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For us, product will be the driver and we will use technology for distribution

LiveMint logoLiveMint 09-07-2017 Deepti Bhaskaran

Get ready for a new insurance company, Acko General Insurance. It has received in principle regulatory clearance to launch a general insurance business in India. The company is expected to launch its products by October. Acko is backed by venture capitalists and family offices. It’s entire operations will be offered through the digital platform. Varun Dua, founder and chief executive officer of Acko (who also founded Coverfox.com, an online insurance broking company) spoke to Mint about what Acko will offer its customers. Edited excerpts:

Acko has positioned itself as a digital insurance company. Traditionally, insurers rely on distributors for sale of their products. Why do you think this will work?

If you look at the general insurance industry in India now, most of the insurers have common insurance products for the retail segment. The market is full of same five to six insurance products. So insurers need to employ distributors to reach out to customers and pitch their products. We will be different because our focus will be to create customised product solutions to cater to customer needs. Therefore, distribution will not be a priority because we believe that by customising products we will create demand. For us, product will be the driver and we will use technology for distribution. We are not saying we don’t need distributors. . We need products that customers want and distributors can sell easily on a technology-enabled platform. If the customer finds a product at a price that is relevant, distributors don’t have to hard sell.

We are averse to using distributors to buy market share based with high commissions, with undifferentiated products. If a niche product strikes a chord with customers, distributors also benefit.

What sort of products can we look forward to?

Our forte would be to customise regular products for customers. For instance, when you look at health insurance, there are some obvious gaps: like a good out-patient department (OPD) health insurance. OPD policies are not popular right now because these are not cashless. We will focus on making this product cashless. Also, unlike OPD products that come with caps, our product will not have any caps. We will also look at health insurance products for dental expenses.

So, while Acko will not offer basic health insurance policies immediately, we will focus on filling the gaps.

Even in motor insurance despite the products being de-tariffed, there isn’t much differentiation. A lot of data is now available on driving patterns but this information is not being used to price products. We want to tap this data and not charge customers who don’t use their cars very often. Basically, in motor insurance we want to get into differential pricing depending on customer usage. So, somebody who uses Uber and Ola will pay a lower premium than somebody who drives her car regularly. In order to offer customization, we will need to use big data and technology and that will be the focus for us.

Apart from customising products, we also want to offer products that are not available—like insurance for pets and gadgets. This is something we will eventually get into.

Typically, complex products need a lot of explaining. How efficient is the digital space for these?

I don’t think people are looking for complexity in products. There are many riders and add-ons in the market but when a customer comes online, she is looking for a basic product. Our focus will be to keep it extremely simple so that not much explanation is needed. Also, when you don’t focus on distribution, you automatically don’t focus on making your products feature rich. You add features to your product to give your distributors an edge over other products in the market. Distributors demand complexity so that they can talk about features. It’s more of a tool for empowering the distributors. When you look at customers, they only focus on the basics. Our focus will be on selling simple products but our USP will be customized products and price differentiation.

Insurers in India typically have a foreign partner for capital requirements and expertise. Given your business model, do you see yourself looking for a foreign partner?

If we look for a foreign partner, it would be for technical and underwriting expertise, not to raise capital. We plan to operate on a low-cost model and keep our company lean. We will not open branches for sales, but only for service and claims; therefore, we don’t need major capital infusion. Our major investment will be in technology and we will have a centralised technology architecture for customer service and claims processing.

Currently, we will not be recruiting agents but over time we may. But even then, our focus would be app-based selling wherein the agents will feed all the information of the customer in the app for us to access. Our aim is to always remain close to the customers so that we get data about our customers’ behaviour. Often, insurers who rely heavily on distributors are not able to get information about their customers because distributors close the sale and have direct access to customers. This also impacts underwriting as you don’t have information about your customers.

Also, given our product suite will be differentiated, I feel we will be able to keep the commissions to a minimum. Traditionally, products are the same. So, in order to sell these the agents are able to negotiate higher commissions. But when you offer customised solutions, you create a demand and agents also pick up these products to cater to demand.

One of the major pressure points in terms of costs is the distribution channel. As you intend to keep the company lean, by eliminating distribution, when do you think you will be able to break even? Most insurers in India are still struggling to make underwriting profits. Why do you think that’s the case and how will you be different?

We are not eliminating distribution, but finding more cost-effective ways to do the same. Using online distribution and by working with distribution partners who will enable further reach digitally—or adopt technology—one can potentially bring down the cost of distribution.

Also, the cost of distribution remains high if the underwriting is not sharp. A bad space to be in is high distribution costs and not so sharp underwriting. So, if the right balance is achieved, break-even can be achieved faster. In our case most of our business will be online. I feel underwriting is much sharper online as one has more information on the customer. So we are focussing on sharper underwriting and lower distribution costs.

You plan to be a digital insurer. What can customers expect from a digital insurance company? A lot of insurers are now focussing on fin-tech and things like chatbots for customer service. In fact, some insurers are also trying to capture customer data through telematics. How will you be any different?

If less than 10% of my customers visit my website and a majority deal with a physical intermediary for service, the chatbot service would benefit a very small proportion of my customer base. It does not move the needle. At heart, we believe we are a technology company.

Technology interventions have network effects on pricing, distribution costs, data analytics, underwriting, speed of service and the resultant overall cost structure of the company. When you zoom out and look at it, the effects are bigger. That’s our belief.

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