Life insurance is an interest area for us, says Star Health MD & CEO Anand Roy

Roy expects a 10% rise in the cost of average health insurance premium this year in the wake of rising medical inflation. He also denied reports of any stake sale discussion with Life Insurance Corp. of India (LIC), which has been planning to partner with a health insurer through stake acquisition in the imminent composite license regime. After dealing with a hit on profitability due to unusually high insurance claims last year, Roy, in an interview with Mint, said Star Health has taken measures to bring claims settlement ratios back on track this year, while looking to double the company's sales to over ₹30,000 crore by fiscal year 2028. Edited excerpts:

Star Health is already the largest health insurer. Would you look at adjacencies once composite licence is allowed?

Life insurance is an interest area for us. Protection plans are something that we are definitely considering. We will wait and see how the regulations evolve. We have a large distribution channel with more than 20 million lives covered. Out of all insurance lines, health insurance line is the only one where there is constant engagement with the consumer, whether for claims, for renewals, or for wellness activities.

So, we are in a good position to market other lines of businesses. We'll see what the regulatory requirements are, and then probably we will decide on any acquisition. We'll wait for the composite license, and then we may consider something of that sort.

How do you plan to fund your growth or any potential acquisition? Would you sell shares?

We are quite well capitalized already. We are at 2.2 times in terms of solvency margin against the regulatory need of 1.5 times. So, our focus is currently on providing better ROEs to our investors, and then having a profitable growth journey, even if you need capital for certain exigencies or any kind of acquisition.

We do have the option of accessing a sub-debt because we are a profitable company. We can dive into this sub-debt option in case we need to. It's a very reasonable way of raising capital, because you redeploy that, and you can nullify the interest cost.

There are reports suggesting LIC is in talks with Star Health for a stake purchase...

We are a large enough company and we have strong promoters. As far as interaction with LIC or anyone is concerned, that's not true. We have not engaged with anyone.

With or without LIC, do you have plans to diversify your business? Would you look at becoming a full-fledged general insurer to grow bigger and faster?

I strongly believe that the next 10-15 years will be the period of health insurance business. Indians are becoming aware and more active about health and healthcare. Health insurance is growing at the fastest among all businesses. So I think it is a business that we definitely have a strong conviction, and we would like to be in this business.

But yes, if the regulations allow us tomorrow, with this insurance Amendment Act, which is in the offing, with composite licence, we will evaluate. We have a very large distribution, strong brand across the country, a big set of agents and consumers. So whenever there are other opportunities, we will consider at that point of time.

But for us to diversify, the insurance Amendment Act needs to get passed. And then it may take another few months for the regulator to set the rules, the capital requirement and so on. We have conducted surveys of our own distributors, our own employees and all of that, and we have seen a very strong intent to align with other lines of protection-driven insurance, such as term life insurance.

Also Read: LIC looks to buy a standalone private health insurer

Have you appointed any external agency to advise on your diversification or restructuring plans?

We engaged BCG as a partner to do the entire strategy for us. We have that (strategy) in place, but it needs more capital, it needs technology, it needs people, it needs products. So probably once the regulations are defined, maybe in 3-4 quarters we should be out with a plan. That will be subject to our board's approvals and all of that.

What is Star Health's focus right now?

At Star Health our focus continues to be on retail. 95% of our business is retail. Last year, we did ₹17,500 crore business with a growth of about 15% GWP even though last year was challenging for us and the industry. We not only grew by 25% in terms of new business on the retail side last year, on the opex front also we are the best in the industry.

Our expense of management is the best in the class. Both on growth matrices and our OPEX we did well. Our overall retail growth came at around 15%. The beauty of Star Health is that it is not a large metro city-based company. We are there in tier-1, 2 and 3 towns across 1,000 plus locations, with operations in 17,000 out of total 19,000 PIN codes in India. So, going forward, we should be able to maintain this growth of at least 25-30% on new business.

Our business growth strategy is both value and volume-led. Last year, our volumes were also growing at close to 10% on the retail side. We believe consumers should feel policies are affordable and valuable. So, we are constantly introducing products specific to different markets, and we are confident that we'll maintain this growth.

But Star Health seems to be dealing with issues on the claims side.

Our claims ratio definitely was distorted last year (FY2025) and was higher than what we had projected. We had projected something around 66-67% claims ratio, but it went up significantly. And that led to a deterioration in our financial performance, which has also been something of a concern.

Why were the claims higher than expected? How do you plan to address this issue?

There are multiple reasons. Number one is definitely we saw higher medical inflation. We have seen more and more consumers moving towards tertiary care hospitals and corporate hospitals. And that is expected as well because people buy insurance to go for better quality treatments. But then the medical inflation in these hospitals has been very, very concerning for us. The second part is that we saw a very extended monsoon season last year as compared to other years, which impacted our claims.

Finally, multiple regulatory interventions were introduced last year, whether it is cashless everywhere, a campaign by the regulator, whether it is health, new health regulations, or master circulars were brought in. All of these have impacted consumer behaviour as well as the utilization of health insurance, which led to deterioration in our loss ratios.

Every player's loss ratios have deteriorated. To bring the performance back on track, we have taken multiple steps. Firstly, we were forced to make some price corrections in 5-6 products because of the increase in claims experience.

Secondly, we have seen that there are certain businesses where we are not seeing any improvement in terms of claims ratios, especially corporate businesses. While we were not a large player there, whatever we were operating, we have recalibrated our business in those segments.

We have been a profitable company, and we want to bring that back from this year onwards.

While claims have been higher than anticipated, there have been reports on how Star Health has dealt with claims settlement and the regulatory actions against the company in this regard. Can you clarify on this?

Star Health is the largest standalone health insurer. Last year, we have settled more than 20 lakh claims. We are paying out more than 5,000 claims every day. We are one of the largest claims pay masters in the country. We have over 14,000 network hospitals. If you look at our claims payouts, our claims rejection ratio (for April-December period of FY25) is about 10% which is one of the lowest in the industry. And the payout ratios are also around 87-88%. So, what should consumers do to ensure their claims are settled?

Firstly, one should not hide any known ailment from their doctor or while applying for health insurance. We have a range of 35-odd products, offering covers for all. But non-disclosure and suppression of facts lead to issues at the time of hospitalization. So if consumers disclose better and then opt for different policies, it will be helpful for both. So, we are doing our bit to educate our consumers.

As far as news reports are concerned, I can tell you, the regulator has been hyperactive on medical insurance in terms of services improvement for the last six months. They came out with a master circular, and they had conducted follow up inspection of about 10 insurance companies on adherence to that master circular. All leading insurers were inspected. A thematic inspection was done, and Star Health was one of them, being a large company. There is no truth to the media report that the regulator intends to take any action on Star Health.

Also Read: Heath insurance in India ought to cover preventive care as well

While growing the new business, what is the ideal range of claims settlement ratio that you would be looking at in the coming years?

So, our aspiration is that consumer grievances should be reduced. We track it every month, and we see that it is on the downward trend because of the efforts we have been taking over the last few years. Claim settlement ratio is basically how much of the claim does the insurance company pay out. For us, it is around 87-88% right now, and I think that is one of the best in the industry. Why is the balance12% not paid? It is because some of our retail policies have limits such as room rent capping, capping for maternity, cataract, and so on.

As a target the incurred claim ratio, which is directly impacting our profitability as an organization, ideally should be in the range of 65-67%. We should have an overall combined ratio of 95-97%, and that is the target we have kept for ourselves from the financial performance point of view.

Profitability has been affected in recent quarters. With increasing claims, rising costs how do you intend to enhance your profitability without compromising on growth?

I think profitable growth is in the DNA of this company. This year has been a one-off, but we are still profitable. The profits have decreased over last year because of the higher claims ratio. For the next three years, we have a vision of doubling our topline and tripling our bottom line.

So, by FY2028 we want to reach ₹30,000 crores in topline and ₹2500 crore in bottomline. We are on track for that and this year, we are thinking of something around ₹20,000-21,000 crore topline, which we are very confident of achieving.

What steps will you take to achieve those targets?

We are a retail-oriented company. We have four growth drivers called ABCD — agency, bank assurance, corporate and digital. This year, agency and digital have done extremely well. We will continue to double down on those two channels. We have added close to 80,000 new agents this year. We are the largest employer in the entire general insurance industry. We employ more people than New India Assurance, which is a public sector company. Given our distribution strength we can improve productivity.

It will come through efficiencies and technological investments we have made. So, the idea is to grow the new business in retail by around 25%, which will take us to our top line aspirations. On the digital side, we have a very strong presence.

We are the largest player in the digital business. We have probably more than 50% market share in the direct digital business among all insurers on the health side. So that is something that we will continue to invest in. And digital business now contributes more than 20% of our new business growth. So that will be our main step, other than the bank assurance. The corporate segment has been kind of loss-making for the industry. We will be very selective in the corporate business, focusing more on small corporates. So, this is the strategy that we have to achieve our targets.

And, we will introduce multiple new products in the next few months which is going to cater to all segments of the society, including the affordable segment, the missing-middle, as the Niti Ayog calls it for the people who are not poor enough to be covered under the government schemes and not rich enough to buy health insurance plans.

We will focus on tier-2, and 3 cities and increase penetration to ensure our topline goals are met. And with the investments we have made in product pricing, repricing of products, selection of risk, and moving towards more cashless facility in our preferred network of hospitals, I think we will be able to manage our bottom line targets as well.

How do you plan to protect your market share with more corporates venturing into health insurance and life insurers planning to start selling health products once composite license is allowed?

Star Health commands one-third of the health insurance market right now. One out of every three policies sold is of Star Health. We have maintained this market share even after covid. In fact, we have been able to increase it by a bit. We are quite confident, given our brand, our services felt in the market, our distribution strength, and our products going deeper into Bharat, we will not only maintain our market share but also grow it.

Even today, health insurance is the most competitive business. All the 30 insurance companies are selling health insurance of some kind as it has become the largest segment. Despite such competition, we are maintaining our market share. We are growing and are quite confident we will be able to do even better in the coming days. Our projection is that by FY2028 if we are able to achieve our topline our market share should improve from 33% now to 35%.

As a part of cost control, is there a retrenchment underway at Star Health? How do you want to reduce the expense ratio?

Our expense ratio is the lowest in the entire industry. Irdai allows health insurance companies to opecrate at 35% expense ratio. We are operating at close to 30%. However, we are investing a lot in technology. We are investing a lot in automation. Because of that, there are certain areas where we are doing some manpower optimization. But, nothing so dramatic. These are regular annual processes.

Considering the medical inflation and rising claims, do you think the average health insurance premium will increase in the coming years?

Health insurance premiums are a factor of medical inflation. Like other products health insurance premiums will increase depending on the escalating medical expenses. The regulator is also becoming more aligned to the fact that you can take a soft price increase annually rather than some lumpsum price increase once in three-four years, which affects the population. Health insurance will probably mirror the inflation rates. We try to make it as soft as possible. We also provide a lot of discounts to our consumers who are otherwise staying healthy. So for retail, I would say there can be a rise in average premium rates in the range of 8-10% every year.

Medical inflation and rising hospital tariffs are putting pressure on the claims ratio and profitability of the sector. With insurers consistently hiking tariffs, retail demand is coming down, which is not desirable. How is Star Health dealing with this?

The common public's out-of-pocket expense has increased in the health insurance space. Medical inflation is high and rising hospital tariffs are putting pressure on claims ratio and profitability of the sector. With insurers consistently hiking tariffs, retail demand is coming down, which is not desirable. How is Star Health dealing with this?

During and after covid, there was a significant rise in demand for health insurance, but that has softened now. And what insurers have been doing ever since is to innovate products, including Star Health. We launched a very successful product called SuperStar this year, which has become the market leader in the retail side. We have been trying to bring more coverage and make sure that affordability factor for the public is addressed. While doing so, our CAGR from 2019 to 2025 is over 10%. But it can be better, given the low penetration.

What are the challenges?

India continues to have one of the highest healthcare inflations globally and post covid, it has become kind of tricky. Healthcare providers have become more commercial in nature and more corporatized in nature. They have their own profit and loss to take care of, and health insurance and healthcare go hand in hand. Both are two sides of the same coin. So, one side of the coin is very tightly regulated, and the other side is totally unregulated. That kind of friction remains. And who is getting affected the most in this, are mostly the consumers.

The government has to play a role, to bring some kind of health regulator, or some kind of governance or an apex body for the healthcare sector, so that some discipline is brought in there. Insurers are tightly regulated for every price increase. We have actuarial science to manage. Recently, the regulator said that you cannot increase senior citizen premiums by more than 10% in a year. But there's no such law for regular healthcare of senior citizens.

Then let's say CABG treatment, which was costing ₹1 lakh in 2019, is costing ₹3 lakh today at the same hospital. There is no regulation on that side. This imbalance creates consumer dissatisfaction. So, something has to be done in the interest of the larger society.

The government can focus on the poor segment, but it alone cannot take care of all of the 1.5 billion people. Of course, health insurance companies too have to become more transparent and consumer centric. But, India has 50-60% of healthcare spending out of pocket. And today, people from the middle-income segment get severely impacted if a single incident of hospitalization happens in the family. The growth of health insurance is a multi-decade opportunity, but growth can come only with good consumer experience, which is the main challenge we are facing right now.

Also Read: India insured by 2047: Insurance companies must be profitable to achieve this

What are some of the steps you would expect from Irdai, or other regulators or the government for better growth?

For the last three years or so, the regulator has been extremely helpful in terms of creating reforms which has propelled growth of the insurance industry.

Particularly coming to health insurance, there has been a master circular which gets into a lot of granular details like claims have to be paid in one hour, three hours, and so on and so forth. Those are actually moving away a little bit from principle-based regulations to rule-based regulations back again, which can be avoided.

But beyond that, the larger problems for health insurance are frauds. Various studies have shown that 10-15% of insurance claims are lost to fraud. We have to see how the regulator, along with the government, can bring insurance fraud into the ambit of financial frauds. A fraudster should be blacklisted from that bit of insurance for a reasonable amount of time, including corporates, hospitals, and distributors.

Second point is, as a nation we need a healthcare regulator, an apex body where there should be some standardization of protocols, standardization of tariffs, certain amount of discipline has to be brought in.

Insurance penetration is only 1% as far as general insurance is concerned, and hardly 5 crore Indians have health insurance. Healthcare costs are going up. So, in the interest of society, the government has to introduce some kind of healthcare regulator, which is going to be helpful. At the government level, we have suggested that 18% GST should be done away with, especially for health insurance business or at least for senior citizens, if not for everyone. If not a complete waiver, it can be at least brought down to 5%.

Is there any serious talk on the creation of a healthcare regulator?

This is a larger discussion. It is not something that is happening right now. It's more for society's good rather than for insurance companies.

The argument is that health is a state subject and the central government alone may not be able to do much. But then the same thing was discussed during the creation of real estate regulator. RERA came into being, and see how beautifully it is operating now, giving so much confidence to the public. I think something like that has to be done especially because health is an even more important subject.