Back in the 90s, insurance was bought mostly through an agent, where the agent would recommend a plan, explain its benefits, help fill in the policy documents and then periodically collect the cheque for the premium payments. The insurance market has dramatically changed since, with the methods of selling insurance having evolved as a result of the internet boom. You can now buy not only products and foodstuffs online, but insurance products as well.
A large number of private players have entered the insurance market over the past few years. They offer a wide array of insurance products, where customers can evaluate the terms and conditions of each insurer, and then pick the plan that is in line with their budget, expectations and individual requirements.
With the growing need for customers to compare insurance products before making a purchase, the concept of insurance aggregators was introduced. Aggregators provide customers a comparison between similar insurance products, thus enabling them to make an educated choice before purchase.
Though insurance aggregators have seen a good success rate in the UK, India and other key European markets, they are yet to achieve the same levels of success in other regions in the world. With an increased focus on developing digital technologies, the Asia-Pacific and American regions will see many growth opportunities for online insurance aggregators over the next 5-10 years, with online aggregators already having been established in Canada, Australia, USA, Hong Kong, South Korea, Singapore and India.
Growing popularity of insurance aggregators
The emergence of insurance aggregators has completely revolutionised the distribution and purchase of insurance products and services. They were first introduced in the UK insurance industry in 2002 with the launch of the site ‘confused.com’. After merely a decade, they now account for 50% of personal insurance products, and 60% of new motor insurance policies, according to a study conducted by Research and Markets.
Insurance aggregators were introduced for the purpose of enabling customers to compare insurance products, while deciding which product to buy. They are independent entities, who are granted a license (by the Insurance Regulatory and Development Authority of India (IRDAI) in the case of India), to display insurance product information of multiple companies on a common platform.
Online aggregators provide full-fledged websites, where they compile the information of insurance policies of varied companies, and give customers the option of comparing the prices of products. They act as brokers, knowledge providers, solicitors and telemarketers.
Role and function of insurance aggregators
Due to the growing popularity of insurance aggregators, the IRDAI in India, introduced a set of guidelines and regulations for these aggregators, as per a notification issued in December 2013. As per these IRDAI guidelines, the role and functions of an insurance aggregator with respect to customers is as under:
- Providing information of about varied insurance products like health insurance, car insurance etc to customers.
- Ensuring that customer data and other information is transferred to insurers in compliance with all the recommended security standards and with the consent of the customer.
- Collecting premiums for payments for insurers from customers using RBI-licensed payment gateways.
- Providing comparisons of insurance policies so that customers can make educated decisions about which product to buy.
- Contacting potential buyers directly in order to provide advisory services, or complete transactions
- Understanding a customer’s awareness of the terms, conditions and risks involved in insurance.
- Recording and monitoring complaints, and resolving grievances to the fullest satisfaction of the customer.
- Ensuring that all communications (including complaints and grievances) from the customer’s end are acknowledged and responded to within 5 working days of the receipt of the communication.
Impact of insurance aggregators to previously-existing insurance-selling models
The growing popularity of insurance aggregators has radically impacted the insurance market by introducing a price-based competition among insurers.
Large insurers are facing challenges like fall in the rate of customer retention, brand dilution, decrease in market share and profitability due to the comparison features offered by online aggregators. As a result, smaller insurance companies, low-cost insurance providers and new players are experiencing an increase in market share.
Insurance brokers too, have been impacted by the emergence of insurance aggregators. Home and motor insurance in European markets like France, Germany, Italy and UK were completely transformed from a traditional broker-led insurance market to an online-aggregator-led one in 10 years’ time. This trend is expected to catch on in other major world economies in the next 5-10 years.
The impact of technology on the insurance industry
Insurance aggregators provide customers with a convenient and transparent means by which, they can compare insurance products and decide which product suits their needs. Thanks to technological advancements in the digital space and the growing use of smartphones, customers now have easy access to a wealth of information via the internet.
Both private players and insurance companies are investing in mobile apps, to ensure that customers have the information they need at the click of a button.
According to a study conducted by Cisco, global internet traffic in 2020 will equal 95 times the volume of the entire global internet traffic of 2005. With specific reference to India, Cisco stated that the internet traffic in India is slated to rise at a compounded annual growth rate of 34% from 2015, thus rising more than four-fold by 2020. Furthermore, almost 69% of all the networked devices will be mobile-connected by that time.
A joint ASSOCHAM-Forrester study paper states that India’s ecommerce revenue is expected to phenomenally increase from USD 30 billion in 2016, to USD 120 billion in 2020, which reflects an annual growth rate of 51%. In India, around 60-65% of total e-commerce sales are being generated via smartphones at present.
This anticipated rampant usage of the internet and smartphones will serve as a key factor to drive the growth of online insurance aggregators, not only across the world but in India as well. The Indian Government is championing this, by endeavouring to provide internet facilities to remote rural regions in the country as well.
The government is in the process of laying down an optic fibre network, in order to provide rural India with internet services. Furthermore, Google is seeking approvals form the Indian Government to conduct a pilot program where it would be using high-altitude balloons to provide internet connectivity to far-flung regions in India.
All these endeavours will have a direct impact on the insurance industry, and in particular, on web aggregators. Though India is at a fairly nascent stage when compared to its global counterparts as far as insurance aggregators go, an increase in internet penetration and online transactions is sure to increase the role played by insurance aggregators in time to come.
According to a study conducted by the Boston Consulting Group titled ‘The Changing Face of Indian Insurance’, due to the expanding digital footprint in the country, comparisons of insurance products and internet searches with the help of online insurance aggregators have moved up from 10% in January 2012 to 17% in January 2015. This number is expected to increase further with an increase in internet usage.
Recent changes proposed by the IRDAI in India, to foster growth of the insurance aggregator business
Alongside the digital impetus provided to insurance aggregators in the Indian scenario, the IRDAI too is encouraging insurance aggregators to further expand their portfolio of services. Formerly, aggregators were permitted to showcase annualized premiums of up to Rs.50,000. The IRDAI proposes to increase this limit to Rs.1,50,000.
Furthermore, it is also proposed that aggregators in India will also be allowed to sell unit-linked insurance plans (ULIPs) – a product that insurance aggregators were not allowed to sell previously.
Insurance aggregators will also be expected to provide a full disclosure of the products by way of enlisting not only price comparisons, but important terms and conditions, key features, exclusions and benefits as well. Customers can visit the website and understand complete information on health insurance, motor insurance etc. and decide the most suitable plans for themselves.
Future prospects of insurance aggregators
A 2015 Global Insurance Outlook Report by E&Y states that in the next few years, there is a lot of potential globally, for expanding aggregator and direct-to-consumer models, while at the same time, providing real-time services and support, as well as enhanced price-product transparency.
Aggregators will face competition from other insurance aggregator websites, threats on the cyber-security front and the challenge of personalisation of products according to the profile of the customer, however they will continue to emerge as the most popular choice for purchasing insurance products.
Insurance aggregators must continue to emerge and offer insurance products directly to consumers, while coming up with new and inventive services to encourage loyalty and brand retention. Insurance will continue to see massive changes thanks to insurance aggregators, transforming from a seller’s market to a buyer’s market world over. Insurers will continue to partner with these aggregators, while focusing primarily on the needs of the consumer, in so doing.