Paytm’s Gamble To Disrupt $280 Billion Insurance Sector Starts With This Acquisition!

India’s most valuable ecommerce payment system and fintech firm, Paytm along with its co-founder and Chief Executive Vijay Shekhar Sharma has announced its plans to acquire Raheja QBE Ltd — for Rs 568 crore ($76 million) in an all-cash deal to enter the country’s insurance market, as reported by TechCrunch.

The insurance company in talks is a  joint venture between Rajan Raheja Group and QBE Insurance.

Read on to find out more…

Paytm To Foray Into The Indian Insurance Market!

In November 2019, Paytm had raised $1 billion from existing investors when it announced it intends to invest $1.4 billion in its business over the next 3 years so it can add new services including insurance, lending, and stockbroking.

Currently, Prism Johnson has a 51% stake in the Mumbai-based insurance company and the remaining 49% is held by QBE Australia. 

Prism Johnson in an exchange filing on Monday said its board of directors had approved divestment of 51% in Raheja QBE for an aggregate consideration of Rs 289.68 crore. The purchase price is not fully unveiled, however, the industry officials said the overall value of the entire deal would be around Rs 568 crore.

Data from Insurance Regulatory and Development Authority of India (IRDAI) show that gross direct premium underwritten by Raheja QBE for 2019-20 was Rs 158.12 crore, compared with Rs 115.98 crore in the previous fiscal year, a growth of 36.34%. The market share up to March 2020 was at 0.08%, suggests data from IRDAI.

Sharma is acquiring Raheja QBE through QorQl Pvt. Ltd, a firm in which he owns majority stake with Paytm owning the remainder. With Paytm set to attain 100% stake in the company, all employees of Raheja QBE will continue working in Mumbai and other locations.

The acquisition is still subject to regulatory approval from the IRDAI, the two firms cautioned.

QBE Australia Pacific Chief Executive Officer, Mr. Vivek Bhatia said, “Today’s announcement marks both a continuation of QBE’s strategy to simplify our business and the beginning of a new & exciting chapter for our strong team at Raheja QBE.”

Vijay Aggarwal, Managing Director Prism Johnson Ltd. said in a statement, “We are happy to announce the sale transaction of our entire 51 percent stake in Raheja QBE General Insurance Company Limited. Our decision to sell our stake in Raheja QBE is in line with our mission to create sustainable shareholder value and will enable us to focus our resources on our core businesses. This move will help the insurance business scale up to new heights by leveraging the large customer base and innovative products offered by Paytm. I would like to thank Raheja QBE’s management team and all the employees for their strong contribution and commitment over the years and wish them every success.”

How Can A Payment System Firm Takeover The Insurance Market?

The Mumbai-headquartered Raheja QBE has garnered over 41,000 customers, and sold 69,000 new policies in the FY 2019-2020.

In India only a fraction of the nation’s 1.3 billion population currently have access to insurance and some industry experts say that digital firms could prove crucial in bringing these services to the masses. 

According to rating agency  Investment Information and Credit Rating Agency of India Ltd. (ICRA), insurance products had reached less than 3% of the population as of 2017.

An average Indian makes about $2,100 a year, according to data from the World Bank. ICRA estimated that of those Indians who had purchased an insurance product, they were spending less than $50 on it in 2017.

In recent years, many startups and established banks have launched products to takeover the insurance market. Paytm, which runs a range of businesses, insurance offerings could fit well in its satchel of offerings. 

Paytm, whose services are used by tens of millions of Indians each month, said the acquisition will help it ‘democratize general insurance services’ in the country, reported Tech Crunch.

By doing this, Paytm will be able to introduce insurance products instantly without having to develop them in-house.  Furthermore, it will become a ‘one-stop-shop’ app, which will boost its customer engagement and loyalty.  Paytm with its large customer base will offer a tough challenge for the insurance techs in the industry.

What Does Paytm Have to Say?

The goal of the purchase is to take insurance products to the grassroots of India, Paytm wrote.

Paytm President Amit Nayyar in a statement, “It is an important milestone in Paytm’s financial services journey, and we are very excited to welcome Raheja QBE General Insurance into the Paytm family.”

In addition he said,  “Its strong management team will help us accelerate our journey of taking insurance to the large population of India with the aim to create a tech-driven, multi-channel general insurance company with innovative and affordable insurance products.”