Insights into Insurance: Panellists discuss opportunities, challenges & solutions for the Insurance space

Why hasn't InsureTech attracted more entrepreneurs in India? How would an Insurance industry leader decide which insurance vertical to enter next? How should young engineers get into Fintech? What are the policy changes InsureTech leaders would like to see? Are we building products for Bharat, not just India?

These are some of the pressing questions, Sameer Nigam, CEO & Co-Founder of PhonePe, posed to an elite group of panelists during the Fintech Open Month organised by NITI Aayog in association with PhonePe. The panelists Yashish Dahiya, Chairman & CEO, PB Fintech, Anuj Gulati, Founding MD & CEO, Care Health Insurance, and Varun Dua, Founder & CEO, ACKO Insurance, shared their enthralling journeys, bounced off ideas, and discussed what the future of Insurance holds.

What makes Insurance exciting

Sameer flagged off the discussion asking the panelists to share their personal experiences and understanding of the Insurance industry.

Speaking of the opportunities in the Insurance space, Anuj Gulati said, “As an industry, we're at about 4% of GDP and all of the healthcare spending that we make in this country is a little over $100 billion a year. Health insurance, with all the growth that we've had over the last couple of decades, even this year will end up at about $11-$12 billion.”

He expressed that after central and state governments spending, employee insurance provided by corporates, and other similar initiatives, 60% of healthcare spending in India is still out of pocket - indicating the massive business potential the industry presents.

Varun Dua, citing his experience running a new-age insurance business and hinting at the potential of going digital, said, “Digital is not just an access medium. It could really change the cost structure of how the industry operates, whether it's distribution costs, manufacturing costs, the ability to underwrite, and to introduce products which were unviable to be introduced earlier.”

Sameer Nigam carried the conversation forward by stressing the “need” for a revolution in the insurance sector akin to the NPCI’s democratisation of Indian digital payments architecture with UPI. He then asked the panelists to share their vision of the Insurance industry and what keeps them on their toes envisioning the next five or ten years.

Anuj Gulati responded with a succinct breakdown of the health insurance market and listed the key areas where his sector is ripe for disruption:

1. Employer-employee group health insurance accounts for close to 45% to 50% of the health insurance market in India. He believes the industry has done a phenomenal job in this segment, in being able to understand risk, offer risk products and be able to deliver them primarily through an intermediated system.

He opined, although the employer is considered the buyer in this scenario, it is, in fact, the employees who are the actual consumers and thus, it is their experience that counts “at the time of claim, their holistic experience around navigating health care, around preventive solutions and so on.”

The work that remains to be done in this area cannot be done through physical intervention alone, Anuj stressed. It will require not only base-level digitization but also work around expanding the ecosystem to make it personalised.

2. Retail insurance which comprises 40% to 45% of the market sees insurance aggregators such as PhonePe, PolicyBazaar and insurance companies such as Acko, reaching the customers directly. In this case, as well, the customer service experience can be improved by building trust and making things easy for the consumer. Retail products, too, need enhancement in this segment and Anuj says the regulator has been “encouraging and forthcoming - to say work on pilot products, sandbox products, etc. which has led to the creation of newer segments.”

3. Government-sponsored health programmes such as Ayushman Bharat that make up 5% to 10% of the sector have the beneficiaries clearly identified. The areas that need to be improved in this segment are constructing programmes to be resistant to fraud and pushing smaller hospitals to enrol under programmes designed to seamlessly offer service to consumers.

Anuj reiterates that there are thus, large problems yet to be solved in each of these areas and a lot more wealth could potentially be created by solving them.

Challenges budding Insurance entrepreneurs face

Speaking of the growth the health insurance sector alone has seen in India, Anuj pointed out that when he started his career in 2003, the sector was valued at INR 1000 crores while in March 2022 it will be valued at around INR 80,000 crores, implying the accelerated growth the business has seen in less than two decades. Sameer addressed this and the success Yashish’s business has witnessed and asked the panel what it would take for another 15 companies to be set up in Insurance and what’s holding entrepreneurs back.

Lack of awareness and reluctance of consumers

Yashish Dahiya answered the question stating what he believes is one of the most concerning things for Insurance companies -- awareness and consequently people’s reluctance to buy insurance products. While products mandated by law such as motor insurance have better penetration due to the fines imposed on not insuring vehicles, health and life insurance are not as easily purchased. As he put it, “Even with the biggest push, there's a huge reluctance in consumers to purchase insurance, which ultimately is going to be of most use to them in terms of life, health, etc.”

He further touched upon the service element of the industry and how platforms such as PolicyBazaar are judged on the efficiency of services offered by all listed insurers and added that the customer service efficiency of the industry as a whole needs to be elevated.

The need for instant gratification

Unlike e-commerce, food delivery or payments and perhaps lending for that matter, insurance is a category that does not hand over the benefits of the product immediately, Varun Dua said, pointing out the lack of instant gratification for customers. “I believe as human beings we’re wired for instant gratification. When we need to think long term, we walk away or push it for later and that’s the real problem I perceive with insurance.”

He added that the reap-your-benefits-later and low-frequency aspect of insurance makes it a hard sell. While you can get an individual habituated to food delivery, the same cannot be said about insurance. Instead, he offered a viable solution for this problem, which is “...creating impulse through cashback and gamification is possible in the payments category, the same cannot be done for insurance because that would flout the law. Thus, the industry needs to work with the regulator to induce urgency.”

The hardships of acquiring licence

Yashish brings out another challenge faced by young entrepreneurs who wish to enter the insurance sector - the time and effort involved in getting a licence. The panelists Anuj and Varun, too, admit that it took them 2-3 years to get a licence. Moreover, entrepreneurs would need to have enough capital to start an insurance company and begin the manufacturing process. The same is not the case with other banking sectors, like say lending. The NBFC structure allows individuals to delve into banking without a regulatory licence.

Agreeing with Yashish, Sameer cites his personal experience going through the process of getting an insurance licence and the difficulty it causes compared to licences associated with the RBI which has a more liberalised on-tap application process, barring the banking licence.

Solutions & Innovations to accelerate the Insurance sector

Solving for the distribution problem

Delving deeper into the problem of licencing, Yashish introduced the idea of the Managing General Agent or MGA structure adopted in countries like the Netherlands. He explains that the capital risk involved in paying claims under insurance warrants a licence but organisations with the distribution capability should be allowed to function under the MGA structure similar to the NBFC structure in banking. “The problem is every company is trying to build a single uniform distribution mechanism across the entire country. However, we are a vast country that needs specialised distribution. I'll keep my entire argument to a single point only because in these places I think that makes sense to me. That has to be solved through the MGA route.”

Explaining MGA, he said the structure allows companies to develop technology, service customers efficiently, take care of underwriting and much more without regulatory control. The banking sector has innovated in this regard and leveraged the NBFC route to strengthen its business operations. The same can be replicated in the insurance industry with the help of MGA. This will consequently help companies as well as the consumers, while the capital guarantee remains with the insurance company.

Sameer concurs and adds more context to the difficulty of taking a business pan India, “I think that's very fair because we've seen this, in our industry too, the cost of breaking out is actually in hundreds or thousands of crores. Today, for a market this size, it's not easy to go pan India, even digitally, forget physically. I don't know a bank that's done it in less than a decade now, maybe two. I don't think FinTech can either. It's an expensive proposition. It takes time.”

Varun presents another idea to solve the distribution problem arising from the need for a licence. He suggests a simpler model that can be done faster - appointing digital entities and doing away with the need for a licence, “I think insurance companies or already licensed stakeholders, brokers or insurance companies would be more than happy to take the compliance burden of appointing a digital distributor, further embed APIs or whatever is needed. There's a lot in the physical world and I would argue there is far more trail and auditability in the digital world than there is in the physical world.”

Exploring data for advancement

Building and accessing data in the Insurance sector could be the stepping stone to a revolution in the industry. Setting context on the need for data and the business expansion capability it brings, Varun presented the example of auto insurance and throws light on the fact that there is very little data on, say, accident zones, theft-prone areas, disaster-prone areas and so on. He explained that reliable data could not only help from a standpoint of underwriting better but also reduce onboarding costs, reduce friction, and much more. “Today, a big challenge is we treat pretty much everybody like a risk. There is just not enough democratised data available to be able to make some choices easily. I think that is a huge problem and each of these are huge verticals. Health has a whole different problem. Auto has a whole different problem. There's just so much data work to be done. I think everyone is solving distribution, access, and product innovation. But I think there's deep work on the data side that could really help.”

Sachet products - the future of InsureTech

The future of InsureTech is filled with possibilities and one of the most important is that of product innovation. Sameer touched upon the subject, explaining his vision of Insurance in the future that offers easily accessible Insurance that you can turn on and off on the go. At the airport, for instance, it should be made easy to buy sachet travel insurance for a custom travel period as opposed to buying 1-year travel insurance. He reminisced about the days when luggage insurance was a USP for airline tickets. More such byte-sized custom products in other insurance categories such as say, health insurance designed specifically for travelers headed to the mountains would make products personalised and more effective. Product innovation focussing on the needs of the different segments of a market as large as India would propel the insurance sector to all new heights.

Sameer ended the panel discussion on a positive note speaking of the room for innovation - from technology to data and building the right product value proposition. He encourages young entrepreneurs looking for green spaces to become a part of the Insurance sector “where you can actually impact millions of lives as a force for good, build the right products and build ethical products.”

Watch the full discussion now