Although traditional distribution models have long dominated the Indian insurance scene, insurtechs have emerged as disruptors, by leveraging on technologies such as artificial intelligence, machine learning, big data and internet of things to improve the efficiency of processes in the insurance world.
Are these insurtech collaborations really as successful as envisaged or are they facing new challenges which are slowing things down?
The shift in consumer behavior has certainly heralded a new digital revolution and all insurance companies are rethinking their strategies to collaborate with insurtech partners to revamp their digital infrastructure capabilities. Such collaborations of insurance companies with insurtech statups is emerging to be a necessity to transform insurance product models, backend integration, introduce the use of technology such as AI and ML and lead to improved consumer experience. Potential areas for collaboration include enhancing capabilities in the areas of marketing and distribution, policy administration, fraud detection, customer engagement and filing of claims. However, this journey is fraught with many challenges, which need to be addressed efficiently.
Insurance is one of the most highly regulated sectors in India and startups can find it extremely challenging to navigate through the myriad regulatory requirements and compliances. The regulations are dynamic and require in-depth insurance knowledge. Whilst insurtech startups can assist insurance companies in building their capabilities, they cannot themselves enter into the insurance foray for any solicitation activities unless they are registered as an insurer or licensed as an insurance intermediary. To foster further innovation in the insurance sector, the Insurance Regulatory and Development Authority (“IRDAI”) Introduced the regulatory sandbox in 2019 to facilitate innovation in the insurance sector by providing insurtechs with a testing environment for new business models, processes and applications in a protected environment. However, these are all largely focused on technology platforms.
Moreover, collaborations cannot delve into the core activities of an insurer, which are to be exclusively carried out by the insurers themselves. For insurance, the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 (“Outsourcing Regulations”), do not allow an insurer to outsource product designing, actuarial functions and decision making in underwriting. Other areas such as product development need equal attention. A more flexible regulatory regime is certainly the need of the hour, as it will bring a new wave of innovation to the insurance sector in India in the form of bite sized insurance products which meet the evolving risks of customers.
Creating long lasting customer relationships for insurance solicitation is also a big challenge faced by insurtechs, in the face of the requirement for only licensed entities to solicit insurance.
Integration with existing systems of insurers
Most insurtech start-ups also face the burden of trying to integrate with the legacy and often out dated systems which are used by insurers. Given the absence of deep pockets, these companies have to deal with inevitable delays and cost escalations as a result of aging technology platforms coupled with employees who resist change.
Fierce competition and pricing
With insurance companies being the key customer for insurtechs, competition is very high. This is pushing prices for insurtech services to abnormally low rates, although insurance rates have hardened globally post Covid 19. The lack of transparency in pricing is a key challenge for insurance service providers.
Privacy and transparency concerns
With more emphasis globally on data protection, customers are vary of data breaches and now take a keen interest in what their personal data is being used for and how it is collected.
There are also very strict regulatory restrictions on insurers and insurance intermediaries from transferring the data of their customers to third parties. There is an urgent need to streamline data collection for channelizing its use for the entire insurance value chain. Not all insurtechs come within the regulatory purview of the IRDAI thereby creating a regulatory gray area. The insurance industry deals with a lot of data produced by their policyholders and insurtechs are highly reliant on this data to provide digital solutions. While the IRDAI imposes explicit data protection and confidentiality obligations on the insurance companies, the insurtechs which do not come within the regulatory purview are largely unregulated. This risk is exacerbated by the lack of comprehensive data protection law in India.
Insurtech is still in its infancy in India. Tackling some of these issues will result in a slew of new entrants into the insurtech space and foster successful partnerships where insurance distribution will be swift, app based and easily accessible.