ERM – Assignment 1

Group 6
Exercise - 2
Q1) Identify the firm’s primary and support activities.

Primary Activities –

1) Product/Service Development –
ACKO is a digital general insurance company that offers car/bike insurance, health
insurance, and COVID-19 health insurance products. Along with this, the company
provides an automated pre-sales and after-claims experience to its customers. The
service of the actuaries is also required for managing and pricing the products.
2) Underwriting –
Underwriting of the risk groups based on certain parameters is another primary
activity of an insurance company as it determines the profitability of the firm as well
as the stability of the risk pool.
3) Marketing –
ACKO being a digital insurer its primary focus is advertising and marketing the
product to the segment that focuses on online platforms like social media websites,
electronic media platforms, etc.
4) Policy Administration –
Policy administration involves processing the transactions that are involved in
acquiring the business, the premium received, paying out the
commission/remunerations to the intermediaries, other payments, etc.
5) Claims Management –
Claims management is another primary activity of the insurance company. It involves
assessing and paying off the legitimate claims, studying the claim settlements and
payments made, and detecting insurance frauds using various AI/ML implementations
etc.
6) Asset/Portfolio Management –
Maintaining the assets under management, the product portfolio, assessing the risks
faced by each investment, and periodically reviewing the company’s financials is
another primary activity of ACKO.
 Support Activities –
1) Company Infrastructure Management –
This involves managing the infrastructure of the company. Firm infrastructure
consists of a number of activities including general (strategic) management,
planning, finance, accounting, legal, government affairs and quality management.
Infrastructure usually supports the entire value chain, and not individual activities.
2) Human Resource Management –
Effectively managing the human resource available with the company by paying
adequate remunerations, benefits, leaves etc.
3) Management of Technology –
Managing the technology that is used in the day-to-day operations of the company
is another secondary support activity. The use of electronic devices, computer
systems, and telecommunications is ok needed to support primary activities. For a
technology-dependent organisation like ACKO this plays a vital role.
4) Intermediary Management –
Managing the intermediaries that sell and market the product is another support
activity for ACKO. But since it is a technology-driven firm, the management of
the procurement activities by this firm is limited to scale brokers or corporate
agents.
5) Reinsurance –
Selecting appropriate reinsurance design for the policy is another vital support
activity that is important for sustaining the primary activity of underwriting and
claims management.

Q2. Establish the relative importance of each activity in the total cost of the product.

As discussed above, we have already identified the primary and support activities of ACKO
Insurance. To establish relative importance of each activity, we looked into the financial
reports for Quarter 1 FY 2022 of the company. Some interesting points observed have been
mentioned below.

 The company had earned premium of about 160 Crore Rupees.

 To talk about the expenses, let us divide different major expenses which the company
incurred
  Incurred claims (Net) – (110 Crores) The major expense of an Insurance
company is paying the claims and this primary activity had the highest
importance in the total cost of the product
 Advertisements and Publicity – (120 Crores) As we can see from the net
premium collected for the first quarter, this primary activity was almost equal
to 75% of the Net premium. The company believes that this kind of an
expense would lead to growth in the organization over a period of years
 Human Resources Management – (26 Crores)
 IT expense – (10 Crores) ACKO being an InsureTech company, it requires a
lot of IT support to be updated with ongoing changes in technology and their
maintenance. Hence, this support activity has a relatively high importance
 Reinsurance – (75 Crores) Major Reinsurance support was needed for motor
own damage and third party as it is the company’s biggest portfolio
 Interest and Bank charges – (80 Lakhs)
 Product Development and Servicing– (10 Crores) These are basically the
cost incurred due to use of delivery channels, servicing and product
management. The major expense was incurred to Cover Fox Broking and Chat
pay commercial which is an automotive repair and servicing company. Motor
being the second major portfolio of the company, this primary activity has
considerable importance.

Q3. Identify the cost drivers of each activity

Let us talk about the primary activities first

 Product Development and Servicing

 Marketing and sales
 Claims Management

Out of these three major primary activities, the cost driver for the company is their expenses
incurred in marketing (Advertisement and Publicity) which is almost 75% of their net
premiums for Quarter ending June 2022. As ACKO Is well known for their sachet products.
Though there is less involvement of Brokers, a good amount of expense is incurred in
advertising and sales when it comes to partnerships with OLA, OYO, Red Bus, Make My
Trip etc.
Apart from marketing and sales, the health portfolio which is the biggest portfolio also has
the highest amount for net incurred claims and hence it is a major cost driver

Now let us talk about support activities

 Human Resources Management

 Information and Technology
 Reinsurance

Reinsurance was the major cost driver for the company. About 50 Crores of premium has
been ceded from the Motor Portfolio and the rest majorly from the Health Portfolio.

Being an InsurTech company, Information and Technology was also a cost driver which is
understandable.

Q4) Linkages within the activities –

1) IT and Underwriting –
Better IT management can help the firm in establishing better underwriting practices.
The risk will be accessed accurately and the product will be priced adequately to
protect the risk pool. Deployment of AI/ML technology will also help the firm in
placing the reinsurance according to their capacity.
2) Intermediary Management and Service Management –
Managing the intermediaries will help in managing the services being provided to the
customers. If the intermediary selected is not trustworthy then the onus of servicing
will lie completely on the insurance companies which in turn will increase the
workload and deplete the trust in the market. Better intermediary management will
lead to better servicing of the clients.
3) Claims management to Information and Technology -
We could see that company is incurring a lot of claims with respect to Motor and
Health portfolio. Infusing more capital into Information and Technology would
ensure less fraudulent activities along with good claims servicing. Automating the
whole process would be very beneficial for the company.
4) Reinsurance and Underwriting -
Reinsurance is a major cost driver of the company . Having a skin in the game is
always an important factor for a company to grow. Training the underwriters to write
desirable risks up to a certain threshold only would make the company require less
 reinsurance support with good risks coming in which in case would lead to a
favourable claim settlement experience.
5) Finance and Marketing -
We could see a huge amount of capital used for advertisement and publicity. The
company also incurred a loss this quarter due to rise in operating expenses, majority
of them coming from marketing. Hence a balance should be maintained between these
two and analysing marketing requirements with respect to company’s available capital
would ensure long term growth.

Q5) Opportunities for reducing cost –

1) Better Underwriting Practices

2) Better pricing of the policies
3) Lowering the dependency on physical intermediaries
4) Outsourcing certain key operations like analytics of the data, fraud investigation, etc
5) Product differentiation
6) Strategic marketing and identification of target segment
7) Better investment strategy
8) Better Claims management
9) Adopting economy of sale

Exercise – 1

Acko General Insurance Limited

Internal Sources of Information –

1. Ackology - the tech blog – This blog is created to showcase the problem-solving
processes of Acko. This blog helps the stakeholders who may be clients or employees
of the company to understand the company’s working methodology and intense focus
on technology.
2. Guides – Acko also has various guides like motor insurance guide, health insurance
guide, etc. to make its existing or potential customers aware about the working of
insurance.
3. Annual Reports – The annual reports provide the various SOPs and procedures
followed by the company including whistle blowers’ policy, corporate social
responsibility to the shareholders of the company.
 4. Claim Form under Downloads section – This form is specifically for the customers
to know file their claim with Acko General Insurance Company.
5. Training Portal – This portal is provided to the employees of Acko to train them on
various policy followed by Acko like money laundering policy, anti-competition
policy, etc. and to upskill them.

External Sources of Information

1. Public Disclosures Submitted to IRDAI – These public disclosures are submitted to

IRDAI which is the regulator which is an external stakeholder and it is made public
by IRDAI to evaluate the performance of the company
2. Cyber Policy – It is the policy publicly available to understand the usage and
protection of data submitted by customers or employees by Acko.
3. Insurance premium calculator – It can be used by anybody to calculate the
premium charged from him/her under a specific policy based on the information filled
in by him/her.
4. Policy Wordings under Downloads Section – This is used to understand the policies
sold by Acko and what are the additional benefits provided to the policyholder by the
company.
5. Resources Section – This section contains articles, reports, etc. developed by Acko to
improve the insurance awareness and knowledge among the general public.
 Exercise - 3

SWOT Analysis of Acko

Introduction:

Acko General Insurance is a private sector General Insurance Company, primarily operating
in India. The company was started in the year 2016, and was one of the first online insurers in
India. It received its license from Insurance Regulatory and Development Authority of India
(IRDAI) in the year 2017. Acko is different from the traditional General Insurance companies
in India by following an online-led model, and all the operations of the company are offered
through the digital platform.

Varun Dua founded the company in 2016, and is serving as the Chief Executive Officer of
Acko General Insurance. The investors of Acko include Amazon, Catamaran Ventures, Accel
Partners, and SAIF Partners. The portfolios that Acko operates include Motor Insurance
(Own Damage, and Third-Party Insurance), Travel Insurance, Mobile Insurance, and Health
Insurance.

Strengths of Acko General Insurance Company

i. Digital Insurer: Started in 2016 as India’s first digital insurer, and is currently the
fastest growing insurance firm in the country. In just six years, they have used
technology to transform the insurance industry, move it online, eliminate much of the
associated paperwork, develop products that are a cut above the rest, and sell them to
more than 50 million different customers.
ii. Strategic Partnerships: They have also partnered with some of the best businesses in
the digital world. Some of the well-known partners with whom they've developed
cutting-edge goods like trip insurance, gadgets cover, and hotel-stay insurance include
Ola, RedBus, Amazon, and OYO. These bite-sized product offerings have earned
considerable affection from the clients and even ushered in awards. The Golden
Peacock Innovative Product Award went to Ola Trip Insurance, a micro insurance
product that covers cab passengers.
iii. Make Insurance Simpler: They continuously work to advance insurance so that it is
as approachable as a smile by providing customized prices, instant policies, and
incredibly quick claim settlements. Speaking of investors that allow them to indulge
 in a little name-dropping that they’re backed by bigwigs like Amazon, Accel Partners,
Catamaran Ventures, Elevation Capital, RPS Ventures, and Mr. Binny Bansal.
iv. Technology: ACKO General Insurance offers cashless claim settlements for car/bike
insurance and health insurance at our PAN India wide network of partner garages and
hospitals. This is possible due to the extensive usage of Artificial Intelligence and
Machine Learning and their focus on claim settlement experience.
v. Quicker Processes: With Acko general insurance firm, insurance may be obtained
digitally anywhere at any point in time and that too without any paperwork in less
time. The goods are new and the technology tied to them has a unique offering such
as travel insurance, electronic cover, and hotel-stay insurance with the affiliation of
digital partners. The company places a strong emphasis on customer convenience and
provides goods that are useful to consumers.
Weaknesses of Acko General Insurance Company
i. Lack of Overseas Partners: One of the major weaknesses that Acko possesses is that
it doesn't have an overseas international partner like other General Insurers in India.
Most of the General Insurers have a foreign partner, which facilitates the company to
function efficiently in the Indian market. This is due to the transfer of technology
from the foreign markets, implementing global standards in the Indian market, and
ensuring capital requirement and increasing the appetite for risk taking. With the
increase in the Foreign Direct Investment in the Indian market to 74%, this is a
significant weakness that Acko would face in the near future.
ii. Establishing Brand: Second, Acko would have to create its own brand. With the lack
of partners in the Indian insurance market, they cannot leverage on existing brand
image of promoters. This would mean that they would incur expenditure in the
marketing, sales, and promotion, thereby reducing their cash reserve.
iii. Capital Requirements: With a lot of insurers maturing in the Indian market
presently, Acko would need considerable investment in people to build out an
extensive market. They also are digital insurers, and with the increasing requirement
of data security and privacy, there needs to be technology improvements and this
would further strain the cash reserves of the company.
iv. Affinity: Since Acko is working on affinity programs with brands to make inroads
into the insurance market, they would have the problems of getting exclusivity with
business partners. This needs to be worked out or they are a major weakness for the
company.
 v. Consumer Trust: Since they are a relatively new insurer, they don’t have trust factor
like certain established players in the insurance market. This would mean that they
need to build the trust factor, and in a price sensitive insurance market like India, this
would be difficult.
vi. Diversification: Acko only works on three main product lines which are Motor
Insurance, Health Insurance and Micro Insurance. This might create issues, as
diversification of insurance portfolios is important for the long-term sustainability and
profitability of the company.
Opportunities for Acko General Insurance Company
i. Newer tech based and innovative product lines: Acko is a digital insurer and is into
the retail lines of business viz. Health, Motor, Mobile Insurance, etc. which has a
huge market in India and are the most rapidly growing lines of business. Recent
regulatory and health environment has really created awareness and boosted the sales
of Motor and Health insurance. In the mobile insurance and other appliances market,
there is a lot of scope with the growing use of smart devices such as smart speakers,
smartwatches, etc. that are high value and can be a potential market.
ii. Exploiting the market by the digitization strategy: Acko being one of the initial
digital insurers in India can use that leverage being the early entrant and using it to
stay ahead of the competition by innovating more and more digital methods and by
introducing newer products and processes related to technology such as AI/ML, APIs
and ERP integrations with TPAs and brokers for underwriting, claims process and
settlement.
iii. Insurance of Electronic Appliances and Strategic Tie-ups: As Acko is already
insuring Mobile phones and Laptops, it can also provide a package cover that includes
cyber insurance coverage. As they already have a tie up with Amazon to provide opt-
in insurance coverage, it can give special offers to the customers purchasing amazon
devices such as tv, echo and firestick at a discounted rate.
iv. Group Health: Currently, Acko is only engaged in retail business, but as it already
has an experience into retail health side, it can explore the corporate health business
especially targeting the MSMEs which is about to be the main area of focus for the
whole insurance industry in general.
v. Foreign Tie-Ups: With the regulatory environment favourable and encouraging the
insurers to tie-up with overseas partners, Acko being a digital insurer can benefit by
 partnering with such foreign company having expertise in a similar market. It can aid
Acko to gain further market share.

Threats for Acko General Insurance Company

i. Competition: One of the major threats that Acko would face is the competition in the
General Insurance industry in India. Competition in the Indian market has given a
new lease of life to the insurance industry. The General Insurance industry in India is
highly competitive with around 34 players, and with new insurers being added to the
mix. It has become very hard for insurers to stand out with an edge, with so many
alternatives remaining. This would accentuate the already price sensitive market, and
would create a considerable threat to the existence of Acko and carving its own space
in the insurance market.
ii. Changing Regulatory Environment: The Insurance Regulatory and Development
Authority of India (IRDAI) has taken a policy-friendly stand in the recent times, to
ensure that the needs and requirements of insurance and the marketability of the
products increases. IRDAI has ensured this by amending the regulations, with
amendments like Protection of Policyholder Interests Act, 2017. This would mean
that Acko has additional pressure to meet to the changing regulatory requirements,
and this would be a considerable threat to the function of the organization.
iii. Risky Portfolio: Since Acko caters to Health Insurance (who’s requirement is felt
after the recent pandemic), and Micro Insurance (small-ticket insurance) which are
critical portfolios and have suffered a lot due to the pandemic and other external
environmental factors. They pose considerable threat to the existence of the
organization, noting the recent loss trends. Even in the profitable Motor Insurance
business, Acko has suffered losses and this is evident from the loss ratios posted by
Acko General Insurance. Therefore, unless they diversify their portfolio, the current
domains pose a threat.
iv. Market Entry: IRDAI, with plans to bring about multiple insurers, are planning to
reduce the entry capital requirements to General Insurance companies in India. This
would mean that there are multiple firms that would enter the same space as Acko,
which is the Digital Insurance stage and would challenge the hegemony that Acko has
in the domain.
v. Quality and Information Security: With the rising number of policyholders insured
by Acko, there would be considerable threat to the quality in which the services are
provided to the policyholders. This would require considerable investments in
maintaining the customer preferences, and customer service quality as this would
have a direct bearing on the brand value that it would garner in the market.
Furthermore, with increased emphasis on Information Security and the threats faced
by insurers and other industry companies, ensuring that the data of the policyholders
is protected is important, or else information security is an important threat.