Sanil Basutkar, Co-founder HealthySure highlights that the under-penetration in the insurance sector offers growth opportunities for the firms in insurance, especially the insurTech firms that are at the forefront of technological disruption
Insurance penetration in India stands at 4.2 per cent in FY2021 as per the data by IBEF. This is much lower than the global average of 7.2 per cent. and significantly lower than developed economies like the US where it stands at around 12 per cent. Insurance penetration is an indicator of the development of the insurance sector in an economy. It is calculated as a percentage of insurance premium to the total GDP in a year. These numbers tell us that the insurance sector is still highly underpenetrated and has a potential for very high growth in the coming years.
The under-penetration in the insurance sector offers growth opportunities for the firms in insurance, especially the insurTech firms that are at the forefront of technological disruption. InsurTech is a confluence of insurance and technology; and are leveraging technology to deliver insurance solutions. Technology advancements such as big data, IoT, and AI are enabling new products and innovation across the value chain in the insurance industry. This sector witnessed unprecedented funding in 2021, with the likes of Digit and Acko turning unicorns and PolicyBazaar getting an IPO.
Why corporates and individuals are reassessing their risk preparedness
With the COVID-19 pandemic impacting economic and social activity, both individuals and corporates have felt the need to assess their risk preparedness. This has been evidenced by record premium growths for insurance companies in 2021.
At an individual level, there is an increased willingness to buy life, health, and accident insurance products. This has been a direct result of unaffordable hospitalisation costs and strains put on by unpredicted deaths in families.
Most businesses too have had to evolve new protocols to engage employees and customers. Remote working, readjustment of supply chains, maintaining revenue levels have been crucial challenges businesses have had to face. Business owners are rethinking their risk management strategies and protocols that are better suited to manage the increased levels of uncertainty. Many of these problems can be addressed by buying appropriate insurance products such as group health, life, fire, marine and business disruption insurance.
Disruptions in the insurance sector
Indian insurtech has received record investments in 2021 to bring in much-needed tech innovations to grow the sector. There are strong headwinds that just as Indian fintech brought in disruption for banking, Indian insurtech will do the same for the insurance industry
InsurTech companies are disrupting the insurance sector by:
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Product innovations, offering niche and customised products. These companies are offering innovative products like bite-sized insurance, parametric insurance, and, in some cases, changing the focus from risk protection to risk prevention.
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Providing holistic services to the consumers like multiple services at one place by tying up with other industry participants. There is an increased level of transparency on these platforms, and the charges are lower.
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Data collected by these platforms can lead to data-driven innovations like targeting new segments or building sharper underwriting and pricing frameworks.
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Use of technology to enhance the experience for all the participants, including customers, and channel partners
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At the level of the customer, they provide ease of access, better customer service, faster claim settlement, protection from fraud and lower rates.
Why insurance companies stand to benefit
Traditional insurers distributing the insurance products in India can benefit from this development by tying up with the new age technology-driven companies. Traditional insurers face challenges in terms of legacy technology infrastructure. Tying up with insurTech companies will help them offer their solution in the latest manner driven by technology, thus creating a win-win situation. The scale provided by traditional insurers will allow insurTech companies to scale up their marketing and technology platform in a shorter time.
How is the regulator enabling insurtech
Since this sector is still evolving, IRDAI has been acting as an enabler and has provided a regulatory sandbox approach for insurTech companies, that lets players launch innovations with certain relaxations in regulations. There is scope for innovation as long as it does not hurt the policyholder’s interests. This has the potential to bring in some big innovations. 2021 also saw the government passing a bill to allow 74 per cent FDI in insurance that is attracting a good amount of investor interest in the sector.
There is still a lot of potential for the government and the regulator to bring in additional reforms and as the industry matures, they will surely have to play a big part.
It can be said that the insurance sector in India is now slowly coming of age. And, with the increased awareness of risks expedited by the pandemic, the industry’s future growth will be led by technology. Insurtech will be leading at the forefront of technological innovation.