Star Health & Allied Insurance Company – Leader In Retail Health

I think most brokerage reports miss why Star was able to develop its agency force at such speed and others like HDFC Ergo, ICICI Lombard werent. That history is very important to understand. It was simply a result of regulatory arbitrage available to the SAHI industry. They had and continue to have 2 regulatory advantages over multi-line general insurers:

1. Agents can empanel 1 Life Insurer, 1 Multi-Line General Insurer and 1 SAHI. There are far many more multi-line insurers than SAHI. Star being the first SAHI player was able to take advantage. Some agents try to get around this by making their spouse/kids agents as well but still there is incremental frictional cost.
2. Existing Life insurance agents could sell health insurance via a SAHI without any friction, whereas if agents wanted to get empanelled with a general insurer (even to sell health insurance) they had to take an exam.
   What both these two in conjunction mean is that any SAHI player could pick-off any existing life or general insurance agent whereas the opposite was not possible. And there was a large 2mn+ agency pool available to be picked off. Again since Star was the first SAHI in the industry, it just had a massive headstart and was able to build the pool before other players

This is the single largest factor that explains why SAHI players are taking market share away at such a large pace. It has absolutely nothing to do with underwriting and/or being willing to underwrite poor policies. You can check the loss ratios of any SAHI to verify.

Now the logical extension to the question is what happens when/if these regulatory advantages are taken away. Would the business collapse and would agents attrition away en-masse? That is the important question to ask. In my opinion, it has now become a permanent competitive advantage. What incentive does an agent have to switch away from an existing insurer. Let me list a few and see if Star is at risk:

1. Higher commissions: Not possible due to commission cap. If anything Star will have an advantage here due to a lower cost structure.
2. Better price elsewehere: By and large except for Digit, most other players seem to have similar pricing (based on Policybazaar). One can see Digit’s Financials on their website and come to their own conclusion on what is going on there. In any case, given Star is now one of the lowest cost players, undercutting them on price doesnt seem to be a good long term viable strategy
3. Better Service: Star already has one of the largest hospital networks, second only to Care I believe and a pretty high proportion of cashless claims. Quality of service can be ascertained via renewal rates.

It is unclear to me in the absence of any incentive, why an agent would want to move away from Star. Given these advantages and given the pitifully low penetration of health insurance in the country, I can only imagine what this business will look like in 5-7 years time.