With the rush of venture capital investments in Indian fintech over the past few years, sectors like lending, insurance tech, etc., besides digital payments, have seen a surge of investor interest. Investments in insurance startups rose by 550% to $92 Mn in 2017 from a year earlier, according to Inc42 Datalabs.
Like most of fintech, insurance is capital-intensive, heavily regulated and has changed little over the past few decades, making it ripe for disruption by startups, both in how insurance is marketed to consumers and in how claims are assessed. But some investors are apprehensive about the maturity of the online insurance space in India.
As per IBEF, the insurance industry in India consists of 57 insurance companies, of which 24 are in the life insurance business and 33 in the General Insurance space. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from that, among the non-life insurers, there are six public sector insurers. In addition to these, there is sole national reinsurer, namely, General Insurance Corporation of India (GIC Re). Other stakeholders in Indian Insurance market include agents (individual and corporate), brokers, surveyors and third-party administrators servicing health insurance claims.
While the insurance model in India is largely offline-agent based, it has few fundamental flaws that make it irrelevant in today’s digital age. An agent will always be motivated by his own gains and is naturally incentivised towards offering selective policies while keeping the consumer in the dark about other potential options.
There are also areas like micro-insurance, travel insurance, etc. which have much smaller ticket sizes and purchased in the spur of the moment. By virtue of this behaviour, these cannot be agent-driven and are a perfect fit for online insurers.
Founded by Varun Dua and Devendra Rane, in 2011, Coverfox, an IRDA licensed brokerage platform, aims to provide a singular platform for insurance seekers – a one-stop insurance shop. Recently the company has announced the appointment of Premanshu Singh as the Chief Executive Officer (CEO).
Till date, Coverfox claims to have integrated with more than 35 insurers and offers more than 100 policies in motor, life and health insurance. Using its proprietary technology and an algorithm-based platform, users can compare and buy a range of plans across top insurance companies. The startup settles 150 to 200 claims a month and has sold around 120,000 policies to date. With all this in place, the startup is further looking to capture a 50 percent market share in the online motor insurance segment by July 2018.
The company is operated by Glitterbug Technologies Pvt. Ltd., which own about 26% of the Coverfox.
In 2018, Coverfox reportedly raised an estimated $7.6 Mn from Aegon as a part of its Series C round. New York-based Transamerica Ventures, Accel Partners, SAIF Partners, Infosys co-founder NR Narayana Murthy’s Catamaran Ventures, Infosys co-founder Senapathy Gopalakrishnan’s Pratithi Investment Trust, Venkatram Krishnan, and Subba Rao of NuVentures are also among its investors.
Looking at the financials for FY16-17, Coverfox Insurance Broking Pvt. Ltd saw its revenue double while its losses shrank marginally. Gross revenues for FY16-17 jumped to $901K (INR 6.12 crore) from $383K (INR 2.64 crore) in the previous year, clocking a 132% growth.
Furthermore, the net loss came down by 10% to $4.7 Mn (Rs 31.86 crore) from $5.1 Mn (INR 35.07 Cr), as total expenses rose marginally to $5.4 Mn (INR 37.98 Cr) from $5.5 Mn (INR 37.71 Cr).
Till 2017, Coverfox primarily focused on the bike and automobile insurance segment, which contributes over 50% to its overall revenue. It clocked premiums of $20 Mn – $22 Mn (INR 140-150 Cr) for the financial year 2016-17.
Another interesting number to look at is the Solvency ratio. In India, insurers are required to maintain a minimum solvency ratio of 1.45. Insurance players whose solvency ratios are dangerously close to this minimum level are closely watched by the insurance regulator, the IRDA.
The solvency ratio for Coverfox in FY16-17 is -1.94, which is quite abysmal compared to industry standards. However, the solvency ratio has come up by 6 points since FY14-15.
(FYI: Solvency Ratio: Solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt and other obligations. The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a company’s solvency ratio, the greater the probability that it will default on its debt obligations.)
The general insurance industry in India underwrote premiums of $1.4 Bn ( INR 96,379 Cr) in FY16, showing a 13.81% growth from the previous year according to the Insurance Regulatory Development Authority.
However, only about 2% of insurance policy sale is digital-only, with zero advice from an on-call or in-person insurance agent. Coverfox’s plan to capture this untapped space might have been its initial flashy pitch, however, it ended up following the traditional insurance sales model supported by call centers.
Although Coverfox’s revenues have grown by a CAGR of 236%, its expense has grown by a massive 777% and with poor solvency ratio, one could conclude that Coverfox is struggling to capitalise on the insurance market of India.
[This is a part of the What The Financials (WTF) series launched by Inc42 Datalabs. We would be exploring the financial health of Startups and discuss its key metrics of growth, to read more articles click here.]