Insurtech In India: Gaining Ground

The insurtech sector in India is fast emerging as a favorite for investors, as new players attempt to take advantage of a largely unexplored market in a nation where a majority lack insurance coverage. India’s insurance industry is the tenth largest across the globe, markedly low given the country’s population of almost 1.43 billion. This opens a sizable window for expansion and market growth.

The insurtech sector has tremendous scope to grow in a vast, largely untapped market.

This view is also reflected in a survey published by ICICI Lombard and Nasscom, which says that India’s insurance sector is the fastest-growing in the world, and is expected to expand by 9% annually on average. Growth in the insurtech sector, therefore, is also expected to follow. According to the report, the insurance market in India has expanded at a rate of 8.4% year since 2018.

Over the next ten years, the country’s insurance market is anticipated to grow largely owing to digitization, along with laxer regulations and greater consumer knowledge. New entrants have been responsible for significant market expansion and insurance penetration. According to a PwC report, the country’s general insurance and life insurance markets increased by 16% and 18%, respectively, in the financial year ending March 2023, as compared to the prior year.

Growth Path

In the past few years, the insurance sector in the country has witnessed significant changes. An industry that has always been branch-led since inception, turned its attention to embracing new technological trends, launching products, and improving distribution, while dealing with fast-changing regulatory dictates.

Initially, many insurance start-ups served as online marketplaces, offering products from several sources. However, there were additional opportunities for businesses focused on the digital domain, and insurtechs have expanded to encompass these – be it underwriting, specialty insurance providers, and analytics services, among others.

Insurtech in India has attracted substantial funding, with investment having doubled over the last two years. An Inc42 report says that the $339 billion Indian insurtech sector is the fastest-growing fintech subsector in terms of market opportunity.

In Retrospect

The pandemic brought home – and with a bang – the importance of health insurance, as people had to face the ordeal of paying for medical expenses from their own pockets. The demand for insurance goods triggered at that point has risen over the years. This, along with the increased use of the digital domain, a shift in customer preferences, and a significant rise in funding fuelled the expansion of insurtech. Other influencing elements include better distribution models – B2C models have been completely redesigned by digital brokers, the availability of a wide array of insurance plans, and access to effective and reasonably-priced products.

Technological innovation led to increased reach and conversion, and the onboarding of new clients was made easier with the use of data analytics. Another factor contributing to the expansion is the manufacture and offering of tailored products. The analysis of larger data sets enabled better insights, and this allowed the insurtech sector to personalize wellness and health products. As a result, pricing proposals and insurance underwriting both improved.

Also, there is yet an increased scope in expansion. Taiwan had the greatest insurance penetration rate in 2019 at 20%, followed by South Africa and Korea at 14% and 11%, respectively. India’s insurance penetration rate, at 4.2%, is incredibly low. The expansion of digital infrastructure will accelerate insurance uptake, which will be further enhanced by the national health stack.

Fresh Start

The insurtech industry in India is still quite young. Apart from digitalization, other aspects that need to be addressed include, for one, identifying growth areas. Consumer behaviour is evolving quickly, and the trend toward healthy living is getting stronger. For the sector to continue to grow, it is critical to track changes in consumer behavior, and provide specialized products along the same lines.

Innovation also plays an important role in this backdrop. With the insurtech sector’s continued expansion, advances in underwriting, the introduction of technologically-advanced distribution frameworks, and the provision of extensive post-sale services will assume a central role, going forward.

Coping With Challenges

However, the insurtech sector comes with a fair share of challenges. For one, there is the need to keep abreast and comply with the rules and regulations, and the associated changes. Also, it is not easy for new players to enter the market. There is a dearth of confidence in technology-led solutions, particularly in Tier 2 and Tier 3 cities in India. Going forward, this expansion could be hindered by a lack of technical and financial awareness.

Among the G20, India’s insurance industry is predicted to develop at the quickest rate, with total premiums rising at an average real-term rate of 7.1% between 2024 and 2028. By contrast, a Swiss Re Institute analysis estimates that the global insurance industry will increase at a rate of about 2.4%. The Indian insurance market is rising because of the country’s developing middle class, growing economy, innovation, and supportive regulations.

Industry Outlook

The expanding middle-class demand for term life insurance and the growing use of insurtech are predicted to fuel the life insurance industry’s 6.7% expansion. Health premiums are predicted to increase by 9.7%, but the non-life category is expected to grow by 8.3% due to favorable regulatory conditions, government backing, economic growth, and improved distribution channels.

In 2023–2024, the overall insurance penetration rate is predicted by Swiss Re to be 3.8% in India and 6.5% worldwide. It is anticipated that 2.9% of Indians will have life insurance this year, and 1% will have non-life insurance.

Given these numbers, it is not incorrect to say that India’s insurtech sector has great scope for growth.

Bottomline

Industry sources say that to stay in the insurtech game, incumbents will have to constantly adapt their business models to incorporate new technologies. Advanced automation and well-connected digital infrastructure must be in motion for these organizations to engage with consumers. The industry needs to consider cybersecurity as well to ensure end-to-end data protection. India’s insurtech sector is anticipated to grow quicker in the next few years than the global market.

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Written by: AARTIE RAU