In conversation with Nilesh Kambli, Chief Financial Officer, Star Health and Allied Insurance Company Ltd

In this interview, Nilesh Kambli, CFO, Star Health and Allied Insurance Company Limited, responds to questions about the current financial status of the company, its plans to increase the market share, overall trend in the health insurance industry and the strategies that will be employed for further growth

What is your outlook on the Indian health insurance sector? What are the key growth triggers for the sector over the next 2-3 years?

The Indian health insurance industry is composed of three segments — retail, group and government health. Star Health and Allied Insurance Company Limited’s (Star Health) focus is on the retail health segment. In the past four years, the retail health segment has grown at a CAGR of 18 per cent. We expect similar industry growth trajectory for the next 2-3 years. Star Health had a 33 per cent retail health market share as of FY22 versus 24 per cent in FY18. We believe that Star Health will grow faster than the industry and continue to increase market share.

The key growth triggers for the industry are:

• Low penetration of health insurance
• Awareness created by the pandemic as well as the various government schemes
• Insurance regulator is also taking active and progressive steps to increase the penetration of health insurance
• Product innovation in retail health insurance
• Rising income levels will lead to increase in the tax-filing demographic. With tax benefits available on health insurance so also rising income level will lead to the growth of retail health.

What strategy are you implementing to retain and further expand your market share as well as strengthen your presence in the rural parts of the country?

We are expanding our market share by sticking to our core strategy of:

• Leveraging our strong brand in the retail health insurance sector to attract quality agents and build our agency distribution network. Agency plays a vital role as retail health is an assisted sale product.
• Expand use of alternate distribution channels, such as our corporate agent banks channel and other channels (including digital channel) that complement our agency network.
• Expand our offerings of innovative and bespoke products (disease-specific, demographic-specific and geography-specific products) and wellness benefits, including tele-medicine, that are tailor-made to our customers’ needs.
• Utilise the digitisation of our business to improve operational efficiencies and customer service.
• Expand into newer markets including underpenetrated rural areas with population of less than 1 lakh.

As regards the rural market, we have opened up close to 300 spoke locations and 200 branch offices, so there are 500 distribution outlets in the rural markets. The initial reading is that the average ticket size and quality of business is better than expectations. The rural initiative is asset light with less physical infrastructure but digital heavy with usage of tablets etc. We have recently tied up with common services centres (CSCs) under the Ministry of Electronics and Information Technology which has 5 lakh CSCs functioning across the country as delivery points of government and public services for the rural population in rural, semi-urban and urban areas. This tie-up will boost rural sales.

Presently, what are your top three strategic priorities?

Currently, the top three strategic priorities for our company are:

• Continue to deliver better-than-industry growth in our preferred retail health segment through our agency channel and develop alternative channels like banca or digital.
• Customer service through product innovation and efficient claims settlement through cashless network of hospitals.
• Drive profitability by leveraging scale and further improving financial performance.

What is your earnings’ outlook for the upcoming quarters?

It is difficult to set quarterly guidance for insurers as there is a fair bit of seasonality. For the full year FY23 we expect claims ratio to come in the 63-65 per cent range. As regards combined ratio, we expect it to be in the 93-95 per cent range. As far as premium growth is concerned, which is important as it can impact earnings, we expect to achieve 20-25 per cent growth rate in the retail health segment and continue to grow faster than the industry. We continue to exit large group health insurance businesses which are not value-accretive. Overall growth will be in the range of 18-20 per cent.

Can you describe your experience as the CFO of India’s largest private health insurer? Also, kindly highlight the key challenges that you have faced during your tenure?

It has been a great experience to handle the IPO of our company. Interestingly, I joined in March 2020 which coincided with the start of the pandemic. It has been a great learning experience to work with industry stalwarts like our Chairman and CEO V Jagannathan, Managing Director Dr. Prakash Subbarayan and Managing Director Anand Roy.

Some of the key challenges and the outcome are:

• Capital management during the outbreak of the pandemic and till the time the company raised capital through sub-debt and IPO.
• We had to undergo significant accounting changes which resulted in creation of reserves and the corresponding losses along with the pandemic-related claims. It was a challenge to explain the entire accounting change methodology to potential investors.
• The whole journey was exciting in preparing the company for the IPO in terms of three years’ restated financials, risk and business section drafting along with key data points and coordinating for regulatory approvals from SEBI and IRDAI along with due diligence process with bankers and legal advisors, investor road shows, etc.
• We had a virtual investor road show over three weeks which started early at around 8.30 am and lasted till 9 pm to cater to various geographies in the world. We had about 6-8 meetings per day with each meeting of 1-1.5 hours.

Currently, the top three strategic priorities as a CFO are:

• Financial Discipline: Efficient capital management, constant monitoring of actuals versus the budget, expense control measures and creating awareness about the bottom-line through vertical and branch profitability statements.
• Automation: We are upgrading our policy administration and accounting systems with focus on speed and straight-through processing. We have implemented some interesting robotics tools to ensure straight-through processing of high-volume transactions.
• Investor Outreach: Since ours is the first health insurer to get listed, we need to constantly interact and educate the analysts and investor community on the business model and long-term prospects of Star Health.