Online has been a buzzword in India over the past few years across industries such as travel, retail and lately in education. In the meantime, insurance is also witnessing good appetite from consumers as online purchase of insurance policies is catching up. Earlier, internet was the preferred channel for product research, renewals of policies and paying premiums, however now consumers are also purchasing different policies online in the wake of increased transparency, ease and advantage of saving money. Currently, around 17,000 policies are purchased online every month. Though the given figure only constitutes 2% of overall offline sales, it grew 200% in the last 2 years.
Online Insurance in India: How did it start
Similar to the online travel and retail industry, the online journey of insurance started with emergence of comparison and research platforms. At the same time, the concept of insurance aggregation took off in 2005 with players like Apnainsurance and Bimadeal entering the market. Around 20 other players such as Policybazaar, Zibika, Fintact, Myinsuranceclub and Insuring India including several others launched their own aggregation sites. After testing the aggregation model, startups forayed into selling leads to insurance companies and earned a commission on every lead conversion.
Online Insurance in India: Evolution
Over the past 7 years developing a platform for aggregating and selling (leads & policies) online insurance has been a slow ride for startups, often strangulated by multiple regulations. Further, regulatory challenges drove VCs and other investors away from this sector. According to Venture Intelligence, a firm that tracks VCs funding, as of now, only Policybazaar is funded in insuring aggregation space; Intel Capital and Infoedge collectively invested around $ 9 million (40 crore) in Policybazaar.
To understand how startups are faring in this space, we analyzed their Alexa ranking. As per statics, Policybazaar is the only player which falls in three digit rank (770) in India followed by Apnapaisa that holds 1623 rank. Rest of the players run into four digit ranks as per Alexa. While most of the players in aggregation space are still active and competing with each other, some also shut down (we have found one, Fintact.com is no more operational).
Policybazaar and Myinsuranceclub have gone beyond the aggregation model and have started selling policies online as they got the required approvals. The approval from Insurance Regulatory and Development Authority (IRDA) was a significant milestone for both companies as they now became a channel which is recognised and approved as a growth area even from the regulator’s point of view.
Most existing insurers started selling online in 2010-2011 and at present, almost close to 33 insurers are offering more than 1000 products online. A majority of them are currently focused on term insurance but many brands are looking beyond just distributing transactional products like term insurance and car insurance. They are considering the Internet as a channel of the future which will make significant contributions to business and growth. Three insurance companies, which have included Internet and online aggregators as a major focus in their distribution strategy, are Aegon Religare, Aviva Life Insurance & HDFC Life Insurance. Over 65% of insurance based searches are dominated by one player i.e Policybazaar and it can be gauged from the below Alexa traffic trends against major insurers and industry Vs Policybazaar graph.
Online Insurance in India: Growth
The overall growth registered by startups in aggregation model is not encouraging; however Policybazaar registered phenomenal 200 % growth over the past two years. Currently, 70% sale of overall online insurance happens through Policybazaar. Also in online lead generation segment where insurance aggregators sell lead to insurers, Policybazaar dominates the market with 4 out of every 5 leads (via internet) claimed by them.
Myinsuranceclub, a mumbai based startup started in late 2009 reports 2 lakhs (.2 million) unique visitors every month. However, Myinsuranceclub did not reveal any specific number of leads it is selling to insurance companies. The startup earned IRDA approval to sell leads and policies to insurance companies in July this year.
Until the first half of 2011, majority of the insurance policies were bought by people in metros and tier 1 cities. However, according to Policybazaar data, around 39% of its traffic is from beyond the top 8 metros in the country. It has seen a huge demand for customers from mid-level towns like Jaipur, Indore, Surat, Lucknow etc where they are not only interested in researching but also shown interest to buy.
HDFC Life also reported a significant chunk of its sales now coming from tier 2 & 3 cities, as opposed to a few months ago when upto 90% of the sales were from metros.
Online Insurance in India: Challenges
In aggregation and selling of insurance policies via third party platforms (such as Policybazaar, Myinsuranceclub), the toughest challenge has been to get IRDA’s approval as it is a strictly regulated space. Till now only Myinsuranceclub and Policybazaar got approval by IRDA to sell leads to insurance companies. In April 2011, IRDA had laid some guidelines for insurance aggregators, which eventually made the ecosystem very tough for startups to thrive. Some of the guidelines are listed below:
Only IRDA approval to generate leads for insurance companies: Only IRDA approved web aggregators can generate insurance related leads for insurance companies. The IRDA usually grants approval for a period of three years to the web aggregator.
Minimum net worth: The web aggregator shall have a minimum net worth of not less than Rs 50 lakh at any time during the previous three consecutive years.
Payment terms: Web aggregators can’t take advance payments from insurers . Payments can be made to web aggregators only on leads that result in the sale of a policy. The fee for the lead can’t go beyond twenty five percent of the commission payable on the first year premium sold. The insurers are prohibited from paying any fees for renewal and services such as maintenance of the database, development, communication, advertisements, sales promotion, infrastructure, training, entertainment among others.
Financial terms: Insurers have to enter into an agreement with the web aggregator approved by IRDA, which shall necessarily include details such as fee/commission for the leads to be shared. The agreement can only be valid for a period of three years.
Fund raising has been extremely difficult because investors are wary of regulations and scale of business. To sell insurance policies online, one needs to have a strong backend team (call centres) to brief buyers about the nitty gritties. Such skilled support executives are in short supply.
Online Insurance in India: The Road Ahead
Online insurance is expected to follow the growth trajectory of online travel in the next 2-3 years to come. UK & European markets have clearly shown the way, where online insurance started with aggregation model and now 70% of auto insurance in most of European countries is sold online. The industry expects similar trends here in products life term insurance and car insurance over the next 2-3 years. Some products which are highly complicated will take more time; however, products like ULIPs which have low distribution margin would eventually move significantly to online distribution models.
Also, after easing of the regulations, which is expected by experts to happen in bits and pieces, the otherwise cash starved space will see investor interest.
By 2015, the online insurance industry is expected to grab 25-30% of the overall insurance market, out of 50-60 % of volume would be dominated by third party aggregators. Similarly, as e commerce industry expects 2-3 players would emerge successful in this space, however, it’s an industry still in the nascent stage and has a long way to go. What we have seen so far is the run up. Things seem poised for a big leap in the coming years.