InsurTech models to help Indian insurance mkt hit $222 bn by FY26: Redseer

Insurance penetration in India is poised to grow rapidly, driven by the growing middle class and increasing digital penetration, which will help the insurance market reach a size close to $222 billion by FY26, according to a report released by consultancy firm, Redseer.

New online distribution models such as B2C, B2B and B2B2C are key drivers of growth, with B2C in particular, gaining significant opportunities.

“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),” said Mrigank Gutgutia, Partner at Redseer. “On the other hand, B2C brokers utilize 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.”

As InsurTech players innovate across the insurance value chain, several InsurTech models have emerged. Some of these models include the B2C models (which included B2C brokers), the B2B2C models (which include PoSP agents and consolidators, and embedded insurance) and B2B models (which include group insurance).

“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,” said Gutgutia.

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. This is 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 per cent of the entire population, and 6 per cent in China. In India, digital penetration in insurance stands at 2 per cent, denoting significant headroom for growth in the years to come.