In today’s Finshots, we talk about insurance’s new online marketplace ― Bima Sugam and tell you why it’s being labelled as a gamechanger for the Indian insurance industry.
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The Story
This week, our country’s insurance regulator IRDAI (Insurance Regulatory and Development Authority of India) gave the go ahead to launch a new online marketplace for insurance. It’s called ‘Bima Sugam’.
Think of it as a one-stop platform where Indians can find all kinds of insurance policies offered by different companies. And if something catches their eye, they can swipe right and make a purchase.
And IRDAI’s goal is commendable. It wants to fix India’s underpenetration problem. It is at a measly 5% if you compare the total insurance premiums as a percentage of the country’s GDP (Gross Domestic Product).
Now that could simply be a result of three things apart from a lack of awareness:
- People don’t trust insurers or insurance enough. Thanks to mis-selling by intermediaries who sell insurance products without analysing what their customers need. And poor claim settlement experiences, which become a major cause of policyholders’ grievances. Besides, people also have a general perception that insurers don’t settle insurance claims. But if you ask Tapan Singhel, the MD and CEO of Bajaj Allianz General Insurance, he'll tell you that this is far from true since the numbers speak otherwise. To put things in perspective, for every ₹100 that the industry collects in premiums, there is an outgo of about ₹118.
- Buying insurance can be hard because you have to flip through pages of terms and conditions and read the fine print too. So most people either postpone buying a policy or buy one offline. That’s how over 60% of life and health insurance plans sell in India.
- Insurance might seem like an expensive affair for people living in a country where over 20% of the national income goes to the top 1% earners. So yeah, income disparity is a contributor too.
Oh, and the lack of awareness also means that most Indians scout for returns even with insurance. They treat insurance like investments and expect something in return for the premiums they put in. The latest Economic Survey highlights that most life insurance products sold in India are savings-linked, which significantly reduces the protection component. The insurance cover could drop by as much as 60%. And this puts households at risk when the insured who also may be the sole breadwinner dies.
So IRDAI wants to fix that. It wants to make it easy for people to buy insurance. And ensure that every Indian citizen gets appropriate life, health and property insurance coverage by 2047.
But how is Bima Sugam going to solve these huge problems, you ask?
Well, think of Bima Sugam as an e-commerce platform that sells insurance. When online shopping took off in India with a website called Fabmart* way back in 1999, most people probably didn’t use it. Not just because many didn’t have an internet connection back then, but because people distrusted this online ecosystem.
It took a while, but things slowly changed when Snapdeal, Flipkart and Amazon emerged. Now, of course, their discounts are what attracted people, but selling smaller things like books might have nudged people to try it out. Seeing that it worked, the trust began to develop, and online shopping became everyone’s favourite activity.
And Bima Sugam has the tailwinds of the digital age. As long as the basics are in place for the platform, people might simply advance their e-commerce behaviour for insurance shopping too. And the deal clincher might just be the fact that since it’s a platform that will connect the insurance company directly with a buyer, you can do away with agents or intermediaries interfering with your insurance-buying journey. You can save on agent commissions. For context, in FY23 life insurers passed on 5% of the total premiums they collected as commissions to their agents.
So actually, it’s like killing two birds with one stone ― it reduces the chances of commission driven mis-selling and makes the policy buying experience simpler and cheaper.
Besides, IRDAI doesn’t want you to pay for this service either. You’ll have all your policies in one place. So you don’t have to run from pillar to post to renew them, make claims or even raise grievances irrespective of the insurance company or it being a life, health, vehicle or other general insurance policy. It makes managing insurance easier, tackling another aspect of complexity in insurance.
So yeah, this new platform could solve many if not all the problems that haunt insurance buyers in India.
But wait…won’t it kill insurtech companies that earn revenues by selling these policies?
Well, that’s what big research firms like Macquarie have stated. But don’t write them off just yet. Remember how everyone claimed that the government Open Network for Digital Commerce would change the way people shopped and ordered food? That it would be a threat to the Flipkarts and Zomatos of India?
Well, it doesn’t seem to have happened just yet. Everyone’s still doing pretty well for themselves.
Also, don’t forget that people still dislike insurance because of the onerous documentation. And the fear of not having someone by your side during a claims dispute with an insurance company. So an e-commerce marketplace for insurance isn’t going to solve that. And people might want the familiarity of an insurance advisor to guide them.
We don’t know. All we can say is that we’ll have to wait and see how it’ll all pan out.
Until then…
*If you’re wondering what Fabmart was, you know it today as Aditya Birla Group’s More. The group had acquired Fabmart and rebranded it to More. But its founder K Vaitheeswaran continued his online venture under a new brand name ‘Indiaplaza’, which ultimately succumbed to big e-commerce disruptors like Flipkart and Snapdeal and ultimately shut shop in 2013.
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