How insurtech sector has become a lucrative investment opportunity!
Authored by Sanil Basutkar, Co-Founder of Healthysure
The Indian insurance sector is currently undergoing major transformations, primarily driven by technological advancements, insurtech growth, and regulatory reforms implemented by the Insurance Regulatory and Development Authority of India (IRDAI). Although India ranks 10th in terms of market size, its untapped potential has attracted a considerable amount of investment. Over the next three years, a market opportunity worth over Rs 2 lakh crore is expected, with investment over the last two years topping USD 1 billion. As a result, the industry continues to draw significant interest from venture capitalists and private equity firms.
A significant shift in the industry has been the rise of insurtechs, new technology-focused entrants to the insurance sector. These companies are catalysing change akin to the disruption brought about by fintechs in the banking sector. Through the utilization of diverse technologies, insurtechs are enhancing operational efficiency, improving customer engagement, and personalizing services based on individual client needs.
For instance, AI is automating processes, streamlining operations, and improving the customer experience. AI-powered chatbots are providing instant, 24/7 customer service, reducing operational costs and enhancing customer satisfaction. The Internet of Things (IoT) is also redefining risk assessment and pricing. With IoT, car insurers can monitor driver behaviour in real time, allowing for more accurate pricing of premiums and promoting safer driving practices. Furthermore, AI is poised to play an even larger role in enhancing underwriting, risk assessment, and user education. The insurance industry is also seeing an uptick in the trend of embedded insurance, whereby insurance coverage is offered as part of a larger product or service. This approach offers companies an innovative way to attract new customers and diversify their offerings.
The Indian government's National Health Authority (NHA) has launched the Health Claims Exchange initiative, aimed at standardizing and streamlining the process of submitting and processing insurance claims. This involves the use of a unified health ID linked to an individual's health records and insurance coverage, reducing fraud and improving the efficiency of the claims process. The increasing digital penetration championed by the government will likely lead to a broader population having access to insurance products and a deeper understanding of their importance.
To accommodate these changes, the regulatory environment is also evolving. IRDAI, for example, has implemented a sandbox approach that enables insurtech firms to test their products in a controlled environment before rolling them out to the wider market. This initiative fosters innovation while safeguarding consumers.
Furthermore, strategic collaborations between traditional insurance companies and insurtech startups are increasing. This synergy benefits both parties; established companies leverage the innovative technologies and agility of startups, while the startups gain from the vast customer base and deep industry knowledge of their established counterparts.
The insurtech sector is anticipated to continue automating and digitizing processes related to underwriting, claims processing, and policy management. Using data and analytics, insurtechs are likely to develop more personalized and targeted insurance products and enhance the understanding of customer needs and risks. Online distribution is projected to grow, with insurtechs utilizing digital platforms to simplify insurance purchases for consumers.
The potential of India’s insurance sector growth has ensured steady investment inflows over the years. With the active involvement of both the government and regulators in liberalizing the industry, the sector is expected to remain dynamic and if signals such as IPOs for insurtechs like Digit and Policybazaar become successful, this sector will continue to be a hot choice for investors.