By Rohan Malhotra, Founder and CEO, Roadzen
Amid India’s rapid urbanization and the surge in automobile ownership, the auto insurance sector faces significant challenges. The growing number of vehicles on the roads is met with an equally increasing demand for insurance. However, the path to profitability for the auto insurance sector is not without its challenges, primarily stemming from underwriting losses. To understand the challenges of auto insurance underwriting in India, it’s vital to grasp the market’s dynamics. India is one of the fastest-growing automobile markets globally, India’s annual production of automobiles in FY22 was 22.93 million vehicles and the number of registered vehicles across India was over 326 million in FY 2020. The rapid expansion is accompanied by a burgeoning middle class, with increased purchasing power and a growing demand for personal vehicles. Consequently, the auto insurance market has grown significantly, with annual premium collections reaching USD 10 billion in 2020.
However, this growth has also brought forth underwriting challenges. Insurance underwriting involves assessing risk and determining the premiums to be charged based on that risk. In the Indian context, this process has been difficult, leading to underwriting losses for many insurers.
India’s auto insurance industry grapples with a trifecta of challenges that negatively impact its profitability and sustainability. First, the country’s chaotic traffic and alarmingly high rate of road accidents pose significant hurdles. With India ranking among the global leaders in road accidents, insurers are compelled to pay substantial claims, eroding their financial stability. Second, the industry faces the critical issue of inadequate data and analytics. Accurate underwriting relies on robust data. India’s insurance sector struggles with the scarcity of quality data, which makes it difficult for insurers to assess risks accurately and establish appropriate premiums. Also, the slow adoption of telematics exacerbates these challenges. Telematics, which involves using technology to monitor driver behavior, holds promise as a solution to the underwriting dilemma.
Transforming Auto Insurance Underwriting
Despite these challenges, the Indian auto insurance sector is on the cusp of transformation in underwriting. Several innovative strategies and technological advancements promise to reshape the landscape and enhance profitability.
• Telematics and IoT Integration: The integration of telematics and the Internet of Things (IoT) is gaining momentum in India, according to Counterpoint Research, India Telematics Ecosystem Analysis, telematics shipments are expected to reach 50 million units in 2030 with a CAGR of 31% from 2021. Insurers are partnering with automakers to install IoT devices in vehicles, allowing real-time monitoring of driving behavior. This data enables insurers to improve data capture for accurate risk and claims modelling and enables them to offer personalized premiums based on individual risk profiles, which has a massive potential to reduce underwriting losses.
• Artificial Intelligence and Machine Learning: AI and machine learning algorithms are being employed to analyze vast datasets and identify hidden patterns. These technologies enable insurers to refine their actuarial and underwriting models. Accenture reported estimates incorporating AI and automation into the underwriting process could result in savings of up to $160 billion globally over five years as non-core and administrative duties are removed from underwriters’ plates.
• Usage-based Insurance (UBI): UBI is gaining traction in India, enabling policyholders to pay premiums based on their actual use of the vehicle. The pay-as-you-drive model encourages safer driving habits, ultimately reducing accidents and claims. UBI policies in India saw a 30 percent growth rate in 2022, with an estimated two million policyholders opting for this innovative approach.
• Data Collaboration and Sharing: Insurers are collaborating with various stakeholders, including government agencies and law enforcement to address the data scarcity issue. Sharing data on road conditions, accident reports, and driver behavior helps insurers assess risk better.
Adopting Strategies to Overcome Underwriting Losses
• Risk Segmentation: Insurers are increasingly segmenting their policyholders into more refined risk categories. It allows for the customization of policies and premiums, ensuring that high-risk drivers pay higher premiums, while low-risk drivers benefit from more affordable coverage.
• Regulatory Support: The IRDAI has been proactive in supporting innovation in the insurance sector. By streamlining regulations and encouraging the adoption of technology, the regulatory body is fostering an environment conducive to profitable underwriting.
The auto insurance underwriting in India is undergoing a profound transformation, driven by a synergy of technological innovation, data collaboration, and proactive regulatory support. The challenges that once plagued the industry, from high accident rates to data scarcity, are now being handled with cutting-edge solutions. Telematics, IoT integration, artificial intelligence, machine learning, and usage-based insurance have emerged as powerful tools, empowering insurers to accurately assess risks and customize policies for individual needs.
Also, the collaborative efforts between insurers, government agencies, and law enforcement have significantly enhanced the quality and availability of data. The unwavering support from regulatory bodies, notably IRDAI, has catalyzed this evolution, fostering an environment conducive to innovation. As India’s auto insurance sector hurtles into the future, these transformative strategies not only promise profitability for insurers but also usher in an era of tailored, affordable, and reliable coverage for policyholders. The journey ahead looks promising, marked by a commitment to harnessing technology, embracing data-driven insights, and ensuring better times for all the stakeholders in India’s auto insurance industry.