Latest guidelines from IRDA threaten to further tighten the screws on web aggregators but they aren’t rattled yet—after all, internet-savvy consumers are their insurance
Moneysupermarket.com, one of the UK’s most popular websites for financial services and insurance, doesn’t sell any products of its own. But it still made over £200 million last year, at a pretax profit margin of 32 percent. It simply re-routes the hundreds of thousands of online visitors and queries it gets to banks, insurers and financial service providers, in return for a fee.
Back home, Yashish Dahiya, 40, co-founder and CEO of Policybazaar.com, India’s largest internet-based insurance aggregator, wants to be the country’s equivalent of that.
A layperson might think he’s already done it. With an estimated share of over 90 percent of the market for internet-based sales of insurance in India, and revenues of Rs 65 crore for 2013, the five-year-old website seems to have hit the sweet spot. This, in turn, has allowed it to raise nearly Rs 70 crore in venture capital funds from Info Edge, Intel Capital and Inventus Capital over two rounds. “ICICI Lombard was the king of the online world. Today I sell 20,000 new policies each month while they sell less than 3,000, excluding travel,” says Dahiya. Those 20,000 monthly policies are worth over Rs 20 crore in premium, he adds.
“The online aggregation space is more or less a one-horse race led by Policybazaar,” says Yateesh Srivastava, COO of Aegon Religare Life Insurance.
Despite these affirmations, Dahiya finds himself running to avoid a bullet to Policybazaar’s head by way of the latest regulations from the Insurance Regulatory and Development Authority (IRDA) titled ‘Exposure Draft Regulations—Web Aggregators 2013’ released on July 21. Technically, the guidelines—currently in draft state—are meant to govern the seven licensed internet aggregators that operate in India. But they might as well have been called the ‘Policybazaar Shutdown Guidelines 2013’.
Consider their intent. From lead generation to advertising to cross-selling to comprehensive comparisons, the guidelines ban or scupper almost every globally-accepted way for insurance aggregators to make money. They mandate 50 hours of training and certification for every employee; a compulsory licence that expires every three years; a ban on operating more than one website; and an outright ban on the use of social media.
If these weren’t enough to dissuade venture capitalists from investing in aggregators, IRDA goes on to limit foreign investment at 49 percent—the same as in the insurance space. “This clause wasn’t there in earlier drafts. It looks like it was inserted to prevent any of the aggregators from getting venture capital funding,” says Deepak Yohannan, founder and CEO of MyInsuranceClub.com, one of the six other web aggregators currently licensed and approved by the IRDA.
Dahiya, however, stays surprisingly sanguine. “I like to think of this as chemotherapy treatment. If it doesn’t kill us, it will kill the others [competitors],” he says.
REGULATOR, HEAL THYSELF
The first set of regulations nearly did kill Policybazaar. Released in late 2011, they cast the regulatory and licensing net on the entire web aggregator industry. Comparisons, ratings or rankings of insurance products were prohibited, as were advertisements. The maximum aggregators could charge for a lead was arbitrarily fixed at Rs 10.
“Like MakeMyTrip or Yatra in the travel space, we are a vertical search engine. Our competitor is Google. And if they can make Rs 100 per click through bids from various insurers, why can’t I? Imagine imposing a cap on what Google can charge,” says Dahiya.
For leads resulting in sales, the commission fee was capped at 25 percent of what an insurer would pay any other distributor, broker or agent. Even there, Policybazaar and other aggregators say insurance companies don’t disclose which of their leads convert to sales, considering it proprietary information. “Of the nearly half-a-million enquiries on our site annually, around 60,000 people buy policies. But only around 20,000 sales are visible to us. IRDA hasn’t set up any mechanism to force insurance firms to be honest,” says Dahiya.
R Jagannathan, managing director of Chennai-headquartered Star Health Insurance, agrees that the internet plays an increasingly big role in helping consumers take an informed decision. “While we do sell our policies online, I’m an old-timer in my belief that health insurance is still not bought, but sold, and through eye contact. Persuasion is essential because India hasn’t matured to the point that demand [not supply] runs the industry,” he says. Star Health generated around 5 percent of its ‘market’ revenue through the internet, he adds.
(This story appears in the 20 September, 2013 issue of Forbes India. To visit our Archives, click here.)