Daybreak - Why PhonePe is selling health insurance with funny World Cup ads

Episode Date: November 6, 2023

If you’ve been watching the ICC Cricket World Cup, youve definitely seen the PhonePe one too many times. The payments giant paid Rs 150 crore to get these advertising rights. It is the biggest UPI payments company in the country with a 49% of the market share.  But why is a payments giant selling insurance and why health insurance to be specific?You see, as big as the PhonePe might be, and even with a giant like Walmart behind it, profit margins in the the payments business are pretty slim. And with a possible IPO in the works, PhonePe had no choice but to diversify and so it did.It launched its insurance vertical in 2020. However, three years have passed now and PhonePe’s insurance business has contributed just 1% to the company’s consolidated revenue for FY2023.And yet PhonePe continues to pour money into it, mainly on health insurance part. Is it a conscious choice or is it because it has no choice?Tune in.FREE READ for 24 hours:How an Indian IVF chain became a global giantDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. If you've been watching the ICC Cricket World Cup,

you have definitely heard this too many times. Behingya insurance premiums to be dreadnual. Annual not, month on month, burn. Phone pay, monthly health insurance. The fintech phone pay paid 150 crore rupees to get these advertising rights. But what do we know phone pay for? UPI payments, right? I mean, it is the biggest UPI payments company in the country with a 49% share of the market. Now though, as you can see, it is very consciously trying to push its health insurance offering the most.

But why is a payments giant selling insurance? and why health insurance to be specific? You see, as big as phone pay might be, and even with the backing of a giant like Walmart behind it, profit margins in the payment's business are quite slim. And with a possible IPO in the works, phone pay has no choice but to diversify. So in 2020, it launched phone pay insurance broking services,

and it did help at the beginning. A fintech executive told again that the prospective value of this insurance business pushed Phone Pay towards its $12 billion valuation, which, by the way, is the highest in the industry. So the target was to capture at least 10% of the insurance market in India. But three years have passed now, and Phone Pay's insurance business has contributed just 1% to the company's consolidated revenue in the year FY 2023. And yet, phone pay continues to pour money into it, mainly on the health insurance part. Is it a conscious choice or is it because it has no choice?

Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 6th of November. To begin with, let us look at how phone pay. set up its insurance vertical. The company relied on an insurance industry veteran for it,

Gunjan Gai from SBI General Insurance. He came in in 2018 and under his leadership, phone pay acquired corporate agents and broking licenses. And by 2021, during the Indian Premier League cricket tournament, it launched life, health and motor insurance and began running ad campaigns for them. And all the hard work did bearfeworthy. fruits. In the two years to the year that ended in March 23, phone pay's insurance grew

eight and a half times close to 500 crore rupees in premiums. But for some reason, the company managed to scale everything but insurance. A former phone pay employee told my colleague, the Ken reporter Gaurav Norona, that phone pay was very bullish on insurance. And the growth that it did see was kind of skewed. Around 85% of the total premiums that it collected in FY 20203 was from two-wheeler insurance only. But you might say, so what? It still grew, right?

The thing is, and this is what an insurance industry executive told us, that two-wheeler insurance is low value and transactional in nature. It is a good customer acquisition channel, but there's not much money to be made there. So, this lopsided growth in its insurance business made it quite difficult for phone pay to differentiate between its offerings. And that is because insurance products are highly commoditized. And let us not forget, the new Know Your Customer of KYC norms too ended up being quite an obstacle. Plus, the insurance vertical's trajectory were also affected by rifts between Gunjan Kai and Samir Nygam, who is PhonePay's founder and CEO.

But before we go any further, let us try to understand what about two-wheeler insurance was working out for phone pay. Stay tuned. In 1978, a little baby girl named Kanupria Agarwal was born in Kolkata. Two eyes, ten fingers, ten toes. Sounds like a totally unremarkable incident to share. I know. But the reason I tell you this is because her birth was a medical revolution. Kanupria was India's first-ever test-you baby conceived through in vitro fertilization,

commonly known as IVF. You see, India was an early bird to the IVF experiment. Kanupria, in fact, was the world's second IVF baby. It was a breakthrough in reproductive technology. It felt like science had finally found an answer to age-rated infertility at the time. It's been 40 years since then. You would expect things to have changed, right? Well, it has been quite the opposite of what one might expect.

One in six people still suffer from infertility. WHO just declared infertility a public health emergency this year, and India too isn't immune to any of this. How come? It seems like in the past 40 years since the first IVF baby, there has been a slumber for almost two and a half decades. But you and I are not the first to know. Notice this. Right now, as we speak, a fertility devolution is sweeping through India.

And nothing reflects that popularity better than the rise of Indra IVF. A chain of fertility clinics now worth $1.1 billion. It is in fact the second most valuable IVF chain in the world. What's even more fascinating about Indra IVF is that it has completely transformed the business of IVF in India. But how did Indra IVF pull this off? Well, you'll have to read the story written by Arundati and Seema to find out. This story has been made available for free for exactly 24 hours just for today the 6th of November. And the link is in the show notes.

So go ahead, give it a read and share away with your friends before the counter runs out. I'm Aksha from the Ken's Newsroom. Thank you for listening to us. If you like what we do, please rate and review us wherever you get your podcasts. And now, back to Snigda. Compared to health and life insurance, motor insurance is quite a simple product. And that is what makes it great for online distribution. And it is easier to sell because it is legally compulsory.

Plus, selling motor insurance is mostly based on the price. But for selling health and life insurance, coverage of different types of illnesses, health information of customers and claim experiences are what matter the most. Phone pay has been doing this a bit differently compared to other companies selling motor insurance. It promotes its policies with the promise of a minimally intrusive experience free of spam calls. The average ticket size of policies which are sold on the platform around 1500 rupees. But two-wheeler insurance is usually an annual contract, which means phone pay, has to put in extra effort every single year to get renewals,

especially because the drop-off rates are pretty high. Customers just don't renew their policies. So, PhonePay has been largely relying on ads and app-based promotions to acquire insurance customers from its existing app users. Now, of course, this will make its customer acquisition cost lower than its competitors, which is a great thing, but it does not leave much potential. for product or price differentiation when it comes to motor insurance. Phone pay's insurance arm brought in revenue of a little over 30 crore rupees in FY 2020.

But to get this figure, it had to spend about 460 crore rupees. It ended up making a loss of more than 400 crores. So, considering these losses and how two-wheeler insurance can only get them so far, phone pay has to figure out how to make its health insurance segment do better. Stay tuned to find out more. You see, health insurance is comparatively a way more sustainable business model because it can help earn higher commissions and book policies with larger ticket sizes. And the launch timing for phone pay's insurance business was perfect

because it was just around the time of the COVID-19 pandemic. A fintech executive who spoke to Gorov told him, that the company chose to focus on life and health insurance due to the relatively higher revenue potential. And with ads everywhere, Phone Pay has managed to create a buzz about its monthly health insurance premiums. You heard the ad that I played at the beginning of this episode, right? So, Phone Pay is trying to differentiate itself from others by offering monthly payments instead of a big chunk that customers would have to pay annually. But like any other monthly subscription service,

the challenge lies in customer retention. So for a health insurance cover of about 10 lakh rupees, the average annual premium is around 15,000 rupees. Phone pay, meanwhile, has been selling its monthly health insurance premium payments starting from 577 only. But here's the thing. Phone pay claims to have solved the issue of affordable health insurance with this monthly plan. It thinks that this will drive deeper penetration.

But monthly premium payments have already been on the market for the last three years. Insurers and brokers have been offering it ever since the insurance regulatory and development authority of India had allowed it when the pandemic started. And in general, not just with phone pay, monthly health insurance plans have not seen much traction. yet. And that is because implementing them is quite complicated. Another insurance industry executive told us that insurers typically do not encourage monthly premiums because of very low customer persistency. Only 40% renew their policy beyond the second month. For example, monthly healthcare subscription services such as Even, Kenko and Vital have seen annual customer drop-off rates as high as 50%.

which is why insurers are still in the process of figuring out the modalities of monthly payment products. And then there are also some things with monthly plans that kind of defeat the very purpose of health insurance. For example, in the event of claims between the 12-month payment cycle, the insurance company can choose to deduct the balance premium installments from the claim amount. Policyholders can also see increased instances of grace periods. This is when their insurance coverage may not apply due to missed payments. Phone pay may have learned how to get users with its core business, but how it manages to turn its insurance business profitable

with its skills of leveraging its mass customer base is going to be the real test. Daybreak is produced from the Newsroom of the Ken India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.