Star Health & Allied Insurance Company – Leader In Retail Health

Star Health Q1 FY25 Analysis: Key takeaways!!

Star Health continues to focus on growth with profitability while maintaining its leadership position in the standalone health insurance segment. The company reported 18% year-over-year growth in Gross Written Premium (GWP) to Rs. 3,476 crore in Q1 FY25. The management remains confident about the long-term growth potential of the health insurance industry in India, given low penetration levels and increasing awareness.

Strategic Initiatives:

1. Digital transformation: Increasing focus on digital channels for policy issuance and claims processing. 72% of premium collection was through digital channels in Q1 FY25.

2. Product innovation: Launch of home healthcare services at no extra premium to policyholders.

3. Distribution expansion: Added 165 sales manager stations during the quarter to increase penetration in semi-urban and rural areas.

4. Wellness and prevention: Significant increase in preventive health checks, telemedicine usage, and wellness program enrollments.

Trends and Themes:

1. Shift towards higher sum insured policies: 81% of retail health portfolio now has sum insured of Rs. 5 lakhs and above.

2. Increasing share of long-term policies: 7% of retail GWP in Q1 FY25 vs 5% in Q1 FY24.

3. Focus on cashless claims: 90% of paid claims in Q1 FY25 were cashless vs 84% in Q1 FY24.

Industry Tailwinds:

1. Low health insurance penetration in India provides significant growth opportunity.

2. Increasing awareness about health insurance post-COVID.

3. Regulatory push for “Insurance for All by 2047” initiative.

Industry Headwinds:

1. Increasing healthcare costs putting pressure on claims ratios.

2. Intense competition in the health insurance space.

3. Regulatory changes requiring product modifications and potentially impacting pricing.

Analyst Concerns and Management Response:

1. Concern: Increase in claims ratio to 67.6% in Q1 FY25 from 65.4% in Q1 FY24.
   Response: Management attributed this to higher than expected frequency of medical claims, particularly fevers. They are monitoring the situation and preparing strategies to address it.

2. Concern: Decline in retail health renewal premium ratio to 93%.
   Response: Management clarified that policy-wise retention has improved, and the decline is due to changing business mix with higher growth in digital and bancassurance channels.

3. Concern: Impact of regulatory changes on pricing and profitability.
   Response: Management is evaluating the impact of new regulations and will take necessary pricing actions if required.

Competitive Landscape:
Star Health maintains its leadership position with a 42% market share in the standalone health insurance industry. The company is focusing on differentiation through its distribution network, in-house claims processing, and digital initiatives.

Guidance and Outlook:
The company aims to double its GWP to Rs. 30,000 crore and triple its PAT to Rs. 2,500 crore by FY28. Management remains committed to improving combined ratio through better claims management and expense control.

Capital Allocation Strategy:
The company maintains a strong capital base with a solvency ratio of 2.29 times as of June 30, 2024, well above the regulatory requirement of 1.5 times. No specific details were provided on dividend policy or share buybacks.

Opportunities & Risks:

Opportunities:

1. Potential expansion into life and non-life segments if composite licensing is introduced.
2. Increasing penetration in semi-urban and rural markets.
3. Cross-selling opportunities through bancassurance partnerships.

Risks:

1. Increasing healthcare costs impacting claims ratios.
2. Regulatory changes affecting product design and pricing.
3. Intense competition in the health insurance space.

Regulatory Environment:
The insurance industry is experiencing multiple regulatory changes focused on customer centricity. Star Health is preparing to meet these changes and claims to be ahead of the curve in many areas.

Customer Sentiment:
The company reported a Net Promoter Score (NPS) of 60 for Q1 FY25, indicating positive customer sentiment. Increased engagement in preventive health checks and wellness programs also suggests growing customer interest in health management.

Top 3 Takeaways:

1. Star Health maintains strong growth momentum with 18% YoY increase in GWP, focusing on profitable growth.

2. The company is investing significantly in digital transformation and wellness initiatives to improve customer engagement and long-term profitability.

3. While facing short-term headwinds in claims ratios, management remains confident about long-term growth prospects and is taking steps to address challenges.