Background: IRDAI initiated the idea of BimaSugam in 2022 and wanted to materialise in January 2023; however, it has been delayed due to multiple reasons. Public sources and the recent draft regulations revealed the regulator’s intention to establish an online platform for listing and selling insurance policies. The idea of this platform evolved to improve insurance penetration in India by lowering commissions and hoping that insurers would pass on the savings to insurance buyers. The regulator has notified a draft scope in the month of February in terms of how this platform will function.
Draft regulations
The following are some of the key highlights of the draft regulation, dated February 16, 2024::
- Insurance Electronic Marketplace” (hereinafter referred to as “the Marketplace”) is a robust digital public infrastructure or protocol with open standards and interoperable platforms, enabling seamless integration with various services to facilitate inter alia purchase, sale, settlement of insurance claims, grievance redressal, and servicing of insurance policies.
- Life insurers, general insurers, and health insurers shall hold a wide shareholding in the company, with no single entity holding a controlling stake..
- Consumers won’t pay any fees to access the platform, and the revenue model will be self-sustaining. . [Didn’t indicate the exact economics]
- Functions of the marketplace include –a consent-based architecture for its services, Allow fair and open role-based access; not store, hold or maintain any data; Delivery of its obligations.
Impact on Ecosystem by BimaSugam
Does BimaSugam become an alternative to PolicyBazaar by becoming an online platform? PolicyBazaar is a B2C insurance broking platform that has more than 90%+ market share in the B2C market. The primary reason for a monopoly structure in B2C is because of the brand recall spend of ~2,000 Crore over the last 12 years. As the brand recall is very high for insurance we believe that the platform should be able to spend significant amounts on marketing to attract customers, of which we are unsure at this point. In addition, online platforms also run massive call centres to guide customers and handhold them during a transaction post lead-generation. The highly optimised call-centre (chatbots, automated calls, query responses, and handing the right customer to the right agent) which the company has taken over a decade to build in terms of trust, also helps increase the conversion rates and cut costs. PB Fintech has spent an average of 52% of Policybazaar revenue on call centre operations, i.e., 350 Crore annually, and needs senior management to oversee these operations.
Even if the regulator intends to spend money, managing it at scale and building a sustainable business might be hard. Might take a slight share in the B2C insurance world, but we don’t expect any significant impact because of this. The advantage here is that emerging insurance companies can tap into the B2C market, offering a new avenue to sell their policies. Additionally, major insurers, like ICICI Lombard, which have previously delisted from platforms like PB Fintech, because they wanted to reduce dependency on third-party aggregators and have a self-digital distribution channel, might now consider listing on aggregator sites to reach more customers directly. This shift could provide both new and established companies with direct access to consumers, potentially expanding their market presence.
Can BimaSugam become a protocol layer by providing technology to B2B2C platforms?
In June, the chairman mentioned that agents and brokers could use the marketplace to sell policies, indicating that there would be no job losses. He suggested that the platform could lead to a more efficient distribution model. However, draft regulations, such as the prohibition of data storage, imply that the marketplace may not utilise data for analytics, customer retention, or similar purposes, which are core to a marketplace. This could result in the marketplace serving as a protocol layer similar to UPI and ONDC, providing underlying technology to ecosystem stakeholders. This parallels the UPI model, where customers accessed technology through distribution companies like PhonePe and GPay, which utilised the protocol layer to reach the last mile in the payments space. We believe a protocol layer in the insurance space could lead to the standardisation of various aspects, such as streamlining policy manuals, creating E-Bima accounts for policyholders, and establishing a customer database repository. Platform stakeholders could utilize this repository, potentially ensuring the survival of long-tail brokers. The technology could assist traditional brokers andagency channels in accessing technology and integrations, thereby lowering barriers to entry as upfront capital for technology may not be required. While consolidation of brokers is anticipated, it likely won’t result in a scenario where only 3-4 aggregators control the B2B2C market.
[Fragmentation might reduce the serviceable obtainable market for B2B2C PoSP aggregators more than expected, though we don’t think it would be very high as agents get attracted to the brand of the aggregator, the product suite offered by the platform and the payout structure. Large aggregators can draw good commissions given the total volume they bring to insurance companies]
Can they drive the commissions down?:
The insurance industry predominantly operates through an agency model, with agents playing a crucial role in developed countries like the US and Germany, where B2B2C transactions constitute over 80% of the market. Given that India is a developing country and the product has a push nature, B2B2C will be significantly important. Agents typically earn commissions of 20%-25% on premiums in the US, while in India, this figure rises to 30%-35%. This higher rate in India is due to the necessity of incentivizing agents to provide quality services and maintain trust with clients. Given this reliance on agents and the importance of trust and service, it seems unlikely that commissions will decrease. EOM regulation has been notified for general and health insurance – expenses are capped at 30% for general and 35% for health, plus 5% for insurtech-related expenses. Hence, we believe the commissions will remain within the same range, as the regulator is focused on increasing penetration and does not intend to alter the industry’s functioning.
Summary
In the present scenario, we think it will be too early to understand how this platform can shape up. In our view, this can shape up like a digital infrastructure platform that can support brokers. We don’t think it will disturb the current way of working in terms of economics, agent working, etc.