Health Insurance Sector: Poised for Strong Growth
Published by Sharekhan Education | March 17, 2023
Amit Pathak | Sharekhan Education
Health insurance provides financial coverage for illness. The COVID crisis has changed the perception of the health insurance industry in India. Although the pandemic has resulted in near-term losses for the industry due to higher claims, it has made everyone realize their financial unpreparedness in case of any health-related emergency. The Health Insurance market in India is estimated to be around USD 122.1 Bn in 2022 and is estimated to register a CAGR of 10.2% by 2027 to reach USD 198.4 bn.
A Health insurance company generates profits from underwriting when the premium realized is greater than the expenses incurred. In addition, it generates profits from the Investment Management of float capital by investing it in different investment vehicles, mainly in Fixed income products and limited exposure to Equities.
Key growth drivers for the sector are:
1. Growth in the income levels of the educated middle class, young insurable population, and increasing life expectancy.
2. Increase in the average ticket size of health insurance coverage as quality healthcare gets expensive.
3. Permission by the regulator to conduct video-based know-your-customer (KYC) documentation.
4. Government-sponsored mass health schemes like Ayushman Bharat (which provides a health cover of Rs 5 lakh per beneficiary family).
The Retail Health Insurance category remains under-penetrated with only ~4% penetration. Currently, a large share of healthcare expenditure is incurred out of pocket (~55% in India vs the 18% global average). The industry premiums have grown at ~20% CAGR over the last decade and continue to present a big opportunity in the foreseeable future.
About Star Health:
Let us discuss Star Health in this space. The company enjoys a leadership position in the retail segment with around 30% market share. Its leadership position gives scale benefits and an operating cost advantage over its competitors. The company is increasing its footprint in rural India and focusing on the bancassurance channel. It is also strengthening its agency channel to propel business momentum. Star health has the largest hospital network amongst its peers and attracts customers. It had a 94% renewal rate in 2022. As per consensus estimates, the company would deliver Revenue/PAT CAGR of 21%/26%, respectively, and RoEs in the range of 14.7-16.8% over FY23-FY25E.
Source – Company Presentations and Consensus Analyst Estimates.
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