Toffee is trying to differentiate itself with novel, low-priced products

Have you considered getting insured for dengue this mosquito breeding season? With monsoon covering large parts of India soon, it may not be a bad idea to buy a dengue insurance that offers protection against the expenses related to the ailment. Toffee Insurance, a new-age insurance distributor, is betting on its bite-sized products to differentiate itself. 

The idea is simple. Toffee Insurance offers low-priced products designed for specific needs. It aims to simplify insurance by unbundling complex clauses and requirements from conventional products and launch specific use-case based products that cost a fraction of a conventional life or health insurance plan.  On offer are low-priced insurance products for dengue, gym injuries, insurance against cancer for smokers and a daily commute cover. Toffee recently raised $1.5 million in a round led by Kalaari Capital, Omidyar Network and Accion Venture Lab.

The opportunity

Founders Nishant Jain and Rohan Kumar started the company in 2017, looking at insurance under-penetration in India and the lack of interest among the youth in buying insurance at an early stage in their lives. 

Insurance penetration in India is only 3.42 per cent, according to a recent report authored by former Insurance Regulatory and Development Authority of India  (IRDAI) executives. Further, the industry is estimated to be worth $70-$80 billion in India. The company plans to target people in the age group of 25-35 years in top 10 cities of the country in its initial growth phase. “Our products have a singular focus and they are bite-sized,” said Rohan Kumar, co-founder, Toffee Insurance, who added that dengue insurance costs just Rs 682 for a year.  

Kumar said the company is looking to capture an untapped market, which involves insurance for critical everyday moments such as daily commute. The company, thus, focuses on creating products out of the existing portfolios of insurance providers and uses unused features approved by the IRDAI. 

Business model

The company works through an asset-light model, which means that it does not spend a lot on marketing products directly to consumers and rather prefers to reach them through channel partners. It splits the commission it receives from the insurance company with the channel partner. 

For instance, its gym and fitness injury product is sold through partner gyms where customers are pitched the product while signing up for their monthly memberships. Mostly, the commissions are split 50:50.

Since the scope of protection is limited, the price needs to be in line. “I can’t expect you to buy a Rs 5,000 product impulsively, but I can expect you to try out a Rs 500 insurance product while you are signing up for a gym membership,” Kumar said. 

Toffee works with several insurance partners such as Aviva and DHFL insurance.  

Ahead

The company expects to sell more than 100,000 policies by the end of this financial year and hopes to achieve break-even by using the customer profiles to target and cross-sell more policies. Kumar said profitability can come by selling about two policies to 100,000 customers. It claims to issue insurance in 90 seconds and clear basic insurance claims in less than two hours through a digital interface. This helps it save money as opposed to traditional insurance distributors, who have feet on the ground or big customer care teams. This is why investors such as Kalaari Capital believe the company is on its way to profitability. 

“At the current rate, the company doesn’t have any burn at the unit economics level. It doesn’t spend on direct marketing and instead chooses to pay a commission to channel partners. Also, it is very light in terms of human resources so there are no unit economics pressures which threaten profitability,” said Darshit Vora, investment associate at Kalaari Capital. 

Vora, however,said it will be a challenge for the firm to capture a large enough market share in the coming years before competitors copy its business model. But Kumar said: “Because the products are bite sized, it has to be a volume game... If I know my customer well, I can suggest three-four products to him. What I want is the bigger share of his wallet.”

Expert Take: Understanding young customers will be the key

Sachin Maheshwari, Executive Leadership Team, Religare Health Insurance

Given the demographics of our country, the company  (Toffee Insurance) is in the right space at the right time to cater to the young segment of the population. With the proliferation of smartphone & internet, it has a good and relevant distribution model where it can reach out to more customers. 

The company does not want to create complex products, which is a good thing. However, with respect to scaling of its business model, we are waiting to see that happen. 

I believe it wants to have a seamless experience, so operationally it has introduced technology solutions for sales and processing claims. The challenge will be in terms of its ability to understand young customers who have dynamic needs and demands, as well as the ability to create befitting products and get appropriate delivery (solutions) from insurance companies.

There is a significant opportunity for the company, given the vast base of potential insurance customers in the country.