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Digital insurance leads to cheaper products, better service: Acko General CEO INTERVIEW

Chirag Madia
Varun Dua, digital insurance

Insurance companies need capital, because with every new business more solvency capital needs to be introduced. We have raised capital in the past and we would soon raise more capital, Acko General Insurance MD and CEO Varun Dua tells Chirag Madia. Dua adds that Acko is targeting to reach break-even in the fourth to fifth year of operations.

It s been around 18 months of operations. How has the journey been so far?

It s been a very exciting journey. We launched our flagship auto insurance product last year, which has been doing reasonably well on the direct-to-customer front. We also started offering innovative products across the internet ecosystem and created products for Ola Cabs, Amazon, RedBus and Zomato. We are India s first purely digital insurer with no physical infrastructure. This will be the first full financial year cycle and we have added around 20 million customers in large and small products. The team has grown to 200-odd people and we have also been able to raise the desired amount of capital. In this respect, it has been a very satisfying first 18 months. The only challenging standpoint is that, while we are a start-up, we are also a highly regulated entity. We work very closely with the Insurance Regulatory and Development Authority of India (Irdai) and it has been very supportive of our model. When we try to do innovative things, it takes a little more time to get some proposals cleared. However, the regulator has been kind, and over the last 18 months it has come to appreciate our point of view and encourages more innovations.

What is your business model?

We are a general insurance player. Our business model is very simple: Sell digitally and get richer data for underwriting, which leads to better pricing for the customers. The cost of acquisition is lower when selling digitally, and cost of sales is also lower as we have not built any branches or engaged with agents. Additionally, we have a lot more data and analytics to work with and to price the risk better. Moreover, we digitally service the claims and make the process more simple and seamless with minimal paperwork. All this leads to two things. One, because of lower cost structure we are able to provide better value to customers with cheaper and better products. Secondly, with an online insurance model, we can carry out better data-backed underwriting and service claims in a much faster way. With ACKO, policyholders can now save 10-30% on premiums. We are also able to customise the pricing for example, higher price for bike owners from pin codes with history of fraud claims, lower price for a customer with good driving history. This is possible only by leveraging the vast amount of industry data available today with organisations such as the Insurance Information Bureau. From such sources, we can get national-level data on cohorts, cars, location, region, historical claims ratio, etc.

When will you turn profitable?

We are just 18 months old. Typically, general insurance companies take seven to eight years to reach break-even. Given the kind of model we have, we target to break even in the fourth to fifth year of operations.
What are the key advantages for policyholders coming to Acko?

There are two key advantages for policyholders coming to Acko. Firstly, prices are cheaper. About 80% of customers find our products to be 10-30% cheaper. Secondly, in the top 10-12 cities of the country, we are able to guarantee a claims settlement in a turnaround time of three days. We pick up the car, get it repaired and deliver it back to the policyholder, all in three days. So the two key advantages would essentially be cheaper products and better service.

Acko s focus is more on motor insurance and there are huge underwriting losses in the industry. When do you see profits coming into the segments?

Motor is currently a big segment for us. But in motor insurance, losses depend on the cohort being underwritten. We are a retail consumer company. We don t underwrite commercial vehicles, a segment which has higher losses. Our primary focus is on private four-wheeler and two wheeler insurance. In the same spirit, we may not sell group mediclaim for large corporations, we may only sell retail variants. From that standpoint, if one chooses their book well, there is money to be made and profitability can be achieved.

Acko has raised money in the past. How do you plan to spend it? Are you looking at raising more capital?

Insurance companies need capital, because with every new business, more solvency capital needs to be introduced. We have raised capital in the past and we would soon raise more capital. In the next few years, we would like to have two-three rounds of fundraising which will be required to scale the business. We are looking at three areas of capital allocation. First is marketing, because we are an online brand and we would like to advertise heavily. Second is technology, because we rely a lot on technology, whether it s for sales or underwriting. Third is solvency.

What are your long-term plans for the company?

We are very excited about the general insurance industry in India because right now it is one of the fastest growing industries in the world with 16-18% yearly growth. Penetration is poor and there is a lot of growth potential. Possibly, premiums will double in the next five to seven years. At Acko, we will be looking at segments of people who are not active insurance buyers, but will be more inclined to buy from digital platforms over insurance agents or offline platforms. From the long-term perspective, I hope that Acko becomes a large company in size and profitability.