New technologies and e-commerce platforms are set to gladden the customers as well as the insurers
The Insurance Regulatory and Development Authority of India
(Irdai) came out with draft regulations for insurance e-commerce in June. Irdai
hopes to lower the cost of transacting insurance business, and improve
efficiencies and reach through these norms. E-commerce is also seen as an
effective medium to improve financial inclusion in a cost-efficient manner, the
draft said.
The regulator has proposed these norms in the wake of many
startups trying to bring in digital innovation in the insurance sector. These
measures gain importance as insurance penetration in the country is less than
the global average, said the Irdai’s annual report for 2014-15.
Fintech in insurance
According to a PricewaterhouseCoopers (PwC) global survey in June,
How InsurTech is reshaping insurance, for the insurers, cost reduction is the
most significant gain from fintech. “A move towards cloud-based platforms means
not only lower up-front costs, but also smaller ongoing infrastructure
spending. Only this innovation, when compared to mainframe-based technologies,
could reduce costs up to 10-fold,” the survey said. It also added that
disintermediation, self-servicing and automation of core insurance functions
will lead to further savings for insurers.
Experts also believe that digital innovations have to be first
about operational improvement, which will then translate into better
experiences for consumers. “Whether we like it or not, the general
understanding of the word digital is online selling. What we need to understand
is that this element is only a subset of the digital ecosystem,” said Anuraag
Sunder, director, PwC.
The use of technology aims at employing existing as well as new
data, analysing it, using artificial intelligence and machine learning to
understand customer problems and reach a solution.
“Data has really not been a strong point of the Indian industry,
and that holds true across sectors, not just insurance. From that perspective,
insurance sector has recognised this issue and there has been movement,” Sunder
said.
Online platforms enable capture and storage of rich, reliable and
insightful consumer data that can be leveraged in the future to customise
underwriting for individual customers, based on past history, said Balachander
Sekhar, founder and chief executive officer, RenewBuy, a fintech startup
focussed on motor insurance. Digital is all about business improvement, it is
not about making things look pretty, Sunder said. “Customer ease, or solving
the customers’ problem is the most important element in this entire journey.
Digital would not have happened otherwise.”
Consumers often complain about lack of understanding and
transparency while buying insurance. Fintech can help here. “Insurance
contracts are defined using legal language. They contain exclusions and limitations
to protect insurers, but are difficult to understand by the consumer. The
traditional agent’s job was to explain this to the consumer but this does not
always happen... we are trying to fill the gap by using a mix of technology and
in-house experts,” said Anand Prabhudesai, co-founder, Turtlemint.com, an
online insurance aggregator.
Non-compliance is a major concern in segments like motor
insurance, where insurance is mandatory. Sekhar said the category sees large
drop-outs. About 80% two-wheelers and 25% of cars are uninsured despite it
being mandatory. This happens mainly due to lack of reach and distributor
interest in pursuing small-ticket premiums, he said.
“Consumer surveys show that while most consumers want to insure
their bikes, they are currently clueless about where to find an insurance agent
or insurance branch office to get this done,” Sekhar added.
Pricing of insurance and the commission an agent earns are also
factors in the widespread non-compliance in motor insurance. “Unlike more
lucrative segments like life insurance, where commissions are high, a typical
bike insurance policy premium is as low at Rs.1,000 and the agent may earn only Rs.50 to Rs.75 a
policy. On top of that, the paperwork and process are cumbersome,” Sekhar said.
Fintech helps customers
While fintech may look like it benefits only the insurers—with
benefits like operational improvement—industry insiders also expect these
changes to benefit the customers. Fintech is making insurance buying a lot
quicker and simpler than the traditional platforms.
“Today, technology allows one to make a quick comparison within
seconds and understand the nuances that affect the premium or quality of
services. Smart algorithms and clean user interface... allow a user to buy the
best-fit insurance for her needs confidently in the least time,” said Jaimit
Doshi, chief marketing officer, Coverfox.com, an Irdai-licensed broker. “It
also makes managing the policy a lot easier. One can literally buy a policy
within 3 minutes without any tedious paperwork,” he said.
According to the Irdai annual report, the penetration of life
insurance in the country is slightly more than 2% of the total population and
it has been less than 1% for non-life insurance for many years. The report also
states that just 2% of total policies sold and 1% of the premium paid were from
online channels.
“With mobile and Web technology, consumers across tier 2, 3 and 4
cities and rural India will have access to multiple insurers and transparent
prices,” Sekhar said. Apart from reducing the cost of delivering the policy,
and cutting down the branch network, online insurance selling also delivers
transparent information to consumers.
“Using technology and the internet will allow for custom-pricing
mechanisms and ability to sell long-tail products (when gap between filing a
claim and its settlement is long), something both insurers and regulator should
consider while creating product frameworks. Currently, most products are
designed for leading channels like agency and bancassurance, which get adapted
for internet sales,” he said.
What’s next
Doshi said low internet penetration in India, and even access to
online banking are an impediment. “India is a promising and growing internet
market. But currently the penetration level is abysmally low,” he said.
However, things are improving. “According to a Boston Consulting Group
(BCG)-Google report, by 2020 every three in four policy purchases will be
influenced by the digital channel,” he said.
As internet penetration in rural areas improves, the market for
these startups will expand. By 2020, about 315 million Indians in rural areas
will be connected to the internet, compared to around 120 million at present,
according to a study by BCG: The Rising Connected Consumer in Rural India.
Technology has given a boost to several sectors like e-commerce.
However, Doshi said unlike in e-commerce, the current regulations do not allow
discounts when selling insurance.
According to the draft regulations, insurers will be allowed to
have differential pricing for products sold through insurance self-network
platforms.
The new regulations could also do away with tedious processes such
as physical signatures, by bringing in digital signatures and other
authentication methods like one-time passwords.
The insurance regulator has laid down the infrastructure for
digital sale of insurance, which is definitely a step in the right direction.
This combined with a host of fintech startups in the industry could increase
insurance penetration, while also easing the processes for consumers.
