Compelling business model in a beckoning industry: Star Health and Allied Insurance (STAR), incorporated in 2006, is the largest private health insurer in India, with market share of 15.8% and gross written premium (GWP) of Rs 93.5b in FY21.
In FY21, the retail health GWP for STAR was over 3x the retail health GWP of the next highest retail health insurance market participant. It has market share of 31% in the retail health segment.
During FY18–21, STAR outperformed the industry in premium growth, with 31.4%/ 32.4%/ 35.3%/ 8.5% growth in Total Premium / Retail Health / Group Health / Personal Accident.
Individual agents account for 78%+ of its premium collections, and at 0.43m agents, it boasts the highest count of agents among the standalone health insurers (SAHIs). It has a network of 737 branches (pan-India presence) and tieups with 90+ corporate agents.
Its combined ratio has been among the best in the industry at 92–94%, except in FY21, which was impacted by several one-offs. Its expense ratio saw consistent decline to 19.6% in FY21 from 26.9% in FY18.
Retail Health Insurance — a large opportunity: The Health Insurance industry is poised to see a CAGR of 18%/23%/15%/11% in the Total/ Retail/ Group/ Government segment over FY21–25E (CRISIL estimates). Stark under-penetration would be the primary driver of the same.
Currently, only 3% of the population is covered under retail health insurance plans. With government and corporate schemes, the coverage increases to 37% of the population. Relative to other major economies, health insurance premium as a percentage of GDP (0.36%), density ($5), and out-of-pocket health expenditure (63%), India is worse off. Furthermore, the Covid-19 pandemic created a pull for health insurance demand, reflected in 28%/ 25% growth in retail health insurance premiums in FY21/4MFY22. Growth was driven by 1) a surge in the number of individuals subscribing for health insurance, 2) an increase in the sum assured by existing customers, and 3) price hikes implemented by companies in the past fiscal.
Key risks: While the Covid-19 pandemic did result in a pull for demand for health insurance, it also led to a higher claims ratio. Therefore, a third Covid wave may prove detrimental to earnings given the severity of Covid-19 claims is 2x non-Covid claims. Increased competition from multi-line general insurers may pose a risk to growth for STAR. The extension of the coverage of government schemes, such as Ayushman Bharat, to those beyond the BPL category may slow the industry growth rate.