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The Future of Insurance in INDIA : Shared value model (Using business case studies) - YouTube
Channel: Think School
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Hi everybody.The insurance industry in
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India is accelerating at a remarkable pace.
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As of 2020, mobile and internet penetration
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has already reached 700 million Indians.
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And because of the Jio wave, the internet has
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already reached the remotest parts of the country.
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And these two factors are expected to catalyze
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the insurance penetration intensity in India.
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In fact, the IBEF report states that
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the Indian insurance industry will
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grow four folds in the next 10 years
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from its current size of $60 billion.
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And now with Star Health going IPO and with
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giant public listed players like Policybazaar,
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LIC and SBI there is one very, very important
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factor that they need to capitalize on to become
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a dominating player in the insurance market.
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And if they play their cards well, the
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profits of these companies can skyrocket
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by 1000s of crores in the next 10 years.
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And obviously, their stock price
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is going to shoot up accordingly.
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So the question is, what is the next
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big revolution in the insurance sector?
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How will it increase the profits of the
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insurance companies by 1000s of crores?
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And most importantly, as investors in
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the insurance space, what are the factors
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that you need to keep an eye on to
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understand the insurance market better?
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First of all, let's try to understand
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how do insurance companies make money?
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If you know the answer to the same,
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you may skip to this timestamp.
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If you don't, here's a very, very
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simple explanation of the same.
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Let's take the example of a company
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called Mango Insurance that is
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selling car insurance to 1000 people.
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So, each one of these people has bought
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a car that costs 10 lakh rupees.All
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of these customers are now going to
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pay a monthly premium to the insurance
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company.Let's say this premium is 500 rupees.
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So, each month the Mango Insurance company
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collects five lakh rupees per month and 60
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lakh rupees in the entire year as premiums.
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Now if 20 people among these 1000 people
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meet with an accident, then each one of
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them will claim their insurance.Which means
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what, if I have a dent in my car that needs
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to be fixed, I will spend 10,000 rupees
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for the dent and then claim my insurance.
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Similarly, you might have broken
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your bumper that will cost you 30,000
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rupees, and so on and so forth.
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So, on an average, let's say 20 people
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claim insurance of 20,000 rupees each.
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Then what happens, the insurance company
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pays these people four lakh rupees in
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total in order to fix their damages.
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This way, even if I the consumer have only
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paid 6000 rupees in premium, I am still able
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to fix my repair that is worth 20,000 rupees
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and at the same time, the insurance company has
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collected 60 lakh rupees for the entire year,
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but they had to spend only four lakh rupees
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in reimbursing the repairs of its customers.
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And at the end of the year, the insurance
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company has 56 lakh rupees to pay
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its employees and generate a profit.
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This is how an insurance company works.Now if you
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look closely, the reason why the insurance company
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is able to make a profit is that, out of that
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1000 people only 20 people met with an accident.
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But if the same number shoots up to 200
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with an average claim of 20,000 rupees,
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then it will cost the company 40 lakh rupees
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which leaves them with only 20 lakhs to
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pay the employees and generate a profit.
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Therefore, the insurance company tries
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to minimize the number of claims so
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that it can generate maximum profits.
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Now, the question over here is how
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does the insurance company do it?
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Well, this is where the
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terms and conditions come in.
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The insurance company will put a condition that,
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if the person driving the car does not have
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a license, then your claim will be rejected.
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If the vehicle gets damaged, because
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you've flouted the traffic rules like you
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met with an accident while breaking the
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signal, then your claim will be rejected.
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If you claim damages that occurred before the
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claim, then again, your claim will be rejected.
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This is the reason why they appoint an officer
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called the surveyor who comes to inspect
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whether your claim is real or it's fake.
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Now until now, everything is great, but
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the problem begins when the insurance
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companies start including clauses that
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destroy the very purpose of the insurance.
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For example, in health insurance, if
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you meet with an accident, the insurance
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company will cover hospital expenses, but
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they will not cover medicine expenses.
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So by default, the patient ends up spending
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a lot of money in spite of having insurance.
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In car insurance, they will include a clause
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that windshield damage is not covered, in spite
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of it being the most obvious part to break.
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And last and most importantly, the procedure
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to claim insurance becomes so tedious that
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the customer himself gives up.For example,
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and this is a real incident that happened when
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Kerala floods happened a lot of shopkeepers
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lost their entire shop in floods, all their
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inventory was damaged, all their furniture was
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gone, and even the documents got washed away.
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But when the shopkeeper claimed insurance
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from a PSU insurance company, they said
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they needed documents and proof of damage.
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Now, do you realize if your insurance is
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covering a flood scenario, it is obvious that
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the documents will be very difficult to get.
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And when a surveyor can see that the damage has
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happened, when the insurance company has a bank
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account and the shop address synced with the
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owner's name and yet If they need documents, do
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you see it's by default, a process that makes it
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so tedious that the shopkeeper might just give
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up.Whereas, you know, what a private company did?
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They actually deployed a drone to check the
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location of the stores that were damaged,
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they could see that the condition was bad.
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So they quickly got the shopkeeper to
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WhatsApp them the video of the damaged shop,
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and immediately the claim was processed.
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Now, do you realize how big a deal this is?
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For a grocery store owner, it's his bread and
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butter, and only when his business is up and
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running, can he actually start feeding his family.
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So every single day lost in
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formalities is costing him money.
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And during this time, even if the insurance
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company gives you 70% of the claim, even then it's
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a very, very big deal for a small store owner.
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Similarly, and you must have witnessed this
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already, that in the race of filtering through
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the fake claims, the insurance company causes a
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lot of problems even to the genuine customers.
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And at the same time, from a business
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standpoint, if the insurance companies
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have to survive and make money, they have
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to eliminate as many claims as possible.
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This is the biggest reason why the
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relationship between the customers and
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the insurance company has always been bad.
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And every time a salesman comes to sell you
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insurance, people perceive them as looters and
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not as well-wishers willing to secure your future.
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So the golden question is, what
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is the solution to this problem?
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And how can we create a win-win scenario for
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both the insurance companies and the customers,
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such that the customers get the security
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that they pay for and the insurance companies
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can generate the profits that they deserve?
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The answer to this question comes from
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two Harvard professors who go by the name
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Michael Porter and Mark Kramer, and they term
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this concept as 'the shared value model'.
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To tell you about it, if you look at the
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fundamental motive of insurance companies and
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the customers, both of them have one goal in
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common and that is the safety of the customers.
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For example, if the customer meets
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with less accidents, he'll be happy.
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And if many people do not meet with accidents,
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there'll be very less claims, so the insurance
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company will be able to make more money.
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So ultimately, customer safety means more
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profits for insurance and happy customers.
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So now the question is, how does the insurance
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company ensure that their customers are safe?
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A classic example of the same is the case of
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a company called Insurance Australia Group.
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IAG noticed that the number of accidents in
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Australia were increasing at an alarming rate.
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And because of too many accidents, they
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were not as profitable as their projections.
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Now, most companies would simply increase their
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claim amount or they would try to eliminate the
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claims by denying the payment to the customers
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who claim insurance after being hospitalized.
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But you know what, guys, the IAG extensively
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invested into its research center to understand
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why do so many accidents happen in Australia.
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So between 2002 to 2007, the research center
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delivered something called the 101 Accident
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Blackspots Program in New South Wales.And they
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identified the worst intersection for collision.
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And after that, they started to spread
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awareness, which pushed the government
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to install traffic lights at the number
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one black spot in Miranda in 2002.
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And guess what, within no time, the
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number of collisions dropped by 80%.
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And the research also drove safety improvements
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when the entrance ramp at Silverwater, which
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eventually reduce the number of collisions
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at the black spot by 300 collisions a
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year, and ultimately saving an estimated
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$600,000 per year in claim costs since 2005.
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Another example is a REDWOODS Group in United
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States that invested $3 million a year in
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consulting services that reduced drowning
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deaths, and the company ended up saving
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$6 million in insurance claims per year.
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This is how the insurance companies can
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use the concept of 'shared value model'
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for the well-being of the customers and
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at the same time increase their profits.
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Now the question is as investors in
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the Indian stock market, how is it
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relevant to us in the Indian market?
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Well, this is where ladies and gentlemen, the
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evolution of technology in India comes in.
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We are now looking at the rise of
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the first generation cars that are
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connected to the internet, we are now
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seeing the rise of wearable gadgets.
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And lastly, with the data revolution at its
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peak, insurance companies have the golden
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opportunity to mitigate risk for their customers.
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For example, using car tech data can be
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collected about every little aspect of the
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user like the driving speed, the frequency of
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expressway drives, the accident hotspots, and
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even the driving tendency of the customer.
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And based on these parameters, the
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insurance companies can do three things.
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Number one, the risk profile will automatically
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calculate the ideal premium value for the user.
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Number two, the accident hotspots could be
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spotted and the respective government bodies
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could be informed to fix the accident spots.
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And lastly, the safety of
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the user can be incentivized.
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For example, if the driver regularly does
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servicing on time, the insurance companies
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can give them a discount on the premium cost.
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If they don't exceed the 90 kilometers
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per hour mark while speeding, they will
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get a discount and so on and so forth.
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In fact, because of this data advantage, even
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Tesla is now getting into insurance service.
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And merely because of data, Tesla
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now has the potential to generate
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a billion dollars in pure profits.
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Similarly, health insurance companies can
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incentivize exercising, they can give out
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discounts on organic food products and
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give free gym memberships to its customers.
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The best part is that, even if the insurance
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penetration is low as of now in India, the
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people who have a wearable gadget or car
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tech are by default high ticket customers,
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because of which, even with the limited
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scope that we have, the insurance companies
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have a huge scope to increase your profits
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and save hundreds of crores in claim costs.
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Furthermore, with mobile and internet penetration,
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with the rise of payment gateways like Phonepe,
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and Paytm, both customer onboarding and
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data collection is becoming extremely easy.
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This is how using the concept of 'shared
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value' using the foundation of mobile and
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Internet penetration and lastly, by using data
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analytics, insurance companies can increase
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their profits by 1000s of crores in the next
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five to 10 years using the 'shared value model'.
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And this brings me to the most important
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part of the episode and that is as investors
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into the FinTech and insurance space, what
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are the factors that we need to keep an eye
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on to understand the insurance space better.
[670]
Meanwhile, if you want to strategically invest
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into insurance and banking firms, you can use a
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In this case, the most relevant smallcases
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The best part about Smallcase is that
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And with the rise of the new variant of
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This is where this kind of
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So if you want to make the most strategic
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Smallcase from the link in the description.
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Moving on to the lessons, there are three-pointers
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that we need to keep an eye on to understand
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the evolution of the insurance sector in India.
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Lesson number one, there is a dire need
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to change the relationship between the
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insurance companies and the customers.
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And the company that uses the 'shared
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value model' will by default, go on to
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disrupt the insurance space in India.
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Number two, keep an eye on how Policybazaar
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evolves into the next-gen insurance company.
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And when any company like Starhealth goes
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IPO, your job is to find out how are they
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going to use the public money in order to
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capitalize on the future of the insurance
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market, or how unconventional companies
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like Tesla can become strong contenders in
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the insurance space using their data power.
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And the way I see it, considering the FinTech
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wave in India, we could see the rise of
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an unexpected FinTech company that could
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disrupt the insurance industry of India.
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And lastly, with mobile and internet
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penetration reaching new levels, the
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same ease of claim processing needs to be
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executed at the bottom of the pyramid-like
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the grocery store in Kerala floods.
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And the companies no matter how big they
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are, if they don't leverage technology to
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optimize the painful process of insurance, and
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learn to establish trust with the customers,
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they will go out of business within no time.
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And at the same time, companies like IAG
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and REDWOOD will be able to drastically
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increase your profits with the advantage
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of using the shared value model.
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That's all from my side for today.
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Guys, if you learned something valuable,
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please make sure to the like button in
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order to make YouTube baba happy and for the
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studies please subscribe to our channel.
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Thank you so much for watching.
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I will see you in the next one.
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Bye-bye.
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