Where is my moolah?

Team Digit, 09 Aug 2017

We love meeting people, our consumers, regularly. As they are an honest bunch. They tell us nothing but the heartfelt truth! But much to our heart break, we also often hear that they don’t trust the insurance guys ☹

And one of the reasons for this is that they don’t know what happens to their premium money, where does it go, what do insurance providers do with it and more.

Which is why we thought, why not just make everything black and white! Why not take you through what happens with your money!

So here is walking you through the journey of your 100 rupees premium, in a typical insurance company system.

Finding You is expensive

You are unique, you are special and getting near you costs big time! That task in our industry jargon is an ‘acquisition cost’.

The routes to reach you are agents, brokers, partners, social platforms, maybe a print ad or a TV commercial. Basically, wherever you can be found receptive to insurance (all ears hopefully!). All these routes have toll taxes?, in the form of fees, commissions, media cost etc.

*15 to 18 rupees is spent on this, typically*

Fuel to run the machine

Right from the salaries of the people working for the company to the building that we operate from, these expenses are called ‘Operating expenses’. In other words, all expenses that are needed to provide you service, and a good one. So, a part of your money goes into this. In short, you are the source of our bread & butter.

Another 10 – 12 rupees is expended here.

The one with the largest belly

Well, this one is where your biggest share, your 70 rupees goes. Claims. Ahem, now that was obvious! As this is the whole point of insurance.

Broadly there are two species in claims as well-

  • Non-catastrophe losses (high frequency – predictable severity)- The everyday collisions (one for which you see regular street fights which jam the entire traffic on your way to office!), bumps and accidents. These are frequent, and are predictable over time (hence easier to price).

These are paid from the same year’s premium pool by the insurance company themselves.

  • Long term average catastrophe losses – We always have our life jackets on for these ones, by having our re-insurance protection in place. This is basically an insurance company’s insurance, heard that before? Here we rent out the risk to someone we trust (Good credit rated reinsurers).

So, a portion of your premium goes in funding this re-insurance program purchase.

You may say such events don’t happen each year. Agree! But we got to be prepared each year as we still haven’t developed X-men powers to predict and stop these events.

‘+’ effect

Yes, we invest your premium too, to make it grow, called ‘Investment income’. But before you think you get that money, no that’s not how we use it, we use the grown money for other expenses, which can help reduce your premium in the first place. So, the money does come back to you but in a different way, even before it is invested (isn’t that better).

Just to understand the investment bit a little better – Insurance premium is received at the start of the contract but claims are paid over the year. So, this is how the money grows.

 

So, what are we left with?

Well, till now you must be thinking, so what do these guys earn then?

Reserve the sympathies? The leftover approximately 3 rupees out of the 100 you gave us (called Underwriting profit in Insurance parlance), and an additional 3-4 rupees as the Interest income is  our Total Profit (before tax).

By the way, in reality, most general insurance companies in India have an underwriting loss!

Now, you may want to know if Digit’s doing the same as well, with your money, or are we any different.

Well revolutions don’t happen on the same path. Yes, we plan to work towards reducing the 100 rupees that we collect from you, while also increasing the standard of experience. How, you ask?

  1. We intend to make our products simple & intuitive (so less effort is required to explain them) and we are hoping to spend less to find you and win you over.
  2. Also, we are doing our regular gymming and keeping ourselves lean?; as the leaner the organisation is, lesser is the fuel required (remember the operational expense bit?).
  3. Claims for us, is not an area where we will look to save money (that defeats the whole point of us being a protector). On the contrary, we will invest to make the process more efficient.
  4. And yes, we trust our consumers. We believe that a small section of people, who try to game the system (though we have our ways to find them), should not be the reason for a single genuine customer to face  cumbersome process.

Now that you have crossed this journey with us and heard our take too, we can give you an Insurance Literate Certificate. Kidding!

But seriously, hope you can now boastfully tell others that you know what happens behind the scenes in an insurance company and can answer, ‘Where does my moolah go?’

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