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Jio Sets Its Eyes On Insurance Sector; Should Insurtech Startups Be Worried?

Jio Financial Services is reportedly set to enter the insurance space following the demerger of the business from Reliance Industries

Jio will be foraying into both life and non-life insurance business, and will soon approach IRDAI for a licence

Depending on RIL’s plan to make debut as an insurance aggregator or an insurer, Jio Financial Services is likely to disrupt startups like Go Digit and Acko, or PhonePe and Paytm

After changing the landscape of India’s telecom sector through the launch of Jio Infocomm and with similar plans for the OTT space with free streaming of IPL on JioCinema, India’s richest person Mukesh Ambani has set his sight on the burgeoning but highly under-penetrated insurance sector.

Jio Financial Services is reportedly set to enter the insurance space in the country following the demerger of the business from Reliance Industries Limited (RIL) into a separate entity.

Sources aware of the development recently told ET Now that Jio Financial Services has started recruiting talent and has already hired some ex-PSU resources. It is also expected to soon approach the Insurance Regulatory and Development Authority of India (IRDA) for a licence.

Jio will be reportedly foraying into both life and non-life insurance business. It must be noted that last year, RIL roped in veteran banker K V Kamath, who spent a lot of years at ICICI Bank, as the chairman of Jio Financial Services.

RIL announced the demerger of its financial services business and the spin-off of Reliance Strategic Investments as Jio Financial Services Ltd in October last year. It also plans to take Jio Financial Services public. 

While announcing the demerger, RIL said that the financial services company would launch a consumer and merchant lending business based on proprietary data analytics to “complement and supplement the traditional credit bureau-based underwriting”. 

The business will “continue to evaluate” organic growth, joint-venture partnerships as well as inorganic opportunities in insurance, asset management, and digital broking segments, it added.

“JFSL (Jio Financial Services Limited) and its subsidiaries (“JFS”) will leverage the technology capability of Reliance and focus on digital delivery of financial products to democratise financial services access for 1.4 Bn Indians,” the Ambani-led conglomerate said.

The RIL statement made it pretty clear that Jio Financial Services would be a digital-first player. However, it is not clear if the company is looking at becoming an insurance aggregator or an insurer. Whatever the case, it is sure to disrupt the segment going by the track record of the Jio brand. Besides, while fintech startups typically struggle with lack of capital, resources and technology, these have seldom been a constraint for Jio.

Jio Storm For Insurtech Startups?

India’s insurance market has some major startups in both life and non-life business who will feel the heat from Jio’s entry into this space.

As per an Inc42 report, the country’s fintech ecosystem is expected to be led by insurtech and lendingtech markets in the coming years, and the insurtech market is projected to reach a size of $339 Bn by 2025, growing at a compound annual growth rate (CAGR) of 57% during 2021-2025.

Besides legacy players like Life Insurance Corporation of India (LIC), HDFC, ICICI Group, among others, IPO-bound Go Digit, Acko, and Navi are the startups which will face competition from the entry of Jio Financial Services as an insurer.

If the company takes the broker route to act as an insurance aggregator, it will compete with the likes of PB Fintech’s Policybazaar, Paytm and Zerodha-backed Ditto Insurance. RIL’s plan to enter the insurance business also comes at a time when a lot of new-age tech startups are betting big on the segment.

Shares of PB Fintech fell 2.3% on the BSE today to INR 575.4, while Paytm shares jumped almost 6.9% to INR 624.5.

After establishing itself as the dominant player in the UPI market, PhonePe is now gearing up to grab a large share of the insurance segment. It recently raised $200 Mn in primary capital from Walmart to bolster its new businesses, including insurance. As such, the latest development at Jio Financial Services is sure to bring some discomfort at the startup.

Analysts have already warned about the impact Jio Financial Services can have on PhonePe’s competitor Paytm. In a research note in November last year, brokerage Macquarie said that Paytm was set to face higher risks from the entry of Jio Financial Services

Given that RIL had initially hinted at Jio Financial Services’ entry into the lending business, in which Paytm has started claiming a major market share, Macquarie said “Jio Financial Services will have a large balance sheet, not be asset-light and eventually manufacture most product offerings, giving it a significant competitive advantage… It can be a real threat to fintech business models as well as NBFCs.”

For now, startups have a few months to chalk out their plans to nullify the Jio threat as RIL is likely to announce its roadmap for the insurance business at its annual general meeting this year, which typically comes around July or August.

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