Like in most markets, India is a large but under-penetrated insurance market. While the COVID-19 pandemic led to a sharp uptick in life insurance premiums, bringing it at par with global average of 3.2% of GDP, non-life premiums - health and motor insurance - continue to lag at sub 1% of GDP, compared to 2% for developing Asian countries and 5% for developed economies. In a low income economy, paying up premiums to protect against potential long term downside is not a top priority for people.
However, this will grow. As India’s GDP and per capita income grows, more people will begin insuring themselves and their assets. This has happened globally and India is no different.
Second and more important, the state of insurance in India leaves a lot to be desired, both for the insurer and the insured. Improving this can be key to changing the Indian consumer’s relationship with insurance, and building enduring private companies in the space.
Insurance in India has been dominated by PSUs - today, LIC makes up roughly half of the life insurance market, while four PSUs together make up ~40% of the non-life market.
As the industry matures, private insurers have been increasingly capturing share. However many of these companies are plagued by high costs, poor customer experience, and poor retention.
Take motor insurance as an example, which is mostly intermediated by brokers.
Going direct to the customer can create immense value for the insurer. Insurers hold the customer relationship which helps them improve retention rates. If a brand is successfully created, acquisition costs will likely decrease - compare this to the traditional model where broker commissions have only been increasing.
Moreover, embracing a digital-first strategy across the purchase-to-claims process improves customer experience as well as cost for the insurer. Use of individual and market data in underwriting can help deliver lower premiums while maintaining industry standard loss ratios. For example, data can be used to understand hyperlocal loss ratios in auto insurance (based on occurrences for theft and accidents).
This has played out in the US over the last few decades. Progressive and GEICO, two auto focused insurance companies, rapidly gained market share as they invested behind their direct channels which contributes to more than 50% of their business today. The two companies currently account for roughly 13% of the market each, and are #2 and #3 respectively. Leveraging personalized data has also enabled them to offer lower premiums v/s the market.
Both companies have also continuously invested in marketing to build a brand, with highly memorable television commercials and active social media advertising. Geico has a popular ‘save 15% in 15 minutes’ campaign, and Progressive launched Snapshot which rewards good driving behavior with lower premiums.
Varun Dua comes from the insurance industry, and Acko is his third startup. Varun earlier founded Coverfox, an insurance marketplace, where he realized that to truly deliver value to the customer, they need to own the entire insurance stack and underwrite their own insurance.
Today Acko offers motor, health and smaller insurance products (smartphone, flights, etc) across 16 cities in India. Motor is the largest vertical, providing insurance to 2M+ vehicles.
Acko delivers a superior experience to the customer - from purchase to claim - at a lower price, and this reflects in its industry leading NPS and retention rates. Across its more mature markets (Bangalore and Hyderabad), claims ratios are among the top quartile in the industry despite charging customers much lower premiums.
We spoke to Varun about his journey building an insurance company, how he approaches building a brand in an industry with established players, and what he sees in the future. He is joined by Abhinav Chaturvedi and Subrata Mitra, investors at Accel who have had a ringside view of Acko and Coverfox.
The Accel team wishes Varun and Acko all the best in their mission.
Blog authored by Sankalpana Agarwal from Accel