Amazon(NASDAQ: AMZN) has set its sights on the multibillion-dollar insurance industry in India. Bloomberg reports that the e-commerce giant wants to "carry out the business of soliciting, procuring and servicing insurance as a corporate agent" according to its latest filings with the regulatory authorities -- a move that could disrupt the way insurance is sold in this market.
Amazon is clearly looking to boost the popularity of its e-commerce platform by adding yet another product to its offerings. But this time it's targeting a large and underserved market that could help it mint big money in the long run.
Wads of dollar bills.
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Why this could be a big deal
The Indian insurance industry is expected to be worth $280 billion by fiscal 2020 according to a joint survey by the Associated Chambers of Commerce and Industry of India and APAS. Even then, there will be a huge underserved market, as insurance penetration in the country was just 3.7% last year.
For comparison, India's e-commerce industry is expected to hit $188 billion by 2025. As such, Amazon is going after a much bigger market, one that has the potential to grow at a solid pace in the coming years as penetration increases.
The Boston Consulting Group estimates that online insurance sales in India will increase 20 times from 2016 to 2020, hitting a size of just over $2 billion. That's because a good chunk of Indians are now looking to buy insurance online rather than through traditional channels, since they can choose from a wide range of plans to suit their requirements and get the best available price by comparing different providers.
But this is just the beginning. A mix of government initiatives and the rapid growth of the internet-using population in India could boost the online insurance sector in the country even further. A joint survey by IBM and Kalaari Capital estimates that the number of Internet users in India will jump from 450 million at present to 850 million by 2022, with one out of every two users coming from rural areas.
At the same time, the Indian government has launched a project to cover more than 100 million families under the National Health Protection Scheme. Favorable developments such as these should ensure the rapid growth of online insurance sales in India, which is why it makes perfect sense for Amazon to enter this market.
The landscape right now
There are a handful of online insurance selling platforms in India. PolicyBazaar, for instance, will be a key challenger for Amazon. This 10-year old company currently sells 300,000 new insurance plans and renewals every month, and is on track to process nearly $420 million worth of premiums this year.
More importantly, PolicyBazaar looks well-placed to grow its business thanks to $238 million in funding that it secured in June this year in a round led by SoftBank. PolicyBazaar's holding company has used investors' money wisely so far, as evidenced by the 56% sales growth that it recorded last year. It has entered new segments, and reportedly is looking to move into the reinsurance space as well. It won't be surprising if it proves to be the thorn in Amazon's side in the Indian insurance industry.
However, the Seattle-based giant has devised a smart plan to get its teeth into this market, one that could see it harnessing the existing strength of its e-commerce platform to reach a wide audience and crush the smaller players.
Amazon's making a smart play
Amazon started laying the groundwork for its insurance push in India earlier this year when it led a funding round for digital insurance start-up Acko. The start-up is providing insurance services for ride-hailing apps and other travel-centric areas such as flights. Rumors suggest that Amazon and Acko will eventually move to provide coverage for items sold on the e-commerce site, such as smartphones.
The bigger play for Amazon, however, will come once it applies for a license from the Insurance Regulatory and Development Authority and uses its digital payments platform, Amazon Pay, to roll out more insurance products. The e-commerce giant's executives have already hinted that it is going to launch insurance products using the Amazon Pay platform, which is a smart thing to do as the company's vast user base can buy insurance with just a click.
Amazon reportedly holds a 31.1% share of the Indian e-commerce market, and it is now targeting 70 million online shoppers in the country through Amazon Pay, providing financial services such as loans and EMIs (equated monthly installments). Amazon Pay already allows customers to book bus tickets, pay bills, purchase movie tickets, order food, or buy car insurance. The company also offers lucrative discounts and cash back to those customers who purchase items on its site using this platform in a bid to boost adoption.
So Amazon will have a strong base of existing users to sell insurance products to as it builds the popularity of Amazon Pay. Moreover, buying insurance through this platform will help users eliminate some paperwork and allow Amazon to provide customized insurance products, as it will already have access to the necessary personal information of its customers.
A big opportunity
Only 3% of the insurance bought in India is purchased through online channels. But, as we saw above, this scenario is going to change thanks to the country's increasing internet penetration.
Apart from PolicyBazaar, Paytm, an Alibaba and SoftBank-backed digital payments platform, is likely to compete against Amazon, having received regulatory approval in September last year. Paytm has 80 million active users, and currently allows them to pay premiums and buy car insurance from several providers. However, Paytm is mostly a digital payments platform, as its e-commerce arm has a market share of just 14% in India. This is where Amazon has an upper hand thanks to its dominant position and rapidly growing monthly active user count, growing at a 40% clip.
Once Amazon rolls out its insurance platform, it can tap into its massive e-commerce user base to take advantage of a multibillion-dollar market. This will give its top line a solid boost given the size and the potential growth of the insurance business in India.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.
