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STARHEAL held an Analyst Day to provide deep insights into its tech based underwriting, claims settlement processes and overall business outlook

* While individual agents (82% share) will continue to be the bedrock for STARHEAL, distribution channels such as banca (5%) and digital (9%) will grow at a relatively faster pace with cumulative share likely to rise to 20% in 3-5 years.

* The recently announced Expense of Management (EOM) regulation will have positive outcomes for STARHEAL as most of the competition is above the threshold of 35%/30% for SAHIs/GI players, while STARHEAL operates well below.

* IFRS implementation is expected over a couple of years and that would be beneficial to the profitability ratios as expenses get booked over the term of the products. RoEs can get a boost of 2-2.5%.

* STARHEAL rejects about 13-15% of claims, which is in line with the other players in terms of retail health. Through technology the TAT for claims settlement has been strengthened and today they settle 90% of cashless claims within stipulated two hours.

* The price hike in the Family Optima Health insurance plan of 25% is estimated to impact retention by 2-4% in terms of number of policies.

* STARHEAL is focusing on a profitable product mix through increasing share of specialized products, claims processing through network hospitals, thrust on profitable banca products and a price hike. We have a BUY rating on the stock with a one-year TP of INR700 (35x Sep-24E EPS).

Capping on Expenses of Management – Positive for entire industry

* Capping of expenses of management (EOM) is positive move for the entire industry. EOM shall be capped at 35% for SAHIs and 30% for general insurers. Also, if the actual EOM exceeds by 10% of the projected EOM given in the business plan (given at the beginning of the year) then there will be no variable pay to MD/CEO/KMP for the said year.

* Currently all SAHIs except STARHEAL have EOM above 35% and they will have to reduce this as per glide path indicated in the regulations. The combined ratio for the general insurance players is more than 100% and hence the ability to higher commission is limited (excess can still be charged to shareholders account).

* In terms of commissions, overall payouts were in excess of 30%+ for new book while 15% were on old book. STARHEAL will look to optimize the commission ratio by charging differently on back book and new book.

* The exposure draft had a clause that if the existing EOM is below the ceiling then it has to be maintained at levels of last three years average. However, the same has been removed.

Wide distribution reach driven by agent network

* Of the total distribution network ~82% are individual agents. Star has 0.64m agents and ~91k sponsored agents. Star aims to add 0.1m agents to its network every year. In terms of commissions, STARHEAL does not differentiate between sponsored payout and regular agents. Star has observed that the productivity is better with IC-38 (sponsored) agents.

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