% of the same premium.
Eventually, in time, once we have 4-5 established aggregators with quality features and the capability to sell online, people will probably stop visiting individual insurer sites.
We need better support and by that I mean better financial incentives and cost sharing from the insurance companies. We need more protection and access to capital to experiment and try more innovative online distribution techniques that could have greater penetration of insurance products in India. It is doable, but really the overall environment does not support it currently.
How has been the traction so far and what about MoM or QoQ growth of Zibika?
Zibika as it stands today is still in R&D mode and we are quite happy keeping it that way. We have more or less nailed all the trouble areas of this business and we know what we need to do to go forward. Without a round of capital at this stage, we understand the challenge we are up against. Traction has been good when we do commit to marketing spends we see about 30,000 visitors a month. After 7 years, we are sitting on a user base of nearly 20 lakh users, a user-generated wikipedia page and we get about 10,000 visitors a month organically that convert to a couple of hundred policies sold. We know we can do better and we know what it will take; we will just have to be patient and grow over time.