Less than three months after announcing plans to set up a joint venture company in the health insurance sector, Religare Enterprises Ltd (REL) and Swiss Re, the second largest international re-insurer, have parted company. REL is understood to be aggressively pursuing efforts to rope in other partners in the joint venture.
The companies had signed a non-binding term sheet to develop the joint venture on June 1, 2009. But according to a communication sent to the stock exchanges, they decided not to renew their agreement. The deadline for the term-sheet lapsed on August 20, 2009.
According to industry sources, REL, a diversified financial services company, had a conflict of interest with Swiss Re, which already has other business interests in India. It runs a third party administrator company and has active reinsurance business with all the players in the domestic insurance business. While REL plans to ride on its nationwide distribution network spanning 498 towns, to tap the emerging sector fast, Swiss Re apparently wanted more clarity on the policy front before moving ahead.
Talking to FE, a REL spokesman said, ?We are completely committed to go ahead in the health insurance space and we have got a growth strategy for the same.? The spokesman also confirmed his company is on the lookout for a global partner.
REL is a listed company promoted by former Ranbaxy owners and brothers Malvinder and Shivinder Singh. In 2008-09, REL had an operating income of Rs 748.24 crore and an operating profit of Rs 263.18 crore.
REL has been on the expansion mode for over a year now. Last year, it acquired one of the oldest stock broking firms in City of London, Hichens, Harrison & Co, which was subsequently renamed REL Hichens Plc. It is also part of a consortium bidding for AIG Investments, which is valued at about $ 500 million.
REL has a life insurance joint venture with Aegon and also has a wealth management joint venture under the brand name ?Religare Macquaire Private Wealth.?
REL?s aborted venture with Swiss Re follows similar episodes in recent months. ERGO, the primary insurance entity of Munich Re, and Hero Group had signed an MOU in May 2008 for setting up a life insurance company, but had spilt last March, as the Hero group didn?t want to pursue the project. Even the Dabur group has apparently put an end to its mid-2008 understanding with USA?s Liberty Mutual to set up a non-life venture.
Punjab National Bank (PNB), too, had pulled out of a life insurance venture proposal with USA?s Principal Group.
According to a recent Ernst & Young-Ficci study, the low healthcare insurance penetration in India presents a large opportunity for new entrants. Major government-sponsored health-related insurance schemes cover only 12% of the population, a figure the study estimates can rise to 50% by 2015.
?Although private health insurance has grown at the rate of 40% per annum, low awareness, high premiums and an inadequate and inefficient backend infrastructure has kept health insurance out of reach of a large part of the population,? the study adds.
In India, the share of private healthcare expenditure in total healthcare expenditure is 81%, while it is 56%, 61% and 38% for Brazil, China and Russia, respectively. The cost of treatments, largely driven by private providers, has increased the share of healthcare expenditure in total household expenditure.