Last fortnight, online insurance platform PolicyBazaar was looking to raise $300MM at a $1.5Bn valuation.
In 1996, Yashish Dahiya opted out of IIM Ahmedabad’s campus placements to give home tuitions.
He realised that tuitions would earn him a higher salary compared to a job for just 2 hours of work each day. Mr Dahiya chose entrepreneurship at a young age and would make this choice again later in his life, not just to earn more money but to change the way a 200 years old industry works.
As is typical for any small-scale entrepreneur, tuitions were not seen as work.
When his mother argued that his sister would not find a suitable groom if he didn’t get a job, he started working with Illinois Tools Works in India. In 2000, he went abroad for an MBA, and after a stint in consulting, joined ebookers, an online travel aggregator.
He headed 2000 people to set up the portal in 13 locations, an experience that gave him a real taste of entrepreneurship and the power of online marketplaces.
Not unexpectedly, his next move was to start his own company.
He took a risk with an industry that manages risk for its customers, starting First Europa, a global online insurance brokerage firm.
In 2007, while Mr. Dahiya was building a deep understanding of the insurance industry with his online business, India’s insurance was evolving. Enthusiastic agents were hopping from house to house trying to sell policies to family, friends and a growing base of rich/middle-class individuals.
Their eagerness to maximise their earnings would often lead them to misrepresent benefits or hide critical information. To their misfortune, one of their customers happened to be a father whose son knew the ins and outs of insurance.
His father’s experience with an unscrupulous insurance agent inspired Mr. Dahiya.
In 2008, he joined hands with Alok Bansal to address the rampant lack of transparency in the Indian insurance system. People buy insurance to secure their future but the duo gambled on their future by entering into insurance.
PolicyBazaar, poetically, arose out of risk.
The two started the company as an online information portal for insurance.
From the experiences of many Indian consumers being mis-sold insurance, it sought to educate. This was done by allowing them to compare prices, benefits and features of policies offered by different insurers before making a purchase decision.
While the education seemed like an easy sell, the industry was riddled with wary customers.
The perceived opacity of insurance products in India had made customers look at insurance with apprehension. Insurance as a product was also not seen as a necessity, with a share of wallet going to more basic things like food and clothing.
The company, therefore, concentrated on providing a highly efficient and transparent customer-focused service, while evolving into a marketplace. As the only platform to provide details on commissions, it created a USP for itself in the market.
But why was PolicyBazaar working?
Insurance is sold on trust, and in a market where it had been absent, PolicyBazaar looked to fill the void.
By being completely transparent about different insurance plans in terms of not just their benefits but also exclusions, it empowered customers to make informed choices.
This resulted in strong word of mouth growth and stickiness for the company – a critical feature to survive and scale in this business. As an inherent high lifetime value business, acquiring a customer once could result in long term value.
Ingrained in its DNA, PolicyBazaar grew aggressively from the start.
Men at Work
By 2011, it had 5 MM registered users and 400 employees spread across 3 major cities.
By 2014, it added another 3MM registered users and more than doubled its workforce. From 2010-11 to 2012-13, it approximately doubled its revenues each year, going from INR 11 crore ($1.4MM) to INR 45 crore ($7MM)
As the marketplace became popular, the revenue share from lead generation started dropping and revenue from policy sales grew. While in 2011, 85% of its revenue was earned through advertising, in 2014, that number had dropped to 15% as revenue from e-commerce grew significantly.
Rapid growth in the consumer base also stemmed from the fact that they were able to provide insurance at discounted rates.
Online automated insurance and loan processing is 70% cheaper than selling through a physical branch and these cost savings were passed on to the buyers in the form of discounts.
With a significantly better model, the company was staring at a giant, underpenetrated market.
Online insurance in 2014 contributed just 1.5% to the entire insurance market in India, which in itself had less than 5% of GDP penetration in India. At ~$70Bn, life insurance was the largest insurance segment in the country. General insurance, which covers health, auto and other segments, is a $25Bn market.
PolicyBazaar had moved early, and continued to maintain a lead over its competitors. Many would attack the market, inspired by PolicyBazaar.
The market was for PolicyBazaar’s taking.
Narrow Road Ahead
By 2014, the upstart was riding the burgeoning wave of increased adoption of online insurance.
The company capitalised on people’s use of the internet as the go-to choice for purchases of all kinds. Any early hesitation that came with the lack of interpersonal comfort in the form of a broker was steadily replaced by the customer empowerment of an aggregator.
The sky seemed to be the limit for this upstart insurance disruptor, yet there would be shackles to wings.
For PolicyBazaar, these came from both the customer and the insurer.
From a customer perspective, insurance penetration in India was still low. For the most part of this decade, it has hovered at 2.72% for life insurance and 0.72% for general insurance, according to the IRDA.
In India, life insurance is seen more as an investment rather than an indemnity, which is why LIC dominates life insurance. One can recover life insurance at the end of life, and that investment is accounted for in the market size.
General insurance, i.e. health/auto, on the other hand, has more openings for private players, which is why most online insurance aggregators are focused on general insurance.
Due to the limited penetration, PolicyBazaar and its competitors had to not only re-direct demand but also create it by changing the conversation around insurance.
But the real challenge would come not from the market, but the manager of the market.
IRDA released new regulations in 2014 involving increased scrutiny around insurance aggregators and restricting core functions like cross-selling and lead generation.
The maximum that aggregators could charge insurance providers for a lead was arbitrarily set at Rs. 10, and the commission fee for a lead that led to a sale was capped at 25% of what an insurer would pay any other agent.
This meant that PolicyBazaar could only make Rs. 1 lakh a year on advertising a product at a time when they were bringing in revenues of Rs. 20 crores annually, a setback of 90% in revenues.
What the IRDA regulation misunderstood about the insurance market was that they believed good policies were “always sold, never bought”. This was keeping with the traditional channel of insurance sales – a representative coming to your house and telling you what’s ‘best’.
The internet, and by extension aggregators, intrinsically flipped this model on its head by giving power to the customer who was willing to research these policies independently.
The IRDA regulation would be the turning point in PolicyBazaar’s journey.
With profits decimated and the board urging the CEO to shut down the company after the regulatory blow to their business model, Dahiya and his team backed themselves to continue operating.
Three months later, PolicyBazaar’s customers did not churn.
PolicyBazaar was able to do this as the insurance providers who paid them were still paying for handling sales and backend operations. Despite the legal restrictions, this indicated that there was value being provided and a viable business model still on the table.
Unlike Icarus, the heat of the regulator would not melt PolicyBazaar’s wings, to fly.
A $20MM fundraise soon followed, which brought product innovation, technology updates, and more targeted advertising.
While PolicyBazaar began to experiment with developing their own insurance products exclusively available on their website, they also decided to explore different categories due to the increasing regulatory concerns.
This was the birth of PaisaBazaar, a marketplace for loans, credit cards, mutual funds etc.
With the traffic, profitability, and momentum that PolicyBazaar had created over its 6-year lifetime, the company soon raised another $40MM in late 2015.
As PolicyBazaar continued to dominate online insurance and work on its path to profitability it began to ink exclusive corporate partnerships as a new source of customer acquisition.
In June 2016, Spice Digital agreed to use PolicyBazaar’s personal accident cover for their 500K customers as well as 10,000+ channel partners in the form of a loyalty program. With more users also came more services, and PolicyBazaar would go on to also take care of the enrollment, issuance and other processes of the insured as per the partnership.
2017 brought multiple tailwinds to PolicyBazaar’s high-flying growth story, as it would extend partnerships to other companies.
Demonetization rocked the country in late 2016 and swathes of Indians were forced towards the adoption of smartphones and mobile banking. The conversation about the benefits of online insurance aggregators in the media and among government officials began to gain momentum.
PolicyBazaar posted its first-ever year of profitability.
From being a small online insurance player, by the beginning of 2018, PolicyBazaar now offered insurance across virtually all categories.
Cleverly embedding tech in its value chain has allowed it to pitch the ‘right product’ to the ‘right customer’ at the ‘right stage’ of life and commanded a dominant 50% market share in the online insurance space.
This is remarkable when we see the complex insurance market growing at only 30%. The USP of the model has really been to avoid the need for ‘human element’ and leverage an online platform for product comparison, claim handling and redressal services.
The company has consistently innovated, taking leaves out of the e-commerce playbook. ‘My Account’ was inspired by the e-commerce space, but unheard of in the insurance vertical.
Post launching the feature the company has seen a phenomenal uptake with 70% of buying customers visiting the section to download policy, raise a ticket, ask for clarification or further enhance it. The reimagination of the insurance purchase journey has reaped incredible benefits for customer conversion, with 4% conversion almost 4x the market average.
PolicyBazaar was taking tech-infused insurance sales to the hilt.
A case-to-case basis, data-driven strategy has helped the company build a tailor-made approach for each customer.
Being data-driven has allowed PolicyBazaar to granularize its segmentation in three layers.
The first being on the demographic profile, the second on behaviour on the website (is the customer searching for something specific or just exploring offerings) and last being consumer’s CRM activities like email and SMSes.
In George Akerlof’s market for lemons, information is everything.
Using data to successfully predict claims ratio, allows efficient pricing of the end-product. Recommendation engines allowed the company to suggest the best in class products to its customers.
It clocks 35MM minutes of talk time each month which is a gold mine on customer requirements and queries. For instance, analyzing its health calls helped it understand that the 7th or 8th most common request was cashless which it never thought to be a big deal in health.
Growing phenomenally through its data-driven approach, in Jun 2018, the company raised $238MM which will be used to further build PaisaBazaar and a new healthcare venture, DocPrime.
2018 saw it turn a profit of 40Cr on revenues of 380Cr ($55MM). Its growth was fueled by expansion beyond Tier 1 cities.
Incorporating regional languages into their apps and platforms is helping drive adoption and expand the customer base. For instance, interest in two-wheeler insurance went up three times after it started selling policies in Hindi.
The future of the company looked data-driven.
Continuing to build out startups in a conglomerate of startups, the company launched DocPrime in 2019.
Offering online doctor consultation and clinic management, DocPrime aims to tap a greater percentage of the customer’s healthcare wallet. Using inhouse algorithms, it has been able to shift from 20% of responses being automated to now handling 75-80% of responses.
The company is looking to replicate the success of Ping An Good Doctor which is China’s biggest healthcare provider.
In the next 2-3 years, it plans to continue its focus on customer-centric technological and product innovations. It plans to expand globally, create a new ecosystem to offer comprehensive medical care and continue to adapt and innovate with an arsenal of digital capabilities.
PolicyBazaar expects an achievable revenue of INR 1,500Cr ($200MM) with a target to underwrite premiums of INR10,000Cr ($1.4Bn) by 2020.
The large customer base presents both a challenge as well as an opportunity as it looks to sustain the momentum crucial to scale and fuel further growth.
Insurance penetration in India remains under 5% and it will be a slow and steady climb to bring more customers, which also explains its strong push to diversify into related verticals.
Recent relaxations in FDI guidelines allowing 100% FDI in online insurance marketplaces only bolsters the company’s strong position. The empire of internet insurance brands of Policybazaar, Paizabazaar, DocPrime and QuickFixCars suggests a strong moat for the company’s future.
PolicyBazaar has driven a risky road to be the go-to destination for India’s safety needs.