Digitalizing Insurance in India

With the advent of digitalisation, traditional practices are giving way to innovative solutions, reshaping the way insurance is bought, sold, and managed. The synergy between insurance and technology, Insurtech, represents a trending term with higher meaning but also functions as an important driving factor of the developing insurance sector. There are not just new channels but completely novel ways of addressing needs from such options as AI, blockchain data, analytics, or IoT; digitalisation is changing the rules altogether, creating ample space for benefits for both parties involved – insurers and policyholders alike. In this blog we will analyse the disruptive forces that have restructured the sector, consider some modern trends in insurance products and services, and reveal the opportunities as well as challenges ahead. Using Insurtech startups to personalize insurance coverage, we uncover the profound influence of digitalization on India’s insurance sector.

Insurance sector in India – An overview

Source: IRDAI

As per a report by Swiss Re Institute, insurance penetration in India is well below the global average of 6.5%. However, insurance sector in India is forecasted to post the highest growth rate among G20 nations, with premiums expected to increase by a CAGR of 7.1% in real terms from 2024 to 2028. On the other hand, the worldwide insurance market is expected to experience a growth of around 2.4%. The expansion of India's insurance industry is fuelled by factors like a burgeoning economy, a growing middle class, greater uptake of insurtech, inventive initiatives, and favourable regulatory structures.

Emergence of Insurtech

Among the recent developments in India, Insurtech start-ups have notably increased in number over the last few years. These novel initiatives are making use of advanced technologies and fresh business models to tackle age-old problems, improve customer relations, and finally usher a complete digital makeover into the insurance industry. The very heart of this disruption is at the junction of insurance and technology that is shaping up as a new crop of Insurtech startups transforming the dynamics of the sector. Across different lines of insurance, insurtech startups come up with their disruptive solutions in distribution, underwriting, claims settlements, as well as customer engagement.

Source: nasscom.in

Due to the growth of India’s tech start-up funding to be the world’s third largest, it has resulted in an expanding Insurtech startup ecosystem with over US$ 2.6 billion investments since 2018. The Gross Written Premiums (GWPs) of funded aggregators increased by 4-5 times, which was higher than the growth rate of the traditional insurers between FY 2018 and FY 2022. This rise is underscored by the substantial market share captured by InsurTech aggregators, soaring from 10% to 30% since 2018. Top aggregators recorded remarkable GWP growth rates exceeding 50%, with standout performers like Acko witnessing a staggering 132% rise, followed by Digit Insurance at 74%, and PolicyBazaar at 46%.

Insurtech Providers’/ Aggregators’ Growth in India

Source: NASSCOM; Note: *- Till November 2023

Traditional-InsurTech Collaborations

New-age insurtech firms are recognized and supported by legacy insurers, who combine technology-driven solutions with partnership models to improve efficiency and customer services while streamlining operations. Some of the examples are:

Digital Trends in Insurance Industry

The use of the internet and mobile phones has grown tremendously worldwide. The insurance industry is rapidly adopting digital technology to expand its business model and aims to deliver a seamless experience, keeping pace with evolving consumer expectations. Digitisation within the insurance industry is gaining momentum and is anticipated to become a cornerstone for insurance companies in India. Key digital trends in the insurance industry are mentioned below:

Navigating Challenges Associated with Digital Insurance in India

As digitalisation sweeps across the insurance industry in India, it presents a range of opportunities and challenges. While technology promises to change the way insurance is bought, sold, and managed, navigating the challenges associated with digital insurance is essential for sustainable growth and success.

Following are some of the current challenges faced by insurers in India's digital insurance landscape and potential solutions to overcome them.

Potential solutions include the following:

Regulatory framework

The IRDAI envisions achieving universal insurance coverage by 2047, striving to furnish all citizens with suitable life, health, and property insurance, and ensuring that every business is equipped with an adequate insurance solution. To realise this vision, the IRDAI has taken commendable measures to increase awareness about insurance and make insurance affordable and accessible to the people of the country.

Key government interventions to promote ease of doing business

To realise the dream of ‘Insurance for all’ by 2047, Insurance regulators are implementing numerous progressive measures, such as BIMA VAHAK, BIMA SUGAM and BIMA VISTAAR. These steps signify the regulators’ commitment to transform the insurance landscape. As part of the progressive step, the maximum number of insurer tie-ups that could be made by corporate agents and insurance marketing firms has been tripled by IRDAI. This forward-thinking measure aims to improve access to insurance by addressing the limited distribution reach through bancassurance channels.

The Digital Personal Data Protection (DPDP) Act, 2023 will be useful to the insurance industry as it will make it possible for insurance companies to ensure better protection of data in the area of insurance. Various financial inclusion programs such as Jeevan Suraksha Bandhan Yojana, Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Suraksha Bima Yojana, and Atal Pension Yojana contributed significantly to attract the uncovered segment into the insurance fold, thereby providing a financial safety net for vulnerable sections of society. The adoption of Ind AS 117 accounting standard and its implementation of risk-based capital and supervision frameworks would further align the Indian market with the bold vision of the IRDAI.

Future of digitalisation

The future of digitalisation in the insurance sector in India holds immense promise, marked by a transformational shift towards a 'phygital' model. The combination of physical and digital channels is a step toward a seamless user experience while retaining their personal characteristics, which should suit people perfectly but also satisfy all their expectations. Driven by significant measures such as cashless claim settlement across the board facilitated by the IRDAI, this business area is at the point of developing effective control systems and increasing productivity levels. Besides, it has been revealed that due to fast-developing partnerships between insurtech companies and other industries, there is significant potential for progress and innovation in this sector. According to Inc42, India’s insurtech market is presently witnessing a huge CAGR of around 32-34% annually, making it stand at position number five globally. These collaborations are set to bridge protection gaps and democratise insurance access.

The approval of online insurance marketplace Bima Sugam further signifies a concerted effort towards universalising insurance and promoting consumer trust. Supported with regulatory backing and strengthened with the security of data protection measures, adoption of digitalization into insurance processes seems a game-changer in enhancing client engagement as well as trust and satisfaction levels in the industry. Since India is also progressing with its Digital India program and going with standardized technology solutions, the future of the insurance sector looks promising by heading towards an era where transformation will be rapid, transformative, leading to a vibrant digitally driven economy playing a vital role in the nation-building process.