When Kamesh Goyal, founder and chairman of Digit Insurance, the country’s newest unicorn, started the non-life insurance company a little over four years ago, he undertook an experiment. The insurance sector veteran sent out his company’s insurance documents to a bunch of 15-year-olds to see if they could comprehend them. They could not.
So, Goyal decided to make simplicity the holy grail for his startup. To begin with, he not only reduced the bundle of documents to a two-pager but digitised the entire registration and claim process while making it instantaneous.
Everything we did revolved around how we could either make something complicated simple, or something simple, simpler,” he told VCCircle in an interview, shortly after Digit Insurance announced that it had been valued at $1.9 billion, even as it was in the last leg of closing a $18.4 million funding round from returning investors A91 Partners, TVS Capital and Faering Capital.
The emphasis on simplicity became an important factor during the Covid-19 pandemic that ravaged most of the world over the past year.
The startup saw demand for the mainstay of its business -- motor insurance -- all but disappear as the country retreated into a prolonged lockdown. There was low interest in renewals of motor insurance and almost negligible new car sales. To keep business running, Digit quickly rolled out several COVID-19 related products aimed to cover people across ages, professions and risks. Early in 2020, the startup curated a need-based product with insurance regulator IRDAI. This product eventually led to the launch of the country’s first COVID-19 insurance product in February 2020.
“Digit’s founding vision of making insurance simple has resulted in over seven million customers who trust the brand and rely on it repeatedly for their insurance requirements,” said Aditya Parekh, co-founder partner at Faering Capital. Digit’s Net Promoter Score (an industry measure used to gauge customer loyalty and satisfaction) is over 90 and the highest in the industry, Parekh added.That track record has enabled the company to get traction in the market for its post COVID-19 suite of non-motor products, specifically in health-related insurance. “In just three weeks we launched around 4,000 products and reached near about Rs 50 lacs total premium after which we had to stop, as a limit that was set by IRDAI under its sandbox regulations,” Goyal said.
The startup also introduced a Group COVID Insurance product focussed on SMEs and large organizations covering 20 lakh lives. In the recent past they launched one cover for eight viral diseases including COVID-19, Dengue and Zika Virus. To put the startup’s foray into non-motor products into perspective, prior to the pandemic, motor insurance accounted for nearly 84.7% of revenues, followed by fire and health insurance, contributing 9% and 0.8% respectively, amongst the top three segments.
“Digit has had retention rates of 65% in motor insurance and 75% in health insurance – amongst the highest in the industry,” Parekh said. Details on how the revenues mix has changed post pandemic were not immediately available.
By the numbers
Digit’s holding company Go Digit Infoworks Services runs its general insurance business under a wholly owned subsidiary Go Digit General Insurance. It began operations in 2017 after getting its license from IRDAI for issuing insurance. Prem Watsa’s Fairfax is a promoter in the company with slightly more than 45% stake in the parent entity. Fairfax invested close to $56.5 million in June 2017 just when the company received a pre-approval for the insurance license from IRDAI. Fairfax infused a further $45 million in the holding company a year later, of which $44 million was transferred to Go Digit General Insurance, which used the money for new products and distribution network expansion. The startup has been among the quickest in the country to cross Rs 1,000 crore in total premium earned.
Its FY20 earnings from premiums stood at Rs 1,241 crore, a 150% growth year-on-year from FY19. The general insurance subsidiary is already profitable, clocking a net profit of Rs 46 crore during the first six months of the pandemic, in the quarter ended September 2020. In the first half of FY21, the company’s total premiums crossed Rs 830 crore, growing 63.5% as compared to Rs 507 crore last year. In FY20, the company’s net losses narrowed to Rs 175 crore from Rs 271 crore in FY19. The company reported Rs 46.5 crore in operational profits during the quarter ended September 30, 2020.
For the quarter ended June 2020, the startup’s Available Solvency Ratio (ASR) to Required Solvency Margin (RSM) improved to 3.27 times from 2.21 times during the quarter ended June 2019. ASR/RSM ratio shows the strength in a company's existing capital solvency ratio in meeting the required solvency ratio requirements. In terms of markets, Gujarat has been one of the biggest for the startup. In FY20, more than a quarter of the startup’s revenue came from premiums generated from the state. Karnataka, Maharashtra and Delhi together account for more than 45% of its revenue.
“In the pandemic year, where the industry grew by 2.5%, we grew by 35% from April to December 2020. This was mainly due to a basket of COVID products that we launched that saw a good traction,” Goyal said. In the month of December alone, the startup’s growth has been 47% compared to the industry’s 12%, he said. “Digit was performing strongly prior to Covid-19 and has continued to grow its premiums and market share in FY21,” Parekh added. He expects the company to turn profitable in FY21 on an IFRS basis as planned. “We expect growth and profitability to be even higher in FY22,” he said.
The company’s valuation has more than doubled in less than a year. In February last year Digit added financial partners such as TVS Capital, Faering Capital, A91 Emerging Fund, Cornerstone Sport, and UBR Capital to its cap table. Later actor Anushka Sharma and cricketer Virat Kohli joined the round. The round was completed at a post-money valuation of close to $861 crore.
Next stop: IPO?
After entering the unicorn club -- unicorns are startups that are privately valued at $1 billion or more -- Goyal’s next big milestone target is a public market outing. “We will have an IPO. We are still deciding on the exact timing for it,” he said. He’s also keen to separate the startup from small ticket insurance firms that Digit has conventionally been compared with. These include players such as MobiKwik, Acko General Insurance and Toffee Insurance. Though, to be sure, the firm does continue to offer affordable, small-ticket insurance policies across categories via a cloud-based, paperless platform.
“A good policy has to be customised to the needs of the customer and not be restricted to a ‘one size fits all format’...In the travel, mobile and other gadgets space bite sized insurance products make sense. But for bigger lines of businesses like motor, property and fire this concept doesn’t really hold,” he said. Consequently, the average ticket size of policy products vary across categories for Digit. For a travel insurance product, it can be as low as Rs 100. On the other hand, for a high-end car it can be as high as Rs 500,000, he adds.