Thursday, December 14, 2017

Relying on India

The third generation of the Ambani family took centre stage this week to announce the company’s launch of a standalone health insurer.

Anmol Ambani, son of Anil, addressed Reliance Capital shareholders for the first time at the company’s 31st annual general meeting on Tuesday, laying out plans for a new health insurance company and affirming its intention to publicly list Reliance General Insurance and Reliance Nippon Life Asset Management during the current financial year.

“Traditionally, heath insurance was part of our general insurance set-up,” said the 25-year-old, who joined the Reliance Capital board last year. “But to create retail focus we are setting up a standalone health insurance company. We have already received Round 1 approval from the IRDAI [Insurance Regulatory and Development Authority of India].”

The Ambani scion might be young, but so is the Indian population in general — and it is these favourable demographics that he highlighted in his speech. China, understandably, tends to hog the limelight when it comes to growth opportunities in Asia, but India has a significant demographic advantage. It is forecast to have the world’s largest workforce within the next decade, with one billion people between the ages of 16 and 64. Half of the population is under 25, two-thirds are less than 35.

“This enormous working-age population is our strength; our strength is in numbers,” said Ambani.

The other advantage of such a young population is the ability to distribute products to them outside the traditional agency and bancassurance models. In “Digital India”, more than 80% of the population access the internet through mobile devices.

“We’re setting up this business as a digital-first company from day one,” said Ambani. “We will leverage technology to leapfrog the competition.”

In particular, he said the company was exploring “new age” technology such as blockchain, artificial intelligence, big data and advanced analytics.

Ambani also pointed to other factors driving the growth potential in the health insurance sector. Besides a younger India with higher incomes and greater financial awareness, he also pointed to the rising cost of healthcare and an increase in lifestyle-related ailments such as diabetes and heart disease.

Medical inflation in India is currently running at 15% and the health sector is estimated to be a US$15 billion market within five years.

Currently, the company’s health business contributes around 10% of Reliance General Insurance’s premiums, which were US$616 million in the financial year ending in April, and will be spun off ahead of the initial public offering of the general insurance arm. It is also possible that the general insurer could be sold to a strategic buyer, the company said during an investor call earlier this year.

In the meantime, the plan is to build the health business. “We see ourselves as an incubator,” said Ambani “Just as we have incubated and grown these business in the past, we will nurture and develop new business opportunities in the future, focusing only within the financial services and financial technology space. Our aim is for our businesses to be ranked in the top three within their respective industries in the near future.”

More broadly, he said that Reliance Capital’s “patriotic priorities” are financial inclusion, public health and universal housing.

It remains to be seen if India can step out of China’s shadow. Governance continues to be a significant problem for the world’s biggest democracy, but it has the demographics and the institutions to justify Ambani’s optimism. If only it can get its act together.

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