According to a recent report released by homegrown consultancy firm, Redseer, Insurance penetration in India is poised to grow rapidly driven by the growing middle class and increasing digital penetration which will result in the insurance market reaching a size close to $222 billion by FY26. New online distribution models such as B2C, B2B and B2B2C are key drivers of growth, with B2C, in particular, gaining significant opportunities.
As InsurTech players innovate across the insurance value chain, several InsurTech models have emerged. Some of these models are:
1. The B2C models (which included B2C brokers)
2. The B2B2C models (which include PoSP agents and consolidators, and embedded insurance)
3. B2B models (which include group insurance)
The report sheds light on the B2C model, which seems to have a significant advantage. Due to direct customer interaction, the claims risk in this model is much lower than in the other two models. The persistence rate too is higher due to better customer awareness. But most importantly, customers enjoy great customer experiences thanks to end-to-end digital experiences through technological applications. In most cases, through the B2C model, the end-to-end customer journey is covered seamlessly. Some of the B2C models' offerings include end-to-end digital experience through technological applications, app-based claims assistance, proactive conversions using call centres, visibility to multiple quotes, and more.
Mrigank Gutgutia, Partner at Redseer, said, “It is interesting to note that B2C brokers have significantly higher contribution margins than B2B2C brokers, while B2B2C scales faster through uberization of agents, it also has relatively poor unit economics (largely owing to high agent payouts). On the other hand, B2C brokers utilise online marketing and asset-light models to derive better margins. The experiences that these new-age InsurTech models offer for customers are not merely digital, they’re delightful. Additionally, these new and rising models are not just making insurance great for customers...they are also empowering agents with the power of technology: no more chasing customers with messy paperwork; instead, they can handhold customers through the entire insurance experience from anywhere...digitally”.
Business-to-business-to-consumer (B2B2C) distribution is not new to insurance and is synonymous with InsurTechs selling insurance through partner POS agents, agencies, or embedded with purchased goods or services. This model includes offline agents, with online support and is known to have fast scalability. Claims risk in this model is moderate, due to the risk of agent mis-selling. Business-to-business or B2B models include Insurtech selling group insurance products to businesses. Interestingly, thanks to more aware customers, the lapse rate is typically low for B2B models.
The report deep-dived into category-wise digital insurance penetration, and it was seen that with a Total Addressable Market (TAM) of $66.5 billion, the life insurance category comprised close to three-fourths of the market, followed by motor insurance which has a TAM of $10 billion and retail health insurance which has a TAM of $4.7 billion, as of this year, FY22. Stringent motor regulations and a policy shift towards making India a digital economy have boosted motor digital insurance gross premiums in India. On the other hand, the rising cost of healthcare, the Covid-19 pandemic and national campaigns on insurance policies have created more awareness and accelerated digital insurance adoption leading to a rise in retail health insurance.
The report concluded that digital insurance in the USA stands at 14% of the entire population, and 6% in China. In India, digital penetration in insurance stands at 2%, denoting significant headroom for growth in the years to come.