Future of Insurance Companies in India: Insurance Shared value Business model | Insurance business in India case study thumbnail

Future of Insurance Companies in India: Insurance Shared value Business model | Insurance business in India case study

The insurance industry in India is accelerating at a remarkable pace. As of 2020, mobile and internet penetration has already reached 700 million Indians. And because of the Jio wave, the internet has already reached the remotest parts of the country. And these two factors are expected to catalyze the insurance penetration intensity in India. In fact, the IBEF report states that.

The Indian insurance industry will grow four folds in the next 10 years from its current size of $60 billion. And now with Star Health going IPO and with giant public listed players like Policybazaar, LIC and SBI there is one very, very important factor that they need to capitalize on to become a dominating player in the insurance market. And if they play their cards well, the.

Profits of these companies can skyrocket by 1000s of crores in the next 10 years. And obviously, their stock price is going to shoot up accordingly. So the question is, what is the next big revolution in the insurance sector? How will it increase the profits of the insurance companies by 1000s of crores? And most importantly, as investors in.

In the insurance space, what are the factors that you need to keep an eye on to understand the insurance market better? First of all, let’s try to understand how do insurance companies make money? If you know the answer to the same, you may skip to this timestamp. If you don’t, here’s a very, very simple explanation of the same.

Let’s take the example of a company called Mango Insurance that is selling car insurance to 1000 people. So, each one of these people has bought a car that costs 10 lakh rupees. All of these customers are now going to pay a monthly premium to the insurance company. Let’s say this premium is 500 rupees. So, each month the Mango Insurance company.

Collects five lakh rupees per month and 60 lakh rupees in the entire year as premiums. Now if 20 people among these 1000 people meet with an accident, then each one of them will claim their insurance. This means that, if I have a dent in my car that needs to be fixed, I will spend 10,000 rupees for the dent and then claim my insurance. Similarly, you might have broken.

The bumper will cost you 30,000 rupees, and so on and so forth. So, on average, let’s say 20 people claim insurance of 20,000 rupees each. Then what happens, the insurance company pays these people four lakh rupees in total in order to fix their damages. This way, even if I the consumer have only paid 6000 rupees in premium, I am still able.

To fix my repair that is worth 20,000 rupees and at the same time, the insurance company has collected 60 lakh rupees for the entire year, but they had to spend only four lakh rupees in reimbursing the repairs of its customers. And at the end of the year, the insurance company has 56 lakh rupees to pay its employees and generate a profit. This is how an insurance company works. Now if you.

Look closely, the reason why the insurance company is able to make a profit is that, out of that 1000 people only 20 people met with an accident. But if the same number shoots up to 200 with an average claim of 20,000 rupees, then it will cost the company 40 lakh rupees which leaves them with only 20 lakhs to pay the employees and generate a profit. Therefore, the insurance company tries.

To minimize the number of claims so that it can generate maximum profits. Now, the question over here is how does the insurance company do it? Well, this is where the terms and conditions come in. The insurance company will put a condition that, if the person driving the car does not have a license, then your claim will be rejected.

If the vehicle gets damaged, because you’ve flouted the traffic rules as you met with an accident while breaking the signal, then your claim will be rejected. If you claim damages that occurred before the claim, then again, your claim will be rejected. This is the reason why they appoint an officer called the surveyor who comes to inspect whether your claim is real or it’s fake.

Now until now, everything is great, but the problem begins when the insurance companies start including clauses that destroy the very purpose of the insurance. For example, in health insurance, if you meet with an accident, the insurance company will cover hospital expenses, but they will not cover medical expenses. So by default, the patient ends up spending.

A lot of money in spite of having insurance. In-car insurance will include a clause that windshield damage is not covered, in spite of it being the most obvious part to break. And last and most importantly, the procedure to claim insurance becomes so tedious that the customer himself gives up. For example, and this is a real incident that happened when the Kerala floods happened a lot of shopkeepers.

Lost their entire shop in floods, all their inventory was damaged, all their furniture was gone, and even the documents got washed away. But when the shopkeeper claimed insurance from a PSU insurance company, they said they needed documents and proof of damage. Now, do you realize if your insurance is covering a flood scenario, it is obvious that the documents will be very difficult to get?

And when a surveyor can see that the damage has happened, when the insurance company has a bank account and the shop address synced with the owner’s name and yet If they need documents, do you see it’s by default, a process that makes it so tedious that the shopkeeper might just give up. Whereas, you know, what a private company did? They actually deployed a drone to check the location of the stores that were damaged,.

They could see that the condition was bad. So they quickly got the shopkeeper to WhatsApp them the video of the damaged shop, and immediately the claim was processed. Now, do you realize how big a deal this is? For a grocery store owner, it’s his bread and butter, and only when his business is up and running, can he actually start feeding his family. So every single day lost in.

Formalities is costing him money. And during this time, even if the insurance company gives you 70% of the claim, even then it’s a very, very big deal for a small store owner. Similarly, and you must have witnessed this already, in the race of filtering through the fake claims, the insurance company causes a lot of problems even to the genuine customers. And at the same time, from a business.

Standpoint, if the insurance companies have to survive and make money, they have to eliminate as many claims as possible. This is the biggest reason why the relationship between the customers and the insurance company has always been bad. And every time a salesman comes to sell you insurance, people perceive them as looters and not as well-wishers willing to secure your future.

So the golden question is, what is the solution to this problem? And how can we create a win-win scenario for both the insurance companies and the customers, such that the customers get the security that they pay for and the insurance companies can generate the profits that they deserve? The answer to this question comes from two Harvard professors who go by the name.

Michael Porter and Mark Kramer, and term this concept as ‘the shared value model’. To tell you about it, if you look at the fundamental motive of insurance companies and the customers, both of them have one goal in common and that is the safety of the customers. For example, if the customer meets with fewer accidents, he’ll be happy. And if many people do not meet with accidents.

There’ll be very less claims, so the insurance company will be able to make more money. So ultimately, customer safety means more profits for insurance and happy customers. So now the question is, how does the insurance company ensure that their customers are safe? A classic example of the same is the case of a company called Insurance Australia Group. IAG noticed that the number of accidents in.

Australia was increasing at an alarming rate. And because of too many accidents, they were not as profitable as their projections. Now, most companies would simply increase their claim amount or they would try to eliminate the claims by denying the payment to the customers who claim insurance after being hospitalized. But you know what, guys, the IAG extensively invested in its research center to understand.

Why do so many accidents happen in Australia? So between 2002 to 2007, the research center delivered something called the 101 Accident Blackspots Program in New South Wales. And they identified the worst intersection for collision. And after that, they started to spread awareness, which pushed the government to install traffic lights at the number one black spot in Miranda in 2002.

And guess what, within no time, the number of collisions dropped by 80%. And the research also drove safety improvements when the entrance ramp at Silverwater, which eventually reduce the number of collisions at the black spot by 300 collisions a year, and ultimately saving an estimated $600,000 per year in claim costs since 2005. Another example is a REDWOODS Group in United.

States that invested $3 million a year in consulting services that reduced drowning deaths, and the company ended up saving $6 million in insurance claims per year. This is how the insurance companies can use the concept of ‘shared value model’ for the well-being of the customers and at the same time increase their profits. Now the question is as investors in.

The Indian stock market, how is it relevant to us in the Indian market? Well, this is where ladies and gentlemen, the evolution of technology in India comes in. We are now looking at the rise of the first generation cars that are connected to the internet, we are now seeing the rise of wearable gadgets. And lastly, with the data revolution at its.

Peak, insurance companies have the golden opportunity to mitigate risk for their customers. For example, using car tech data can be collected about every little aspect of the user like the driving speed, the frequency of expressway drives, the accident hotspots, and even the driving tendency of the customer. And based on these parameters, the insurance companies can do three things.

Number one, the risk profile will automatically calculate the ideal premium value for the user. Number two, the accident hotspots could be spotted and the respective government bodies could be informed to fix the accident spots. And lastly, the safety of the user can be incentivized. For example, if the driver regularly does servicing on time, the insurance companies.

Can give them a discount on the premium cost. If they don’t exceed the 90 kilometers per hour mark while speeding, they will get a discount and so on and so forth. In fact, because of this data advantage, even Tesla is now getting into insurance service. And merely because of data, Tesla now has the potential to generate a billion dollars in pure profits.

Similarly, health insurance companies can incentivize exercising, they can give out discounts on organic food products and give free gym memberships to its customers. The best part is that, even if the insurance penetration is low as of now in India, the people who have a wearable gadget or car tech are by default high ticket customers, because of which, even with the limited.

Scope that we have, the insurance companies have a huge scope to increase your profits and save hundreds of crores in claim costs. Furthermore, with mobile and internet penetration, with the rise of payment gateways like Phonepe, and Paytm, both customer onboarding and data collection is becoming extremely easy. This is how using the concept of ‘shared value’ using the foundation of mobile and.

Internet penetration and lastly, by using data analytics, insurance companies can increase their profits by 1000s of crores in the next five to 10 years using the ‘shared value model’. And this brings me to the most important part of the episode and that is as investors into the FinTech and insurance space, what are the factors that we need to keep an eye on to understand the insurance space better.

Meanwhile, if you want to strategically invest into insurance and banking firms, you can use a Smallcase app to do so.Smallcase is a wonderful app that creates a basket of stocks to help you make the best investments in any market condition. In this case, the most relevant smallcases are the insurance tracker smallcase and the banking tracker smallcase. The best part about Smallcase is that.

The smallcase manager himself rebalances the stock so that you can get the best returns in any market condition. And with the rise of the new variant of COVID, the market is expected to shake up. This is where this kind of expertise comes in very, very handy. And also, if you don’t want to make investments, you can use their news section and free blog.

Posts to get the best and latest market insights. So if you want to make the most strategic investments in the stock market, regardless of the market conditions, download the Small case from the link in the description. Moving on to the lessons, there are three-pointers that we need to keep an eye on to understand the evolution of the insurance sector in India. Lesson number one, there is a dire need.

To change the relationship between the insurance companies and the customers. And the company that uses the ‘shared value model’ will by default, go on to disrupt the insurance space in India. Number two, keep an eye on how Policybazaar evolves into the next-gen insurance company. And when any company like Starhealth goes IPO, your job is to find out how are they.

Going to use the public money in order to capitalize on the future of the insurance market, or how unconventional companies like Tesla can become strong contenders in the insurance space using their data power. And the way I see it, considering the FinTech wave in India, we could see the rise of an unexpected FinTech company that could disrupt the insurance industry of India.

And lastly, with mobile and internet penetration reaching new levels, the same ease of claim processing needs to be executed at the bottom of the pyramid-like the grocery store in Kerala floods. And the companies no matter how big they are, if they don’t leverage technology to optimize the painful process of insurance, and learn to establish trust with the customers,.

They will go out of business within no time. And at the same time, companies like IAG and REDWOOD will be able to drastically increase their profits with the advantage of using the shared value model. That’s all from my side for today. Guys, if you learned something valuable, please make sure to share this article with your friends on social media.

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