22 highlights
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Comparison. That has been Policybazaar’s moat for the last 13 years.
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It is remarkable how this little act of retribution and the insight that customers would be served better if they compared stuff before putting down the money has spawned a business that’s generating Rs 800 crore of cash every year and a humble bottom line.
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How Policybazaar does on the bourses will determine the fate of several companies who are keen to follow in its footsteps. All with a similar business model where they sell products and services on the back of India’s growing internet penetration and purchasing power.
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Right off the bat, glancing through Policybazaar’s DRHP, it would seem that comparison is not quite all there is to the company. There are plans to open some 200+ retail stores to sell insurance in Tier II and Tier III cities. Then there’s the issue of a few large insurance companies that are putting up a strong fight against the aggregator. Mix that up with the fact that Policybazaar employs 5,000+ people in a call centre, where it takes a minimum of seven calls to convert any user into purchasing a policy from the company, and you start seeing a very different Policybazaar
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Policybazaar and Yashish Dahiya pioneered the web aggregator or online marketplace business in insurance. And its early-mover advantage has made it the biggest online insurance marketplace in terms of brand value and market share.
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According to a survey by consulting firm Frost & Sullivan, around 65.3% of all digital insurance policies sold in 2019-20 were through Policybazaar. The platform commands a 93.4% market share in terms of policies sold by insurance web aggregators.
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The company’s business model is mainly two-fold: earn commissions from insurers on every policy it sells to customers and fees from insurers on marketing and consulting services.
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The major contributors on the revenue side for Policybazaar would be health and life insurance at 70%, whereas in terms of profitability the mix would be 50% from health and life and other policies at 50%, says a senior insurance analyst, asking not to be named. “The company’s main profit driver is renewals of policies, since the cost of customer acquisition is nil.”
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But for PB Fintech’s other platform, Paisabazaar, the last year has not been as good. As with other fintech companies in the credit or lending space, as well as banks and non-bank lenders, the pandemic saw a sharp drop in business.
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Looking at the draft prospectus, one takeaway seems to be that the company seems to think it’s hit a wall of sorts as a purely online marketplace of insurance policies.
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Additionally, in the past few years, despite more web aggregators entering the insurance game in Policybazaar’s footsteps, the online insurance game hasn’t made a dent in the overall industry. Insurers by far sell policies through their own sales operations, bank tie-ups (bancassurance in technical terms), third-party agents and some brokers.
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According to the insurance regulator’s annual report for 2019-20, web aggregators accounted for 0.27% of the total premiums collected in the life insurance space during 2019-20; they collected only 0.99% of the total premiums collected by health insurers in the same year.
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In comparison, around 60% of individual life insurance policies (in terms of premiums) were sold by individual agents and 27.5% were sold by corporate agents.
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“It takes seven calls in India to sell a health insurance policy,” says an early investor in the company, asking not to be named. “People choose, then they go to their agent and then they ask 10 people. It takes a lot of convincing.”
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Motor insurance or travel policies do not need much assistance, but term policies and health still needs assistance, the investor says.
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“Most people never really go online to buy insurance since they are used to going to a bank or directly to an insurance company’s branch. With an offline presence, Policybazaar may want to understand the customers’ needs better and have a human touch.”
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But this isn’t easy either, and may actually cost the company more than it anticipates.
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It is also important to understand that while commissions are the same across intermediaries, the cost of acquisition is different. Bancassurance and direct channels are cheaper, while web aggregators and brokers need to spend more to push customers’ to finalize purchasing a policy.
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Policybazaar, at one point, had broken even, by fiscal 2017. However, buoyed by funding from SoftBank and others around 2018, the startup went into overdrive. Dahiya famously later called the fundraise and push for growth in any and all avenues a “mistake”, in a 2020 interview to the Financial Times.
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While about 20% of customers who come to Policybazaar end up buying a policy, he claims, the conversion rate doubles offline.
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At the same time, in the news recently is a move by HDFC Ergo, HDFC Bank’s general insurance arm, to delist its products from online platforms such as Policybazaar and its rivals. This followed a similar move years earlier by ICICI Lombard General Insurance; ICICI Lombard had pulled out of Policybazaar a few years ago in order to pursue its own digital strategy, independent of web aggregators, according to at least three people aware of the matter.
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“This is no different from the early days of e-commerce or BookMyShow days. Whenever aggregators gain popularity, people ask these questions and people resist but eventually they come around at a commercial value.”