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Jio Financial Services Ventures into Insurance Post Demerger

Can insurtech startups keep up with the telecom giant's insurance foray?

23 March 2023


Jayashri Ghorpade

India produced 3X more unicorns than China in 2022.png
  • Following its demerger from Reliance Industries, Jio Financial Services is reportedly planning to enter the insurance sector.

  • Jio plans to enter both life and non-life insurance sectors and will soon seek a license from IRDAI.

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

India's richest person, Mukesh Ambani, has shifted his focus to the under-penetrated insurance sector after making significant changes to India's telecom sector through Jio Infocomm and offering free streaming of IPL on JioCinema for the OTT space. It has been reported that Jio Financial Services is preparing to enter the insurance industry in India, and this move follows the demerger of the business from Reliance Industries Limited (RIL) into a separate entity.

Jio Financial Services has reportedly started recruiting talent and has already hired some ex-PSU resources, according to sources aware of the development who recently spoke to ET Now. Additionally, Jio is expected to approach the Insurance Regulatory and Development Authority of India (IRDA) for a license as it prepares to enter both the life and non-life insurance business. It is worth noting that last year, RIL appointed K V Kamath, a veteran banker with many years of experience at ICICI Bank, as the chairman of Jio Financial Services.

In October of last year, RIL announced the demerger of its financial services business and the spin-off of Reliance Strategic Investments as Jio Financial Services Ltd. As part of this restructuring, the company plans to take Jio Financial Services public. RIL also revealed that the financial services company would launch a consumer and merchant lending business, which would be based on proprietary data analytics and would "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 was clear that Jio Financial Services would prioritize digital channels, but it did not specify whether the company intends to operate as an insurance aggregator or an insurer. Regardless, the Jio brand has a track record of disruption in various industries, indicating that it is likely to shake up this segment as well. Furthermore, unlike many fintech startups that face challenges such as limited access to capital, resources, and technology, Jio has rarely encountered such constraints.

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Is Jio's entry a game-changer for insurtech startups?

Jio's entry into India's insurance market will pose a challenge to major startups operating in both the life and non-life sectors. As per an Inc42 report, insurtech and lendingtech markets are expected to lead the country's fintech ecosystem in the coming years, with the insurtech market projected to reach $339 Bn by 2025, growing at a CAGR of 57% from 2021 to 2025.

In addition to legacy players like LIC, HDFC, and ICICI Group, IPO-bound Go Digit, Acko, and Navi are among the startups that will face competition from Jio Financial Services' foray into the insurance sector. If Jio acts as an insurance aggregator through the broker route, it will compete with companies like PB Fintech's Policybazaar, Paytm, and Zerodha-backed Ditto Insurance. RIL's plan to enter the insurance business coincides with many new-age tech startups betting big on this segment. Today, PB Fintech's shares fell by 2.3% on the BSE to INR 575.4, while Paytm's shares rose by almost 6.9% to INR 624.5.

PhonePe, the dominant player in the UPI market, is raising $200 Mn in primary capital from Walmart to bolster new businesses, including insurance, and is now preparing to grab a large share of the insurance segment. However, Jio Financial Services' latest development is likely to bring discomfort to PhonePe as analysts have already warned about the impact on Paytm. Macquarie cautioned that Paytm faces higher risks from Jio Financial Services' entry, as RIL had initially hinted at Jio's entry into the lending business where Paytm claims a major market share.

Jio Financial Services will have a large balance sheet and can eventually manufacture most product offerings, giving it a significant competitive advantage, which can be a real threat to fintech business models and NBFCs. Startups have a few months to chalk out their plans to nullify the Jio threat before RIL announces its roadmap for the insurance business at its annual general meeting, which typically comes around July or August. 

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