November 25, 2019
We’ve witnessed bite-sized financial instruments being provided by lending companies in the form of micro/nano loans and investment companies in the form of micro-investments. Now the insurance industry is following the trend by providing bite-sized insurance policies. Traditionally, insurance policies had to be simple – you pay monthly or annually for protection from insurers, and you receive a monetary benefit when something bad happens. The traditional insurance policies were underwritten, taking all risks and circumstances into account, which makes them expensive. But in this era of personalization, what if someone seeks protection for a specific period or protection against a particular risk at a lower cost?
This opportunity led to the development of “bite-sized” or “sachet insurance” where protection was provided by insurance companies for smaller premiums and reduced coverage. Bite-size insurance products were initially designed for the financial inclusion of the uninsured and economically risked population. These products then later saw traction in the urban environment, especially millennials, who thought of insurance products as more of an expense. Bite-sized insurance products can be majorly classified into three categories:
Need-Based Health Coverage: Traditional health insurance covers a person or the family where end-to-end of hospitalization and medical costs are covered. Such types of insurance products might not be a very attractive investment to the younger population; a lower-priced product that covers specific ailment (such as dengue, malaria, etc.) or covers for short duration would be a much attractive investment.
Event-Based Coverage: In this type of insurance, the customers prefer to buy an insurance product before they engage in a specific event such as travel insurance for flights, long-weekend travel, or simply attending an event that has the risk of being canceled. Earlier, the products that provided such coverage included life insurance or personal accident insurance products, which demanded higher premiums. Event-based insurance products cater to clients who believe that the risk occurs during the activity and reduces substantially after the event.
Time-Based Coverage: When buying a vehicle, conventional insurance allows owners to purchase vehicle insurance for three to five years or the shortest period of one year with annual premium payments. However, due to the changing models of traveling, such as ridesharing or vehicle sharing models, the need for short-period insurance protection is emerging. In such kinds of bite-sized insurance products, companies leverage technology such as IoT devices to decide parameters such as driving behavior and vehicle utilization to determine the premiums, which are for short durations.
In this article, we deep-dive into the bite-sized insurance segment to learn more about the players who distribute these products and how they do it.
The first category of players includes pure-play InsurTech startups that have received an underwriting license. There are only a handful of companies in this segment; receiving approval from regulators to underwrite yourself is a mammoth task in the majority of countries. A few of the companies that have launched their own bite-sized insurance products include Metromile, Lemonade, Acko Insurance, Digit, BIMA, MicroEnsure, Slice, Zego, Friday, and Zhong An.
The second category of players includes traditional insurance companies. These traditional companies have either repackaged or repurposed their existing products or have introduced new insurance products to suit changing consumer preferences. These players majorly sell their products through other platforms. A few of the companies that have introduced such products include AXA, Bajaj-Allianz, ICICI Prudential Life Insurance, Aegon Life Insurance, DBS Bank Hong Kong, Allstate, and Future Generali.
The third set of players are those who leverage their platform to disburse bite-size insurance products. There are InsurTech companies in this segment that use their platform to disburse bite-size insurance products that are underwritten by a licensed player. Examples of some of such players include Laka, which provides bite-sized insurance products for bicycles backed by Zurich; and Cuvva, which offers short-term insurance for drivers and travelers underwritten by AXA, Insenture and Mulsanne Insurance Company.
Another set of companies that help in bite-size insurance products are marketplaces like PolicyBazaar and Coverfox, which enable the buyers to compare and choose the best bite-sized insurance product as per their preference. The last set of players are companies that primarily operate in a different segment and are looking to expand their offerings by providing their customers with insurance products. A few examples include Ola partnering with Religare to provide health insurance in India, MobiKwik partnering with ICICI to provide life insurance, and Grab partnering with NTUC Income to provide bite-sized insurance plans to help Grab’s driver-partners better protect themselves against critical illness.
As the millennial population grows, the need for providing personalized products will become mandatory. We expect more of such bite-sized products cropping up in the market either by licensed InsurTech companies, traditional insurance companies or through partnerships. We will continue to track this segment and will provide more insights in the future.