Will Digit Simplify Insurance to Pull in India?

Last fortnight, Digit Insurance raised a $200 million round to make it one of the largest funding rounds in India’s general insurance industry, valuing the company at $3.5B.

Bet on the Jockey

As a young teenager, Kamesh Goyal aspired to join BITS Pilani. 

Brought up in the industrial township of Khetri in Rajasthan, missed the cut off by one mark. There was no regret though. Three years of college life resulted in exceptional times and some great friends.

Goyal’s journey with insurance began in March 1988 when a college senior at St Stephen’s in New Delhi was applying for an insurance job, and he prodded Goyal to follow suit. Till that time, Insurance wasn’t the industry that Kamesh had dreamt of.

Starting his career with New India Insurance, Kamesh spent a decade with them, learning the fundamentals of the insurance industry and saw how the industry grew when LPG (Liberalization, Privatization & Globalization) policies of 1992 led to exponential growth for India.

By 1997, he made a move to KPMG where he had a short stint of around 2 years. At KPMG, Allianz was a client and that’s how Goyal got introduced to the 100 year+ old German insurance company where he would spend his next 2 decades working across levels.

Over the next 20 years, Goyal worked with Allianz and went on to lead their growth in India when they partnered with Bajaj, making him CEO & country head of  Bajaj Allianz Life insurance Company Ltd in 2007.

By 2015, Kamesh was an industry veteran with a solid 32 years of experience, and very successful in his profession. He had all material comforts life could offer and was set to soar even higher in his professional career.

But an entrepreneurial itch made even the 50-year old Kamesh restless. He could see a need to simplify the insurance industry. 

Technology was disrupting every industry and customer behaviour was changing drastically from being push-based to pull-based in insurance.

India was going through an exciting phase and Kamesh, who was in Munich, wanted to be part of the action. He was in a fix as failure at this stage of life was also unthinkable.

His mother could sense his agony and gave him valuable advice- “Ab samay aa gaya hai. Apne upar paisa lagao (The time has come. Now put money on yourself). Don’t worry about the consequences or any insecurities”

With his mother’s blessings, like every good Indian man, Kamesh decided to take the plunge. 

In August 2016, after eight months as the head of asset management and US life insurance at Allianz, Goyal put in his papers. 

If there is one thing that almost every early-stage investor would agree with, when investing at seed stage, the bet is on the jockey and not the horse.

That also led to many myths such as only IIT-IIM guys get funded, solo entrepreneurs never get funded, only young founders can build a digital business and so on. 

Kamesh set out to bust all these myths. 

Explain Insurance to Me Like I’m 5

Digit Insurance was incorporated by December 2016. 

It sold its first policy in October 2017, after taking care of the required licenses. Insurance products have been around for so many years with so many companies selling various products. 

What was different about Digit insurance?

A 32-year-old industry veteran knew what’s needed is not an extra feature or another complicated insurance product. The Need is to Make insurance so Simple that a 15-year-old could understand!

Simplify insurance, just like Groww did for stocks

Insurance is an industry where a lot of fear-based selling, complicated documentation and poor claim settlement service, has made customers look at insurance offerings with scepticism and mistrust.

This has resulted in poor customer experience and as highlighted by Digit, only 29% of the insurance customers were satisfied with their existing insurance providers. 

Talk about a legacy industry to be disrupted based on NPS itself.

Digit insurance wanted to solve this mistrust. That’s why they offered transparency and simplicity.

This simplicity, with their digital-first approach of making the entire process online, was loved by the customers as it saved time. Digit was super convenient and more affordable with savings on infra and policy agent costs.

Digit Insurance went further to make its claim settlement process hassle-free by leveraging mobile phone capabilities of its customers. It innovated on the process to get rid of any unnecessary or non-value additive steps. This helped them bring down the TAT for claim settlement as well as improving the overall customer experience.

Soon, customer love for Digit poured in over social media, which led to a strong organic viral pull. Digit aspired for a five-star service and to ensure they could scale this, they needed a five star rated team and processes.

But first, they needed to find a strong entry point, into the ocean of insurance. 

Find the Right Premium

Insurance is pretty large in itself. 

There is life insurance, health insurance, general insurance and much more. Anything that holds value can be insured. 

This market was going to be around $280 billion in India. Digit Insurance wanted to have a piece of this pie.

To enter this huge space, they had to start from a niche where they could play to their strengths. They found this in the motor insurance market.

Motor insurance was the biggest line of business for general (non-life) insurers with Gross direct Premium of 59,246 Cr. in FY 2017-18. Add to it, India’s Motor Insurance Market registered a CAGR of 11.36% over the period, 2012 – 2018. 

From a market size standpoint, it made sense to enter this market.

It had huge margins and a layer of non-value adding middlemen. This made it ripe for disruption when Digit wanted to simplify the whole insurance space.

The next challenge was how to build a team and scale across multiple products.

One needs capital to build tech, run operations, create a brand and manage compliances for any tech-enabled insurance business.

Given Kamesh Goyal’s background and early success for the product, investors would definitely have a keen interest to take a seat on this rocketship.

It was Kamesh who decided to pick the right financial partner for Digit Insurance’s journey in 2018 and raised a monster $50 million round.

In a way, Digit insurance had a long term financial partner. It was almost like a co-founder for Kamesh that helped him focus to execute on the plan, build the right team and grow this company without worrying too much about runway for the next 2-3 years. 

Moreover, getting a strategic partner with significant depth in the industry also helped to create beneficial partnerships with companies to integrate their products with insurance.

The business started doing pretty well and in the first year itself (FY18), it managed to clock 104.1 cr in gross written premium.

The ride was on, Digit was moving, but the road was riddled with obstacles. 

A Market of Lemons

India has been a market with a very low insurance penetration. 

In 2019, the penetration of life insurance was around 2.7% of GDP whereas other categories combined had a penetration of 1%. For comparison, the world average is at 6.3% of GDP, with the penetration in developed countries such as the US and the UK as high as 11-12%. 

Insurance penetration has stayed roughly stagnant for the past twenty years (it was 2.7% in 2001). 

It’s not hard to understand the reason for this. 

Insurance has been notorious for push-based selling, misselling, misaligned incentives between the policymaker and taker. Finally, poor claim resolution created a lot of mistrust among the public.

Digit was aiming to reach these mistrusting customers, through the use of technology, creation of new products and the simplicity behind the same.  

The continued rise in the middle class coupled with rising awareness regarding the need for insurance protection are major reasons for the optimism in the sector.

The biggest insurer in the domestic market is Life Insurance Corporation of India (LIC) that has a market share of around 66% of the total premiums paid. 

In the year 2020, LIC issued nearly 22 million new individual insurance policies, compared to around seven million new policies issued by private players. The top two private players are ICICI Lombard and Bajaj Alliance with a market share of 1.74% and 1.68% respectively. 

The rest of the private players have revenues from premiums at less than INR 100bn.  

Although life insurance has the highest market size, it is probably the most difficult to break into for a startup, because customers are hesitant to trust a new firm with an insurance policy that needs to run for 30-40 years or more. 

On the other hand, vehicle insurance and fire insurance are short term duration policies (3-4 years), which reduce the counterparty risk significantly, giving the customer confidence to buy the product. 

Due to this, Digit kept doubling down on the auto insurance path it had taken as its first point of entry. As Digit entered 2020, the greatest disruptor of all time was about to hit. 

COVID’s Hockey Stick

The COVID-19 pandemic hit the insurance industry like a hurricane, boosting the topline but hammering the bottom line. 

The demand for life health insurance shot up. However, the payouts owing to hospitalization put pressure on the bottom lines.  Premiums on existing policies were delayed due to a massive fall in economic activity. 

The pandemic woefully exposed the gap and severity of insurance under penetration in the country, especially in health insurance.

According to LIMRA, there is an estimated life insurance coverage gap of US$12 trillion industry-wide. The average shortfall between what people have and what they need is approximately US$200,000.

However, in FY 2020-21, on the whole, the insurance industry in India earned premiums of 199,500 Crore which was a marginal increase of 5.4% over the previous financial year. 

It was clear the pandemic brought about a new seriousness among individuals regarding the need for having adequate insurance policies.

In a survey commissioned by Policybazaar, an insurance distribution website, there was an enhanced awareness of the need for buying insurance policies. 

High medical costs (40%), fear of COVID-19 and tax-saving benefits were primary reasons that triggered people to buy health cover. 

The Indian regulatory IRDA had allowed for porting in health insurance as far back as 2011. However, the pandemic saw a significant increase in porting requests for health policies. 

Approximately, 70% of the respondents surveyed were looking to port their policies for a higher sum insured and better features like zero co-payment, no room-rent capping and lower waiting periods.  

In such a situation Digit’s mission of having policy terms that were easier to understand was a refreshing change for the customers along with best in class claim resolution numbers.  

With COVID-19 shutting down the offline network, older incumbents who had a large network of agents and distributors all over the country lost their single biggest advantage over the new upstarts. 

This affected them in a couple of ways. 

They lost the power of an agent to explain the complex terms in the document to the end customer. This helped firms like Digit who had made it a mission to have policy documents that were easy to read. 

The loss of the agent network also meant shutting down the dominant sales channel. In such a case, firms selling completely through digital channels suddenly had a huge advantage over the incumbents. 

If the industry grew by 5%, players like Digit exploded. During the same time, Digit’s premiums grew by 44% from INR 2,252 crore to INR 3,243 Crores. 

In terms of overall financial performance, Digit revenue reached Rs 1,247 crore (annual growth of 150%) in FY20, and it has managed to trim losses by 30% to Rs 193.1 crore in FY20 from Rs 279 crore in FY19. 

Digit was exploding, but the real question was would it be able to sustain this. 

The Truth in Numbers

To remain a long term player, Digit was building all the muscle.

Learning from the legacy players, it built an offline distribution network of around 5,000 on-ground insurance agents as over 37% of its customers reside in tier-2 & tier-3 towns

Operational muscle was important, but financial muscle was probably the most important. 

The regulatory body for insurance keeps a watch on the financial health of any general insurer. IRDAI requires all insurance providers to provide their financials publicly

The data provided by Digit Insurance gives an insight into their revenues and costs. 

On the revenues side, the pandemic proved to be a blessing in disguise for Digit. The premiums in the pandemic year grew by 60%. Digit’s explosive growth in the market can also be understood by the fact that its pre-pandemic growth in premiums was as high as 160%. 

The ratio of claims to premium which was very high in the first year has now remained stable around 65-75% over the last 3 years. 

As far as the expenses are concerned, Digit spends between 13-20% of its revenue over the past three years on operations. 

The largest category of expenses is related to branding and sales expenses. Branding expenses have hovered around 40-50% of the overall expenses over the same period. 

While the pandemic improved its revenues, this was achieved without a proportional increase in costs. The same period saw a growth in operating expenses at 26% on a year on year basis. Similar growth in revenues and costs, in the future, will surely see Digit breaking even and even turning in a profit soon. 

In fact, the company has been profitable for the first 3 quarters of FY21. 

Boosted by the pandemic, Digit Insurance clocked INR 3,243 crore in gross premiums in FY21, up 44% from the previous FY. 

Being an entirely cloud-based new-age player certainly helped the company to continue serving customers and distributing products seamlessly during the lockdowns. 

When it was hot, Digit was striking, but so was its chief adversary

Look Ma, One Competitor

Digit competes directly with Acko (it’s like Swiggy vs. Zomato or Ola vs. Uber) and to some extent with Coverfox and PolicyBazaar. 

However, while the latter are insurance aggregators, Digit and Acko develop and underwrite their own insurance policies and hence qualify as the only two online first General Insurance companies.  

Founded by the ex-co-founder of Coverfox, Acko is a pure-digital play insurance provider, serving its customer’s personalised solutions via its direct channel. 

The startup creates innovative bite-sized products in the motor insurance segment, primarily aimed at drivers in the transportation industry. 

As compared to Digit’s revenue of Rs 1,247 Crore in FY20, Acko clocked Rs 126 Crore in revenue, despite having served 3X more customers than Digit. This is primarily because Acko differentiates itself from Digit on 3 aspects: It sells bite-size micro-insurance products, by partnering with startups and companies for distribution, and sells only via online channels. 

Differing from Digit by adopting a partnership-driven approach, Acko tied up with several startups in the mobility space such as Ola (remember the Rs. 1 trip insurance?), redbus, Zomato, GoIbibo, Dunzo to provide micro-insurance solutions for drivers as well the end-customers such as accidental insurance, trip insurance, luggage insurance etc. 

It also struck a deal with Amazon Pay to sell the bike and car insurance and provide paperless onboarding along with the lowest premiums.

On similar lines, Acko has partnered with startups such as ZestMoney to offer credit insurance, and Oyo for comprehensive insurance to customers during their hotel stays. 

Similar to Digit, due to decreased demand for motor insurance owing to the pandemic, Acko also expanded its product catalogue to include Health insurance. 

However, unlike Digit Insurance which is selling Health insurance primarily to end-consumer, Acko tied up with Amazon to provide free COVID-19 health insurance for its sellers. 

Further, Acko launched the Employee Health Insurance program in FY21 and recorded over Rs 100 crores in premium by onboarding over 100 companies and insuring more than 3 lakh people. 

Finally, while Digit also sells via direct online channels, it relies heavily on its dealers & agents network, thus bridging the traditional and digital channels. This is because of the founder’s belief that traditional channels are cheaper and more effective in acquiring and retaining customers.

Acko on the other hand sells only via online channels and creates deep integration with its partners which makes it hard to displace. It banks on the belief that the future of insurance lies in being completely digital and removing intermediaries to build direct relationships and loyalty with end customers. 

Both companies have different philosophies and execution strategies. However, the market is large enough for both to co-exist. 

In fact, despite the rapid growth of both the players, they have just scratched the surface, with a mere 3% market share in motor insurance combined. 

They also need to compete with traditional General Insurance players who are also rapidly innovating, introducing online selling and narrowing down the differentiation gap with these players.

But a digital heavy strategy definitely gives a strong lead to Digit over the incumbents.

Can you beat my NPS?

Buoyed by the sharp rise in Digit’s gross premium growth vs. the industry numbers, it raised INR 135 Crore ($18.4 Mn) in Jan’21 to become the first unicorn from India in 2021. 

The company decided to invest the funds in technology and aggressively grow its health insurance segment, which was the primary growth driver for the startup in Q1 of 2021 helping it grow Gross Written Premiums by 60% YOY.

In the past one year, the company has provided covid-related insurance to almost 3.6 million employees across 32,000 corporates. 

Digit was beating the decades-old incumbents and the rocketship was taking off. 

The incredible performance helped Digit as it raised its largest round till date of $200Mn in July 2021, doubling its valuation to $3.5Bn in a span of only 6 months. 

By valuation Digit insurance was now the 3rd largest fintech startup in India, after PayTM and PhonePe. 

Having served more than 2 crore customers since inception, the startup was aiming to utilise the capital to fulfil solvency requirements mandated by Insurance regulators. It was also solving for claim settlement and continuing its growth momentum. 

For the uninitiated, the regulators require insurance companies to maintain capital (currently 150%) to settle future claims and fulfil other liabilities. 

Hence, as Digit’s customer base and premium grew, it needed more capital reserves in order to remain solvent. 

Besides growth, customer stickiness was also a key moat for Digit. 

Currently operating in 4 major categories, motor being the largest, the company boasts a policy renewal rate of 60% for car insurance, 75% for health insurance, and 90% for insurance provided to employees via corporates. 

This has been largely achieved by developing highly relevant insurance products and a single-minded focus on customer experience. 

With a staggering claim settlement ratio of 97% for auto segment and 96% for health segment, along with improvement in turn-around-time of claim settlement by 50%, Digit has recorded an NPS of 71% for claims in 2021, its highest in the past 3 years. 

Moreover, making a deep investment in technology also helped in regards to policy renewals- especially, the renewal prediction algorithms that target and prioritize the right customers to follow up with. 

The technology that Digit invested in would start to help it push into spaces it had dreamt of.

Nothing Can Stop Me, I’m All the Way Up

Digit has taken several initiatives in order to tackle the pandemic and continue on its growth trajectory. 

The company shifted focus to the non-motor segment, especially Health, as the entire automobile industry faced degrowth. 

It launched several Industry-first products such as India’s first sachet health plan for COVID which reached its maximum cap of Rs 50 Lakh in total premium set by IRDA within just 3 weeks of launch. It further launched a series of COVID insurance covers that touched the lives of over 2.5 Mn people and 24,000 institutions.

Despite initial hiccups, Digit proved to be agile and came up with several process innovations to reach NPS score of pre-covid levels across all categories. It dedicated an entire customer service center for health and COVID in order to tackle the spur of claims due. 

Looking for new avenues for growth, Digit partnered with PayPoint to bring affordable health and covid insurance to rural India using the latter’s 60,000 business correspondent branches in villages.  

In times when the offices opened while COVID was on the rise, the startup also deepened its focus around SME offerings to fulfil the rising demand for group health insurance for their workers. 

Technology is playing an important role in the growth story for Digit, which embraces ‘Digital’ in all parts of its value chain, from buying to distribution to claim management. 

Digit’s onboarding policy is completely paperless. For example, a customer opting for motor policy needs to simply take pictures of the vehicle, without the need of an assessment officer, which gets automatically processed in a few minutes with the help of image analytics, AI and ML. 

With the help of its pre-inspection app, Digit is able to empower the customer to get claims approved without any intervention. In the case of motor insurance, customers can upload photos and videos of the vehicle. 

Currently, over 95% of claims are done this way and 80% of these claims get approved within 24 hours. Talk about technology being used to completely disrupt an age-old clunky and inefficient process.

Similarly, the flight insurance claims are 100% automated where the system automatically checks if the flight is delayed by more than 75 mins and pushes SMS and notification to the customer to get a claim. 

It also launched an innovative mobile screen damage insurance where 86% of claims are settled within 30 days with the help of advance cash for the repair. 

On the distribution front, the startup has incorporated technology into all 3 channels: via apps for over 1500 strategic partners (agents, brokers, dealers), API integration with 16 institutional partners such as Paytm, Flipkart, Policybazaar along with web and mobile-based direct selling platform.

With such a strong footing on customer experience, technology and distribution front, the company looks poised to dominate the Indian General Insuretech sector. 

Backed by the founder’s vision to bust the complexity of the industry and make insurance simple and claims faster for customers, Digit is truly reimagining the insurance industry at its core unsettling incumbents while earning true customer love.

As we enter the new decade, Digit looks to be in pole position to pull India into insurance

Story: Abhinay, Aviral, Keshav, Nilesh and Ramandeep Design: Omkar

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