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Expert Call: Healthy outlook for health insurance; SAHIs in sweet spot

We hosted an expert call on “Indian Health Insurance Sector in Post-Covid Disruptive Tech World” with Mr. Vikas Jain, CIO, and Mr. C Anil Kumar, Director and CFO of Niva Bupa Health Insurance Co. Ltd (Not listed), formerly Max Bupa. The key message is that the health insurance business in India is poised to grow significantly in the long term and standalone health insurers (SAHIs), such as Niva Bupa, are well positioned to make the most of the profitable growth opportunity in retail health.

* Ocean of opportunities for health insurance to grow in India: High out-of-pocket expenditure in global context and rising medical inflation make India one of the most attractive growth markets for health insurance. Despite ambitious government schemes such as Ayushman Bharat to provide health insurance to people from the deprived segment, ~350mn Indians are not covered under any health insurance scheme (individual, group or government sponsored). Increasing middle class population, sustained healthcare cost inflation and existing under-coverage/non-coverage present a very attractive growth opportunity for the long term.

* With focus on retail health, Niva Bupa is growing strongly by utilizing all distribution channels: Niva Bupa, like most SAHIs, has a strong focus on the profitable retail health segment. However, unlike many of its peers, Niva Bupa has a balanced omni-channel approach to distribution. It generates ~40% of business from the agency network, ~27% from bancassurance, ~20% from web aggregators/online brokers and the rest via its own direct channel. With the addition of new bancassurance partners like HDFC Bank and Axis Bank, Niva Bupa gains access to over 34,000 bank branches via 13 banks. Such strong banca partnerships give it access to a majority of the addressable middle-class population.

* Moreover, the company expanded its branch network to 150 branches (100 cities) by FY21 from 55 branches in FY20. By FY25, it aims to reach 600 cities and increase its agent count to 250,000 from 25,000 currently. On the web aggregator front, Niva Bupa is the largest player on the biggest web aggregator/online broker platform. Overall, the company remains committed to having a robust omni-channel distribution network to cater to the widest spectrum of retail health customers.

* Significant expansion in product portfolio to match needs of customers from all segments: The company has significantly expanded its product offering to cater to the needs of people from all economic classes. Its earlier product offering focused mainly on the upper affluent class and HNIs. This is a remarkable shift toward targeting the full spectrum of retail health customers rather than just being perceived as a high-income focused niche health insurance player.

* Strengthening and diversification of board and management team post entry of True North: In Dec’19, private equity firm True North bought a 51% stake in Max Bupa from promoter Max India and became a promoter along with Bupa. Post the promoter change, the company strengthened its board and tapped professionals from diverse fields in its senior management team to capture and capitalize on growth opportunities amid the dynamic business environment. These key new team members come with rich experience from different industries such as life and general insurance, FMCG and IT.

* Outcome of recent initiatives and strategy reflecting in numbers: The strategy of creating an omni-channel and a wider customer focus has started to deliver results. Niva Bupa has been growing faster than the industry and its SAHI peers in the last few years. In YTD FY22 (up to Aug’21), it has grown by ~65% YoY in the retail health segment.

* Profitable growth at the heart of business strategy: The company, backed by two strong promoters, has great firepower of capital to capture the abundant growth opportunity in health insurance. However, it will continue to focus on growing business with a focus on customer lifecycle profitability.

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