Page 37 - Insurance Times August 2019

In 2017, the persistency ratio for 1 year has been as low as
61%. This means that out of 100 policies purchased in a
year, only 61 of them were renewed in the following year.
This ill phenomenon leads to high costs for the insurance
players in the market as well as for the customers since the
amount of premium paid in the first year is higher than that
in the following years. The drop in the persistency ratio has
been attributed to the lack of communication of insurers
with customers regarding the renewal of policies.

Insurance penetration, the ratio of annual gross insurance
premium to the gross domestic product, is around 3.4% as
compared to the global average of 6.2%. Insurance
companies in India not only provide risk cover for various
objectives but in some cases, they give some additional
the pyramid whereas the incumbents are managing the
benefits as well, for example, a source of long term debt existing customers.
and equity for infrastructure projects. Insurance Regulatory
and Development Authority of India (IRDAI) regulations The incumbents also tend to provide simpler functionalities
require insurance companies to invest more than 15 percent through their products whereas the Insurtechs try to avoid
of their funds in infrastructure and social sector.
competition from incumbents by competing in a different
sector altogether. Insurance companies do not innovate and
Yet 80% of Indian population is without life insurance cover try to focus on existing business models. On the other hand,
subjecting themselves to weak social security and no old age
Insurtechs innovate and try to gauge future consumer
income. However, the advent of Insurtech might be able to
needs, hence this gives them additional leverage to become
trigger these weak spots and lead to the overall
powerful in the future. Insurtechs initially are smaller in size
development of the whole sector.
and hence have very little to lose whereas for the
incumbents, it's a tradeoff between innovation and the
Insurtech - Introduction current operations of the business.
Insurtech, a subset of FinTech, refers to several segments
of the new technologies that are disrupting the insurance Insurtechs are also trying to take the customer experience
sector through smartphone apps, claim acceleration tools, to "phygital", which is a mixture of physical and digital.
consumer activity wearables, individual consumer risk Examples of phygital medium can be a video calling session
development systems, automated compliance processing which is partly physical and partly digital. India shows huge
and online policy handling. market potential for insurance industries, owing to the
demographic dividend. The average Indian age by 2020 will
Insurtech has been broadly categorized by CrunchBase (CB) be 29 years as against 40 years in the US, 46 years in Europe
insights into 8 categories, namely: (i) healthcare (ii) and 47 years in Japan. Even as the labor force declines by 4
automobile/P&C insurance (iii) life insurance (iv) Peer-to- percent in the industrialized world and by 5 percent in China
peer insurance (v) small business (vi) insurance software (vii) in 20 years, it could increase by 32 percent in India.
product insurance (viii) mobile insurance.
Insurance companies and insurtechs have also tried and
Insurtechs follow a different approach as compared to what tested a number of distribution channels. A number a
the incumbents do. Insurtechs consider auto insurance as distribution channels have been discussed below:
cash cows since the insurance are recurring in nature and
their pricing depends on car characteristics and the Channel- Agencies: Insurance agents have deeper networks
experience of the driver. These cash cows can provide to penetrate the retail and SME businesses and they have
finances to the insurtech startups to chase customers a better understanding of the minute details of the
differently than how the incumbents do it. Although products. But agents as a distribution channels generally
Insurtechs are smaller and younger companies, they try to yield lower margins and are not perceived to be profitable
target a new base of customers which are at the bottom of by the companies.

The Insurance Times, August 2019 37