The Cost Of Going Digital: Can Legacy Health Insurance Bear The Burden?

They say that technology often moves at such a fast pace that most industries and people don’t even realise that the world around them has changed. Yet, by the time one adapts to tech, it has already become part of the old reality. Which is what makes technology such a powerful disruptor.

But there are behemoths that have weathered wave after wave of technology without changing too much. For long, India’s banking and financial services industry has been something like this. But time takes a toll on goliaths too.

As banking succumbs to the digital wave with the rise of neobanking, the insurance sector is next in line.

With over 30 general insurance and over 24 life insurance companies, India is a bustling insurance market with penetration in rural areas too thanks to public insurance policies and plans. Having played a crucial role in building up this market, the traditional insurance giants are now starting to feel the effects of a tech-dominated world.

The rising internet and smartphone penetration as well as higher incidences of chronic diseases, lifestyle-related ailments even in semi-urban areas have pushed the need to spruce up insurance. The dominance of private healthcare providers have increased costs for consumers rapidly, which has outpaced the rise in per-capita income, again making insurance a vital essential for Indians.

“Despite taking the first leap in the space of health insurance decades ago, still only 19% of the Indian population is covered. Overall, only 4% of India is insured including both life and non-life insurance segments. The situation is even worse in rural areas. This indicates the big gap which traditional players have not been able to bridge so far,” said Layak Singh, Founder and CEO, Artivatic.Ai, a full-stack digital tech solution provider for the insurance industry.

What’s Holding Back Insurance Tech In India?

Evidently, in the past 10 years, India has made significant progress in adopting digital and technology infrastructure in all sectors, and the health insurance sector is not bereft of such changes. The health insurance market runs on acquiring large premiums and insurance providers have their eye on this largely untapped opportunity to digitise operations. The cost of physically maintaining the branches, customer acquisition, underwriting and claims processing is quite high, which many traditional players are now looking to offset with tech.

Most companies in the insurance space today have robust IT infrastructure to keep a record of paper documents and bring transparency while maintaining speed in daily processes. They also maintain digital presence through front end websites and apps and tapping digital intermediaries to take benefits of increased discovery, reach and scale. This includes digital channels of distribution (PolicyBazaar), digital agent networks (RenewBuy, Turtlemint) and those helping in restructuring and customising the existing policies (Vital, PlumHQ, Toffee Insurance).

Partnering with advanced tech solution providers, a handful of players have managed to automate back-end processes involving underwriting, claim settlement, policy issuance, fraud management, customer profiling, KYC verification, among others. This is the area where players like Artivatic, Bridgei2i, i3 Systems among others are quickly enabling tech solutions for traditional players.

Despite the apparent depth in the insurance market, only a handful of players, primarily the top six or seven companies, have been investing deeply in technology integration and digital distribution. And so far, no traditional insurance provider has invested capital in building these technology interventions in-house.

For instance, Religare has invested in technology-centric applications for its distribution partners (like Faveo & InstaBiz), servicing associates as well as customers. This enables all constituencies in self-management of their portfolios or policies, respectively.

“The distributors can sell and renew policies independently; Customers can purchase, renew, or claim on their policies from the available digital solutions,” said Ashutosh Shrotriya, the company’s head of products and business process.

Even as the traditional heavyweights play catch-up, the insurance market has seen the rise of its first digital general insurance player in the form of Digit, which is building its own digital health insurance policies and end-to-end processes to cater to the new-age audience.

Digital Intermediaries: The Tech Middlemen

When it comes to digital intermediaries, there are three primary models in India. All companies in this space have the same pay-per-policy revenue model, but their business use-cases can vary. The price is anywhere between INR 70- INR 100 per policy, which is in-line with the IRDA-approved agent commission model for traditional players.

Distribution Model

The first business model is the one that’s easiest to implement in many ways. This includes the wave of aggregators such as Policybazaar, Coverfox and others which offer a comparison engine to the end consumer and on-call support for purchases. There are added features as well. For instance, PolicyBazaar started offering telemedicine consultation and eKYC for the same during the lockdown, which legacy-led support might not have been able to pull off so quickly, the company believes.

“While buying a policy online, more and more customers are now availing e-KYC services and creating awareness on players offering Covid-19 cover has also eased out. The service has thus turned to be a game-changer in times like these when the entire country is on lockdown,” said Amit Chhabra, head of health insurance at Policybazaar.

Digital Brokers

The next bucket of startups includes players like RenewBuy, Turtlemint, that offer insurance agents flexibility in selling. In essence, they are creating a level playing field for the agents, thereby eliminating the limitation to stick to just a few products. This, in turn, increases reach and awareness for existing insurance players in the market, and reduces some of the acquisition cost.

“The biggest challenge with a traditional health insurance provider is the branch led model and a single company product-led approach for agents. One cannot answer today’s consumer queries with limited products in hand,” said RenewBuy cofounder Balachander Sekhar.

The key strength for digital brokers is their ability to tap the target audience beyond Tier 2 and Tier 3 regions. For instance, RenewBuy has a network of over 35K agents across 450 districts that manage 25 lakh customers and with 1 lakh customers coming in every month. Turtlemint claims to have a network of 65K agents across 700 cities and it also offers integration for eight languages to sell to the burgeoning regional language audience.

“While insurance is a complex product, language also becomes a big barrier. To a consumer who is sitting in a remote location, to get advice from someone who is speaking in their local language is a factor which can truly change the outlook towards an insurance product,” added Turtlemint cofounder Dhirendra Mahyavanshi.

Customised Solution Provider

In the third bucket of intermediaries are players like Vital, PlumHQ that look to intervene to reduce specific costs. As Vital cofounder Jayan Mathews puts it, “Scale and reach is one way of reducing the customer acquisition costs which digital has the potential to do. However, there are much smarter ways to sell the insurance policy as well.”

For instance, Vital works with Religare and others to restructure the existing policies and introduce elements which can increase the risk cover while reducing the premium upto 60%. At the same time, it simplifies policy design, ease of customer’s digital onboarding and offers value adds like discounted dental cover products, coverage for in-vitro fertilisation treatments and more.

“We believe that our model should be flexible enough to make different types of decisions based on each consumer as all consumers are different,” added Mathews.

Where Are Tech Startups Making A Mark? 

In the wake of digitalisation, the traditional health insurance players have tried to adopt the digital route of distribution. Yet, the gaps largely remain the same. Yet, according to Mathews, more than 50% of business for health insurance players comes from the offline insurance brokers and agency networks, with bank assurance being the next biggest source, followed by corporate agents.

“Less than 10% of business is generated by digital distribution channels for the health insurance sector. Yet, the irony is 85% of buyers who buy health insurance research first online and then go buy insurance through agents or offline channels,” said the Vital founder.

As of now, the lethargic underwriting and claim processes are the biggest bottlenecks currently for the traditional health insurance industry. Not only is it expensive but time-consuming too. “Per policy, it takes anywhere between 3-4 hours to digitise the paper forms and other documents manually. Then, it takes 30-90 days to process the claims, as it moves from one system to another, and from TPAs to underwriters to managers for approval,” said Artivatic’s Singh.

The advanced technology providers are now working with new-age technologies to eliminate these bottlenecks. The claims process time can be reduced to 10-15 minutes using such a solution.

These days insurance companies are using AI, ML, data analytics (MADlib), computer vision and real-time anomaly detection, natural language processing (NLP), facial expression analysis, behavioural pattern studies, video analytics, optical character recognition, big data tools, data engineering and more to simplify the entire value chain.

“However, the one time cost of integration comes at around INR 30 Lakhs – INR 50 Lakhs, and it takes around 3 months to 4 months to map the complete data and build an API for the insurer. So far 6-7 big health insurance players have been onboarded with us,” Singh said about the adoption for Artivatic’s services.

Given the high costs associated with such custom solutions, the bulk of health insurance companies choose to partner with digital intermediaries with a web or app presence. “The biggest thing is when insurance industries go for the digital they have to change the prodigy design, underwriting design and the operational process. And those who are able to do that, we are able to work with them only. To come out of their legacy is the biggest challenge here,” Vital’s Mathews added.

Digit Insurance: The Only Core Online Offering In health Insurance Ecosystem

Among the insurance providers, Digit Insurance is the only startup to directly sell plans customised for different life stages in people’s lives, setting it apart from standard health insurance options. “While the product has to make sense to the customer it should also be within the ambit of the risk tolerance of the insurer. Also, a number of value-added features are included such as instant buying, paperless document submissions, check-ups on video calls, telemedicine etc,” added Vivek Chaturvedi, CMO and head of direct (online) sales at Digit.

Just like in the traditional sector, premiums for digital insurance also depend on the customisation, but it allows consumers to purchase plans that are relevant to them instead of paying for a standard premium. For instance, Digit’s zone-based pricing offers a differential premium for different geographies as medical costs depend on the city that a person is opting for treatment.

Further, instead of taking the traditional standalone statistical approach, risk modelling for digital players like Digit, Vital, Artivatic among others include a number of additional factors to ascertain real-time actionable insights.

The Cost Of Going Digital For Legacy

Being a legacy organisation, traditional health insurance providers have a lot of challenges and limitations. Traditional players may believe that having created their brand already in the market, they can increase their digital reach with a front end website.

However, according to RenewBuy’s Sekhar, just a website will not work because insurance is a push product and not a pull product. “Most educated and tech-savvy consumers also need advice from the agents before purchasing health insurance. The situation is even tough beyond Tier 3,” he added.

The alternative for such legacy companies will be to partner with third party digital intermediaries as they are bringing a lot more efficiency, a lot more data-driven sales processes, rule-based selling which reduces misselling and more.

On the front of technology adoption, insurance companies need to think of making a massive investment in completely rewiring their technology if they need to address the gaps on their own.

Founded in 2016, Digit Insurance started as an automobile insurance platform. It was only in December 2019, it launched a health insurance product. “From the last 3-4 years, Digit would have been spending on R&D, salaries, infrastructure, training, hardware, rents and more. If we just assume it’s a 100 people team, with an average salary of INR 70K, the salary cost only comes to INR 34 Cr for 4 years,” said Artivatics’ Singh.

No wonder, that Digit has so far raised $175 Mn since its launch. Singh further added that opportunity cost and the cost-benefit analysis are the two key factors taken into consideration while building strategy for any company.

“In any case, it will take 3-4 years to build a system in-house. This can greatly impact the opportunity cost for the company with competitors like Digit in the ecosystem. While partnering with third-party technology providers like i3 Systems, Artivatic, may seem expensive in the first year of implementation, this cost can be totally offset in the subsequent years while providing a smoothly running system in 3-4 months time,” he added.

Covid-19 Aftermath: Can Online Take Over Offline?

With a population of over 1.3 billion people and over 77% of them being smartphone users, India is currently home to more than 504 million active internet users. “Thanks to ever-evolving technology and APIs, the dynamic payments ecosystem in India is constantly progressing. Being online is the demand of the hour to become competitive in the industry,” said Bankit COO and Executive Director, Amit Nigam.

Despite the push for digital insurance, the entry barrier here is still quite high. Insurance models such as Digit’s cannot be created overnight and the deep-rooted offline health insurance network will cling on to whatever market share it has. What is important here is to change the strategies with time.

The insurance regulator’s sandbox initiative has also helped push innovative models, particularly for coverage areas and pricing. Some of these, which prove themselves viable in the sandbox stage, can potentially be adopted for the long term.

In India, any kind of insurance is still seen to be complicated and difficult. Particularly health insurance is treated as an industrial instrument with no immediate return. Will this evolve with the growing technology and digital integration in traditional health insurance space?

“Let me give you an analogy of the success story of smartphone companies like Xiaomi & OnePlus who used Amazon and Flipkart for sales. We are well aware as to how they were able to increase their sales by competing on price and through digital marketing. Insurance is likely to see the same story play out, where legacy like Samsung or Nokia, have to fight for market share,” said Turtlemint’s Mahyavanshi.

As per insurance providers, startups and technology providers, in the ongoing pandemic, there has been an increase observed in health cover buying for youngsters and senior citizens. Health insurance sales went up by 40%, according to PolicyBazaar. Besides this a number of Covid-19 standalone products were launched by health insurers.

The world is going to change a lot even in the next few months for insurers. There has been a huge shift of consumer behaviour towards digital buying and also opting for products that offer convenience over affordability.

According to Religare’s Shrotriya, with higher penetration of mobile and internet in the Indian market, fintech and insurance tech players can play a major role to take Insurance to the masses. “Small ticket size or sachet insurance products introduced by fintech players can be a good model to get the masses to easily experience entry-level health Insurance products and later adopt comprehensive health insurance solutions, and thus increase penetration.”