Will Reliance’s Jio Financial Services Disrupt India’s Insurance Market? 

Jio Financial Services (JFS), the newest member of the Reliance Group, will enter India’s insurance market soon. In the recently concluded 46th annual general meeting (AGM) of Reliance Industries, its Chairman Mukesh Ambani made the announcement of JFS entry into the sector during his address to the shareholders.    

Ambani said in his speech, “JFS will enter the insurance segment to offer simple, yet smart, Life, General, and Health insurance products through a seamless digital interface, potentially partnering with global players.” 

The announcement has caught the attention of experts tracking the sector, with India’s second largest NBFC by market value set to try its fortunes in the growing insurance market of India. While the plan for its offerings and partnerships has not been made clear, analysts say that Reliance Group’s newest member has the potential to shake up the sector. Given the recent growth in India’s insurance market, there is an expectation that the market is set to widen further with the entry of new players.  

Headroom For Growth 

Looking at the data for India’s insurance sector’s growth, the penetration of life and non-life schemes has seen an increase in the country. From 2.71 per cent in 2001-02, it increased to 4.2 per cent in 2021-22. It is calculated as the ratio of premium to country’s GDP.  

Along with an increase in penetration, there has also been a substantial growth in insurance density, which is calculated as ratio of premium to total population. Since 2015-16, it has increased from $54.7 to $91.  

Aamar Deo Singh, head of advisory at Angel One Ltd, says, “The Indian insurance market has a lot of room to grow in the years to come. The insurance industry saw a 10.3 per cent compound annual increase over the previous ten years, which amply illustrates the enormous possibility that this industry has.” 

JFS will enter the market at a time when analysts see substantial headroom for growth. According to global average of 7 per cent, the penetration of insurance schemes in India is still low. 

Talking about the potential of India’s insurance market, Amar Ranu, Head of Investment Products & Insights, Anand Rathi Shares and Stock Brokers, opines, “With Indian economy showing remarkable resilience, thanks to strong macro improvements, policy reforms and government push for digital, India is to become the epicenter for insurance business to capture the untapped market share relative to its global peers.” 

The insurance market is divided into two segments, life and non-life. As per the available data, the penetration and density of life insurance schemes are much higher than non-life schemes. Until FY22, the penetration of life and non-life schemes stood at 3.2 per cent and 1 per cent respectively, while density was $69 and $22.  

Given the importance of life insurance segment, the market for these schemes is quite important for insurance players. However, this segment has been dominated by Life Insurance Corporation (LIC). But in last few years, private players are also making a mark in the segment and analysts expect the competition to stiffen due to the entry of Reliance-backed JFS. 

Taking On LIC 

Historically, LIC has held over 2/3rd share of the life insurance market. It has largely maintained its dominant position through its vast distribution network present across the country. Other players who are vying for the market share include HDFC Life Insurance Company, SBI Life and ICICI Prudential Life Insurance Company.  

When JFS enters the market, it will have to take on the life insurance behemoth LIC and other private players who have spent years trying to establish themselves in the market. However, Ambani’s latest bet has come at a time when the private sector has been slowly chipping away the market share of LIC.  

According to the data available for market share calculated for total first year premium, LIC has seen a steady decline in last few years. Explaining the trend, Jinay Gala, Associate Director, India Ratings & Research, says, “In the life segment, private sector has been gaining market share for some time, particularly in the individual segment. One of most important factors that help private players is that they are able to offer a diverse range of products compared to LIC. We expect the market to widen in the coming years as private players increase their presence.” 

Looking at data for individual policies compiled by market analytics firm Crisil, LIC had 56 per cent market share in FY16 while the remaining share belonged to private players. However, both private players and LIC had 50-50 share in FY21.  

Analysts also say that the regulator IRDAI has been working to relax conditions for private players to ease cost of operations. Last year, the IRDAI board had approved several measures to simplify setting up of insurance companies. It took the decision to allow private equity funds to directly invest in insurance companies, instead of setting up special purpose vehicles.  

Looking at the returns earned by life insurance companies on the bourses this year, it appears that investors are also expressing confidence in private insurance companies. Out of the four major players, only LIC has seen its shares decline in value.

With the insurance market expected to widen in the future, will JFS disrupt the industry? 

A Long-Term Play 

Talking about the new entrant, Gaurav Dixit, Director of BFSI Ratings at CareEdge Ratings, says, "The sector is likely to undergo some shakeup and consolidation as any new entrant, backed by a very large promoter group having deep pockets and/or tie up with a strong foreign partner will pose a challenge to the existing players, especially those, which do not have significant market share."

In the coming months, it is expected that Reliance leadership will clear the air on how JFS plans to make its mark in the sector. Ambani has already suggested that the company might look to partner with global players in the segment when it enters the market. Importantly, JFS will work with Blackrock in the asset management industry.  

However, analysts caution that the incumbents in the market might not feel the heat of JFS’ entry immediately. Gala explains that while Reliance has an established base to target, monetising in the insurance business is not easy. “We need to note that insurance is a high gestation business and firms have to work significantly to build distribution networks.  In short-term, it is unlikely to have a major impact on incumbents. This is going to be a long-term journey for the group in this business,” he adds. 

Agreeing with observations made by Gala, Ranu says, “Given the reach and scale of JFS, the sector may be headed for a shakeup but it would take its time to put its footprints and create  a niche for themselves.” He adds that Reliance may have upper hand benefit because of their presence across every nook and corner of country due to its telecom business, but setting up insurance business will take its time and efforts to prove.  

Reliance has demonstrated its ability to disrupt sectors in the past through its telecom business. How Ambani’s bet on insurance sector plays out will become clear in the time to come. In terms of total premium volume, India is the 10th largest insurance market in the world and is expected to become the sixth largest market by 2032. JFS, along with other private players, would look to capitalise on the potential of the market in the coming years.