InsureMe: This startup showed up early to corner a booming market

The online insurance comparison startup is racing to establish market dominance. Funding will help, but data will be a game changer

InsureMe.lk is an online insurance shopping startup that launched in February 2017. The startup is demystifying insurance and making it absurdly simple to buy a policy. Its challenge now is grabbing market share before potential competitors realise just what InsureMe is on to.

The platform allows buyers to compare motor insurance policies offered by seven companies. The insurance industry raised over Rs130 billion in premiums in 2016. That’s the size of InsureMe’s potential market, and its growing.

After filling in the vehicle’s estimated market value, make and model, fuel type, year of manufacture, usage (personal, hire or rent), and no-claim bonus record, the platform lists the premiums each of the insurance companies charge. InsureMe also provides other details like type of accidents the policy covers, the value of third-party property damage it will pay for, and additional benefits like reimbursing towing costs, and airbag and accident-related personal injuries.

InsureMe will include other general insurance policies like home, fire and health insurance by the end of 2017, and add more insurance vendors to the list. Life insurance will be included later. It’s another animal that requires a different approach. For one thing, buyers have to undergo a medical exam.
The startup is a licensed insurance broker and can sell insurance policies online. InsureMe will earn commissions from insurance companies for selling their products. Broker commissions can differ from the insurance company to the type of insurance. The industry regulator, Insurance Board of Sri Lanka has capped the commission rate at 15% for motor, property and fire insurance.

Vipula Dharmapala, a former CFO of an insurance company, and his two friends Dilshan Perera and Indika Prematunga, also a former CFO, left well-paying and secure management-level jobs to start InsureMe with nothing but their savings. “People ask us if we are crazy,” Dharmapala says. But, they identified a market opportunity: One they’ve seen for years but couldn’t do anything about.“We

realised what was missing in Sri Lanka’s insurance market,” InsureMe Co-Founder Perera says. “People need an unbiased independent explanation about insurance and the options available to them,” he explains.

Insurance penetration is low in Sri Lanka compared to other countries in Asia. The industry here makes up 1% of GDP. In India, insurance accounts for 4% of GDP, and more than 5% in Thailand. However, demand for insurance will grow as the economy develops, people become savvier and incomes rise. “We realised we needed to get in quickly,” Dharmapala says.

The co-founders invested their savings to develop the platform, including upgrading systems at insurance companies to enable online sales and payments. It now needs funding to capture market share. The startup’s biggest challenge is not having access to databases to help target sales for faster growth.

The online insurance startup is demystifying insurance and making it absurdly simple to buy a policy

InsureMe is sitting on a gold mine.

The insurance industry here is small, with less than 5% of Rs10.6 trillion banking sector assets. Twenty nine insurance firms operate here: 14 offer only general insurance, 12 firms specialise in life insurance and 3 firms sell both types.

General insurance premiums amounted to nearly Rs70 billion in 2017. Motor insurance made up 78% of this, or Rs55 billion. If InsureMe acquires 10% of the motor insurance business, it could potentially earn around Rs825 million, generously assuming that they’re paid commissions at 15%. This works out to a customer base of around 20,000 Maruti owners or 12,000 who own Toyota Aquas or a couple of thousand BMW 5 Series owners, or a thousand who own a Range Rover Autobiography. InsureMe’s potential market is larger than that. There are over 650,000 cars out of 6.3 million vehicles registered in Sri Lanka.

There’s more. Private hospitals earn Rs48 billion annually. If InsureMe channels 10% of this, that’s Rs720 million in revenue. Including motor insurance, that’s Rs1.5 billion in revenue—and the startup employs just 20 people and the founders say they don’t need to expand staff to grow.

In the UK, 50% of insurance is bought online. If InsureMe sells policies online at this rate, the startup’s revenue will be around Rs5.25 billion. Or, if Sri Lanka’s insurance penetration was the same as India’s at 4% of GDP, its commissions income for just 10% of the business will be Rs8 billion. These estimates are based on generous assumptions.

InsureMe’s founders declined to comment on their projections or how many policies they’ve sold online since February 2017. They’re trying to raise funds to grow the business. “We can easily attract venture capital, but we need something more,” Dharmapala says. “We need investors who have networks.”

Early-bird startups that address an obvious need can grab a large market share with enough capital to spend on communications and marketing. But, insurance won’t sell like televisions and mobile phones do online. InsureMe’s competition is likely to be any one of the 57 insurance broker firms that already understand how the industry works.

InsureMe isn’t interested in a mad rush for market share either. It can grow faster by targeting the right demographic. It’s not trying to sell insurance for all 6.3 million vehicles, but the higher-end of the pyramid. That’s why it needs access to databases so badly. “Reaching out to individuals is the biggest challenge,” Perera echoes.

The startup does have an advantage. As it grows, it will not need to invest in distribution channels. The business also makes high margins because InsueMe doesn’t pay claims. “Technology, staff and overhead costs will decline as a share of total costs going forward. Communications will always be our biggest spend,” Perera says.

Our savings are depleting fast,” Perera laughs nervously. “We knew the risks. We knew the business will not return profits for at least two years,” he says. But, it’s only a matter of time.

The founders draw inspiration from similar startups elsewhere. In India, Coverfox has raised more than $16 million in funding, selling over 500 policies a month in 2015, and venture capital investors gave US-based PolicyGenius more than $20 million. It had 800,000 users by 2015.

In the past, insurance brokers played a dominant role, connecting buyers to insurance companies. As competition intensified, insurance companies turned to direct sales to increase market share. They expanded branch networks and sales teams to sell mostly life and motor insurance directly to customers. Insurance brokers lost their dominance.

In 2000, 57 insurance broker firms contributed over 15% to the insurance industry’s premium income. By 2015, that share fell to under 10%. Insurance brokers now mostly specialise in serving businesses with complex general insurance needs. They’re hardly visible in the life insurance market, accounting for 0.28% of the industry’s premium income of Rs54 billion that year.

InsureMe’s entry into the general insurance broker market makes sense.

For insurance companies, large branch networks and staff come at a cost. The industry deploys over 45,000 people from over 1,800 branches to sell insurance directly to clients, bypassing brokers. Unlike brokers whose alliance lies with the buyers, insurance sales agents work for the insurers, and are driven by targets and incentives. This leads to problems when buyers realise too late that their policies don’t provide the cover they assumed they were getting.

In 2015, the general insurance industry barely made underwriting profits: 99% of total premium income of the industry was spent on claims and acquisition costs (expenses incurred selling insurance, and includes salaries, commissions and overheads). Insurance companies are profitable because they make investment incomes.

Insurance companies cannot avoid paying claims, but there’s opportunity to reduce acquisition costs, which amounted to 36% of total general insurance premiums in 2015. “They cannot continue with this model for long,” Dharmapala says.

InsureMe is offering an alternate solution. Dharmapala says some insurance companies quote lower premiums on InsureMe. “This is probably only because it brings down their acquisition costs,” he says.

The founders draw inspiration from similar startups like Coverfox in India, which sold over 500 policies a month in 2015, and US-based PolicyGenius, which had 800,000 users by 2015

Even though insurance companies can sell products on their own online platforms, people are likely to shop on InsureMe because they can compare policies. InsureMe does all the legwork, collecting information from 21 insurance companies and collating them in one location. However, only seven of these companies have agreed to be comparison-shopped online. Dharmapala says the rest will come onboard before long. However, anyone can buy an insurance policy from any company through InsureMe because it’s a licensed insurance broker, albeit not online.

Convincing insurance companies to expose themselves to comparison-shopping is not a unique challenge.

US-based PolicyGenius found that insurance companies were reluctant to share premium details for comparison online. So, the startup shared its user data, showing how people tend to buy insurance policies based on a need rather than the cheapest premium.

Coverfox took four months in 2013 to sell its first policy for the same reason. Insurance companies were hesitant to trust Coverfox. They had challenges around buyers making incorrect or fraudulent disclosures, leading to disputes and grievances. Often, insurance agents (sales staff), driven by targets and commissions, are behind much of the disputes and misinformation. Coverfox convinced them that a digital platform actually improved disclosure quality, and the floodgates opened.

During its first three months, InsureMe chalked up over 50,000 online visitors. In May, the startup was reporting over 500 daily visits, mostly those comparing health insurance policies. The company is not disclosing how many of these visits converted into genuine sales. Non-disclosure agreements signed with potential investors prevent the company from doing so. That’s an indication that the startup is being taken seriously.

If it has a successful funding round, InsureMe will spend most of it on marketing, so it can win market share. Competition will come. The technology is available and easily replicated. Insurance is rocket science, so not anyone can enter the market, but there are 57 insurance broker firms who may decide to give it a shot; they already have the know-how and market connections.

InsureMe could also partner banks and finance companies. They already have large customer networks and require their home loans and leasing products to be insured. This may lock in a captive base in its race for market share.