Jio Financial Services to foray into insurance, AMC biz

Mumbai: The Reliance Industries Limited (RIL) is all set to venture into insurance-both life and non-life by October, 2023. The finer details of the RIL’s plan about its forthcoming foray into insurance and asset management, is likely to be unveiled today (May 2, 2023). The focus of Jio Financial Services Limited (JFSL) will be to go for new technology. RIL will completely go for digital distribution platform, which promises wide reach with a minimal cost involved.

Talking to Bizz Buzz, requesting anonymity, a veteran from the Skill Training of Rural Youth (STRY) says, “Digital will definitely make a huge difference, though when we consider life business, over the 20+ years, the new life players, with their combined capital haven't been able to make a significant dent on the market share of LIC, nor in the areas of customer loyalty (persistency ratio) or claim settlement ratios. The agent still is considered more trustworthy.”

“In non-life, yes, the scope for a digital transformation is much greater, and that is definitely an area where the PSU players will fall short (already evident), and a new behemoth, digitally competent, with an enormous customer base and reach, will definitely make a very big difference. At the same time, in nonlife penetration is still very low, and the entry of such players can make a big difference,” he added.

In the insurance industry, distribution cost can be brought down with digital insurance. If you have got a better distribution network and the company is a manufacturer of insurance, they can indeed address mass products, which could be quite disruptive.

Now, the IRDAI has allowed that agents can be better paid off under its newly introduced EoM guidelines. Since April 01, the regulator IRDAI has announced the removal of segmental limits on commissions for life, general, and health insurers. The move is expected to have a significant impact on the way insurance companies operate and compete in the market.

Life insurance is a very capital intensive business and in case major chunk of your business comes from the agency force, then it simply means that you will end up paying hefty sum to them in the form of commission. It is here, JFSL will make a difference with digital distribution focus.

An RIL spokesman had recently said, “We have applied to NCLT for demerger and we have been asked to take shareholders and creditors approval, which we are doing on May 2, 2023.” In life insurance the oft referred to focus segment is the rural population where nearly 78 per cent people are neither insured nor are aware of life insurance though during the last ten years the per capita income has almost doubled in rural areas or in the small urban clusters.

Jio-FS has already appointed KV Kamath (earlier CEO of ICICI Bank) as its Chairman and Hitesh Sethia as the CEO. Global brokerage Jefferies expects the demerger and listing of RIL's financial services business to take around six months period. The execution is expected to be the key here! On RIL, Jefferies is optimistic and has eventually raised its target price on the stock.

Under this transaction, shareholders of RIL will receive one equity share of JFSL for one share. In its latest note, Jefferies said, “RIL's foray into financial services with Jio-FS will open an opportunity to play in India's demerger, and listing can take six months & build-up of the franchise may be staggered as tech/analytics/ recovery platforms may need to built in-house.

Regulatory approvals are expected to take 12-18 months. Jio-FS has appointed KV Kamath (earlier CEO of ICICI Bank) as its Chairman and Hitesh Sethia as the CEO.

The New York-based brokerage is watch-out for the build-up of teams and platforms for tech, analytics, payments, recoveries, and compliance that take time to stabilise and are difficult to build inorganically.

Jefferies believes Jio-FS' first port of call could be consumer, lending (especially electronics) & merchant financing. It said, “JFS' key advantage will be low funding cost/ better access on the back of the group's high credit rating and ownership per cent stake in RIL.”

Also, it added that the Group aspires to foray into non-lending financial businesses like life/ general insurance and AMC where it can even take the inorganic route and benefit from recent regulatory change that allows banks to have up to nine insurance partners.

Additionally, Jefferies said, a payments business may be built to acquire customers, as standalone economics are quite weak.