The funding comes at a time when risk investors are aggressively seeking a piece of India’s burgeoning online insurance industry, which is gaining from the transition to a digitised economy.
Digit’s funding round—one of the largest in India’s general insurance industry—will propel the startup into the ranks of the most valued insurtech ventures in South Asia. The deal is subject to approval of the Insurance Regulatory Authority of India.
Kamesh Goyal, the chief executive of Digit, told ET that the capital will be used to shore up the solvency requirement of 150% insurers’ liability mandated by the regulators. It will also help maintain its growth trajectory and settle claims in the event of a potential third wave of Covid-19 in the country.
“(Since) October 2020 we’ve seen good growth, which continued in the March quarter as well, both in premiums and customers. In April we saw an 80% growth in premium compared to the previous year, looking at the numbers we thought we may need some additional capital for solvency,” Goyal said.
The new round will take Digit’s total capital infusion to $442M since inception in October 2017. The Fairfax-backed startup
had raised Rs 135 crore in January 2021 when it was valued at $1.9 billion, making it the first startup to reach unicorn status this year.
Since then, a record 14 unicorns have emerged in the Indian startup sector.
Digit predominantly sells motor insurance, which accounts for nearly 75% of its product mix while commercial fire insurance accounts for 13% of the portfolio. Since 2020, the startup has also been selling health insurance cover that along with travel insurance makes up the balance 12%.
Despite scaling health insurance business significantly in FY21, the relatively low exposure to this segment means that the insurers’ loss ratios would be lower than the industry, according to Goyal.
“General insurance after e-commerce is perhaps the sector most resilient to the pandemic. Even as banks and NBFCs were hit adversely, the insurance sector has emerged stronger. This is what is pulling institutional money into this space,” said Goyal when asked about the valuation growth.
“For Digit, we have displayed sharp outgrowth especially during covid-19. The other reason is that India is an underpenetrated market, and the expectation is that as awareness grows, the insurance market will also grow.”
In Fiscal 2021, Digit’s premium income grew by 44% to Rs 3,243 crore as per company financials. The startup claims to have over two crore customers and has processed more than 4 lakh claims. Amongst Digit’s investors are TVS Capital Funds, A91 Partners, India cricket captain Virat Kohli and the employees of Digit.
The latest funding round will take the share of risk capital investors in the startup to around 17%, while the balance of about 82% is owned by Fairfax and its subsidiary Digit Infowork. Additionally, the company management holds roughly 1% of share in ESOPS at the new valuation.