Star Health awaits gains from premium hikes, other initiatives

The cheapest health insurance plans may not be the best ones. Photo: iStock
The cheapest health insurance plans may not be the best ones. Photo: iStock

Summary

Amid stiff competition in the health insurance market, investors will watch if the company can sustain growth in gross direct premium income in FY24.

The shares of Star Health and Allied Insurance Co. Ltd are about 21% below their 52-week highs seen in September. Amid stiff competition in the health insurance market, investors will watch if the company can sustain growth in gross direct premium income (GDPI) in FY24. It has guided for 20% premium growth in FY24.

In July, Star Health’s retail premium growth was 16% year-on-year (y-o-y), lower than 18% seen by the industry. Kotak Institutional Equities’ analysts said, “The benefit of the tariff hike is expected to be visible over time but has likely affected new business to some extent."

Graphic:, Mint
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Graphic:, Mint

Note that Star Health had increased premium (price increase) by 25% from February on new policies of one of its best-selling products, Family Health Optima insurance plan.

In May, it hiked the premium in Family Health renewal policies too.

The company has taken other initiatives to boost growth. These measures are expected to show results in the coming quarters. For one, Star Health is strengthening its non-agency channels, particularly banks, to drive business. It has already partnered with various financial institutions. Star Health plans to scale up its credit-linked business, which is a health plan sold along with loan products. For Star Health, the agency network is crucial, accounting for 81% of the company’s premium in June quarter.

“Star Health is taking a cautious approach in taking aggressive risks in the non-fixed inc-ome book. They are expecting an improved combined ratio in rural areas as the company exp-ands into Tier-3 and Tier-4 towns. These are some factors investors need to keep an eye on in FY24," says Narendra Sola-nki, head fundamental research - Investment Services, Anand Rathi Shares and Stock Brokers.

It has also been diversifying its business to include more profitable products.

In this regard, Star Health has focused more on improving its retail business and has launched many specialized products such as cancer care and women care policies.

Specialized products contribute almost 16% of Star Health’s total retail health gross written premium. It is also trying to develop an outpatient product.

Further, implementation of expenses of management (EoM) norms by the regulator will be positive. Sujal Kumar, analyst, PhillipCapital (India) said, “The implementation of the EoM regulation is expected to work in favour of Star Health as it has EoM of less than 35%, unlike other health insurers. But it would take over 1-2 years for the benefit to come through."

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