Why buyers are queuing up to buy Star Health Insurance

In 2006, the insurance sector was still evolving and basic insurance products for motor and health products were being sold in the market by newly-launched general insurance companies.

In the same year, when Star Health and Allied Insurance set up a standalone health insurance company, market players thought it was a risky proposition.

A lot has changed in the ensuing 12 years and the brainchild of the former United India Insurance Chairman and Managing Director V Jagannathan, Star Health now has a slew of investors including ICICI Venture, Sequoia Capital, Tata Capital Growth Fund, Apis Partners as well as foreign investors like Oman Insurance Company and ETA Star of Dubai backing it.

The company is out on the block as its investors are seeking an exit. It is no surprise that the health insurance company received interest from WestBridge Capital who teamed up with billionaire investor Rakesh Jhunjhunwala, apart from PremjiInvest, Bain Capital, Warburg Pincus, apart from ICICI Lombard General Insurance for the stake.

Early bird advantage

The health insurer entered the market at a time when buying a medical cover was at a nascent stage. Being a specialist company, its premiums grew since the year of inception.

At a time when insurance companies took seven to eight years to break-even and report profits, Star Health achieved profitability in FY08 itself. In the first year of inception, the health insurer collected net earned premiums of Rs 4.8 crore which jumped to Rs 2,739.6 crore in FY18.

It is the largest standalone health insurance company in the country with premium collection of Rs 4,145 crore in FY18, an increase of 40 percent over the year ago period.

For the year ending March 31, 2008, the health insurer posted a profit after tax of Rs 1.2 crore as compared to a loss of Rs 2.5 crore in the year ago period. Ten years later, the net profit has jumped to Rs 170.1 crore as on March 31, 2018.

Standalone health insurers hold 5.5 percent market share. Of this, Star Health holds 2.75 percent making it the largest entity in this space.

Similarly, the health insurer has a strong claims management system.

Combined ratio presents a picture of how well an insurance company is able to manage claims vis-à-vis the premium collected. Unlike its peers who are bleeding, Star Health has a combined ratio of 93 percent. A number below 100 percent indicates that a company is posting underwriting profits meaning its premiums collected are more than claims paid out.

Product differentiation

Health insurance is a segment with high claims. This is why selection of risks has been a key factor for general insurance companies. While other insurers excluded pre-existing conditions, Star Health Insurance included people with diabetes, cardiac ailments as well as cancer. In fact, it was the first insurer to cover HIV positive patients.

“The real need of insurance is when you have contracted a major illness," said S Prakash, Chief Operating Officer, Star Health and Allied Insurance. "The market was looking for a product that covered such illnesses as well as outpatient expenses, dental treatment as well as mental health. We have been able to price it effectively because we have a large set of data,” he added.

Overall, while portability of health insurance has not taken off in a big way, Prakash added that they have a large proportion of customers porting into the company from others.

Prakash who himself is a certified doctor said that with early diagnosis, the onset of diseases like cancer can be controlled to a large extent and longevity of life has been seen.

Buyer’s gain

While the stake sale of Star Health is in the last leg with WestBridge Capital said to be leading the race, industry experts said that the acquisition can give an immediate upside in the health insurance business.

Apart from motor third party insurance which is mandatory, health insurance is the only product which is bought by individuals themselves.

Medical inflation is estimated to be at 18-20 percent and a minor ailment that requires hospitalisation would set one behind by Rs 2 lakh to Rs 5 lakh in a metro city.

At this time, being the oldest in the market with a brand name helps. A solvency of 177 percent backed by good numbers on the topline and bottom-line proved to be the match made in heaven for Star Health.