You are planning to raise capital at a time when markets may be at an all-time high but in general insurance, stocks are not at an all-time high. What is the urgency to raise capital? If you waited perhaps you would have got better valuations?
We have not chosen the time. I would say we needed around Rs 2,000 crore for solvency purposes. Our journey started in 2006 with Rs 108 crore. Up to a point, a child can depend on parents rather on investors and other people. A time comes when the company has to stand on its legs. With this Rs 2,000 crore, we will be in a position to grow further. Knowing our own inherent strength, we have not exactly fixed the timings. We needed it so we are coming out with the IPO.
According to reported data, your growth has been almost 80% higher than the industry average. Now with your base becoming higher, will you be able to sustain this kind of growth?
Even this year we have done 27% so far. This 27% is in the lean months. Because of the income tax rebate, peak months for health insurance are January, February, March. So, I have four months before me and growth so far is 27% against 36% of last year and it will be an easy walk for me to complete the target.
Organisations cannot be static. That means there is something wrong with the planning or with the organisation. So we have a plan to take care of the company for years to come and our growth so far stands testimony to that.
What you are essentially indicating is that the kind of growth that you have maintained as per declared data between FY18 and FY21 of 30% plus, in future also, you are confident of maintaining that kind of growth?
Definitely maintain — maybe a little more than industry’s growth.
Your operating expenses are higher than industry despite your base and reach. Why is that?
But our management expenses are still very low, it is about 7% or so.
I have the number which says 26% as against the industry average of 19%.
I do not know what you exactly mean. There are three things – one thing is equipment cost, one thing is the operating expenses, one thing is claims ratio. Our operating expenses are only 7-7.5%.
You follow a very unique model in that you got a very large on-ground reach. Are you likely to pursue this strategy going forward or would you like to adopt a more aggressive digital strategy?
Insurance still is an eye to eye contact business. The agent has to convince the customer to take the policy. He acts as a bridge between the insurance company and the customer. So for any claim, the customer immediately thinks of the insurance agent, any problem in the policy he thinks of the insurance agent and totally trusts him.
The second thing is health insurance has become a necessity from being a luxury. But there are still some areas where there is little doubt whether one should take a policy. In such areas, it is the agent who sits with the middle income group family, the BPL family or the higher income group family and explains how the insurance works.
So we will not change the strategy of having this ground force. We have around five lakh agents. But having said that, one has to change with time. The only constant is change. We will also go on a digital mode to sell our policies. I am proud to tell you around 63% of papers processing we get done digitally. So a mixture of two will take Star high.
Given that because of Covid your insurance claims went higher and that impacted your profitability, when do you think things will start normalising?
In 2022-2023 and I should be telling you what my underwriting profit is at that time, there is no compromise on that.
What has happened to the underlying cost? Life insurance sector representatives are of the view that because of the Covid crisis, there has been a big change in the underwriting costs. What is the update at your end?
Our underwriting cost remains almost the same and I do not think that there is any difference. I do not know about life insurance because I do not have full details to comment on that. A few years back in 2006, when I started, the average policy was Rs 2-3 lakh, Now, it is Rs 10 lakh and even Rs 12-15 lakh. That shows both high net worth individuals as well as middle income groups have raised their ticket size.
What kind of CD ratio we should see going forward from Star Health because the CD ratio in a sense is best in the industry between 1993 to 1994, 1992 to 1994. Because of Covid, the numbers are looking slightly different. When do you think it will settle down and come back to the original band which you have maintained?
We might not be able to do it in 2021-2022 but in 2022-2023, we can definitely take it from me that our ratio will be almost near that band.
There are 30 players in the space which you represent. Do you see going forward aggression as well as a little bit of pricing war coming in?
There would not be any problem. We are not concerned about the competitors at all. Further, the penetration itself may be around 4% to 5% and there is enough market available for us to penetrate. Initially we were in metros, then we moved to tier two, tier three cities and now we are proposing to move to rural areas. We have recently started a separate rural vertical and that is also doing well.
With the capital infusion after the IPO, will you be comfortable with your solvency ratio or will you have to come to the market again in the next two-three years?
We will be very much comfortable. In health insurance, like any industry, there will be a waxing and waning period. For anything, there will be a solution. But I do not think this Covid will be repeated again and I do not think we will require further money for solvency.
Where exactly do you think the health insurance prices are headed in the next 12 to 18 months, 18 to 24 months — not only for Star Health but in general for the industry per se?
Pricing depends on various factors; one, your own claim management capacity, your own procurement cost, your own administrative cost. When you look into these three things, then what we keep is a small portion as a profit. Each company differs in their outlook in their philosophy but we are always customer friendly.
The regulator gave us an approval to raise 5% during this pandemic time across all policies, irrespective of the claim ratio. But we are the only company who have not raised the price. When my boys asked me, I said listen as the public is suffering, if you raise the price it will be rubbing salt on the raw wound. Let us not do it and we have not done it.
One of the unique things of your product mix is that you get roughly 85% from retail health and remaining 18% from health group. In retail health you are the market leader, when it comes to corporate pricing, what are the challenges you are likely to focus on — big corporates, small corporates, SMEs?
There are two things; SMEs are profitable but as for large corporates, I do not know whether I can say we lose. Would you like to go and work somewhere where at the end of day, you have to give the house owner Rs 100 and come back the next day when the other half will allow you to go for the job? So we are a little wary about these large groups and try to avoid it.
But having said that, we have to have a presence everywhere. We do not know today’s enemy is tomorrow’s friend and so we keep a bearable portion in groups but retail is not like that. We have started moving to retail when the government projects have been with other insurers.
In today’s disruptive fintech world, how do you see fintech changing the way insurance is being sold?
Well I do not think that will have any effect on us.
