Insurance in India has been a far-reaching concept, which largely gained attention through billboard and television advertisements over the last few decades. Government-owned Life Insurance Corporation (LIC), General Insurance Corporation (GIC) and a handful of private players had been catering to the Indian market’s insurance needs. According to IBEF, insurance penetration in India is as low as 4%, despite the massive ad campaigns which began over a decade ago and which form the front for insurance companies as they battle to get more customers.
And while new age entrepreneurs have been trying to shift insurance online by adding digital tools and solutions, it seems like attracting new business is still a major headache and cost-centre for digital insurance companies.
Coverfox, which claims to have integrated with more than 35 insurers and offers more than 150 policies in motor, life and health insurance, will testify that reaching and acquiring new customers has taken a big toll on its bottom line.
The online insurance market has seen the likes of PolicyBazaar, Coverfox and Acko making a name for themselves. These tech-centric insurance companies made insurance cool and attractive for youngsters and millennials who prefer to handle their finances online. And their primary outreach effort includes brand promotions and advertising.Reaching out to the right audience in the increasingly digitised world with investor-funds has been a challenge and loss-making exercise for most players.
The latest filings by Coverfox have shown that as a standalone entity— Coverfox Insurance Broking private limited—reported losses of INR 102.08 Cr in the financial year ending March 31, 2019, a 202% jump against INR 33.74 Cr in FY18. The company is operated by Glitterbug Technologies Pvt. Ltd., which owns about 26% of the Coverfox.
As a consolidated entity, Glitterbug Technologies reported a loss of INR 48.71 Cr, as against INR 25.26 Cr in FY18.
Coverfox: INR 4.06 Spent To Earn INR 1 In FY19
Founded in 2013 by Devendra Rane and Varun Dua, Coverfox offers its users proprietary technology and algorithm-based platform to compare and buy a range of policies across top insurance companies. The startup earlier claimed that it settles 150 to 200 claims a month and has sold around 120K policies till last year.
The company has raised $58.59 Mn funding till date from investors such as Innoven Capital, Accel Partners, SAIF Partners etc.
Coverfox follows a commission model and earns a 12-18% fee from its partners on sale of policies. It also gets renewal commission if the policies are renewed through their platform.
The company filings have shown that Coverfox spent INR 135.37 Cr in FY19 to earn INR 33.29 Cr for the year. In simple terms, Coverfox burned INR 4.06 to earn INR 1 for FY19. Interestingly, in FY18, Coverfox burned INR 3.7 for each rupee it earned.
Keeping in mind the company’s dependency on commissions, we noticed that 73.6% of company’s total income came in as commissions. The company filings showed that Coverfox earned INR 25.42 Cr through commissions in FY19, as against INR 10.2 Cr in FY18. Some of the other sources of income for Coverfox were rewards, analytics services and outsourcing services.
Coverfos: 48% Of Total Expenses On Advertisement
On analysing company’s expenses, we noted that Coverfox spent a lot on advertising and employee benefits.
Coverfox spent INR 34.23 Cr in FY19 on employee benefit, as against INR 9.46 Cr in FY18. At the same time, it spent INT 64.97 Cr on advertising, a 2.22X increase from INR 20.13 Cr in FY18.
It is to be noted that advertising expenses are 1.95X of company’s total income for the year and shows how heavily company is depending on advertisement and promotion to grow its business. Some of the other expenses for Coverfox were on commission, outsourcing manpower, software support expenses etc.
Like most of fintech, digital insurance is capital-intensive, heavily regulated and has changed very 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.
Coverfox claims that the company aims to be profitable by FY2023. In its filings, the company’s board said, “Considering the current trends in the insurance sector growth and general lack of technology in this space, the company has initiated process in previous year to reach out to customers and have tried to provide the advanced tech services to them which in turn would help to generate more revenue in the future.”
But therein lies the problem — unless Coverfox reduces its customer acquisition cost and the spending towards advertising, it’s unlikely to get the traction to justify its commission-based model. In a way, the digital insurance startup is caught in a vicious cycle.