Star Health & Allied Insurance Company - Leader In Retail Health

Let us begin with a brief overview of the industry. Private sector health insurance can be divided into two segments- group (bought by corporates for employees) and retail (bought by individuals for themselves/their family). The group segment is characterized by lower brand value, lower customer loyalty, and higher claims ratios. On the other hand, trust and brand, as opposed to merely least price, play a much larger role in the retail segment. Notably, retail is ‘bottom up’- the individual decides the sum insured, insurer etc., as opposed to group which is ‘top down’.

As can be seen from the data below, individual business also has higher per-person premiums.

The private sector health insurance industry can also be categorized by type of insurance provider, i.e., general (non-life) insurer and standalone health insurer (SAHI). SAHIs are, as the name suggests, pure-play health insurance companies, as opposed to general insurers, who also offer other non-life products, most significantly motor insurance.

Market share

One key nuance of health insurance (versus, say, motor insurance) is that premium pricing and sum assured would appreciate with time. Combined with high renewal rates in health, this means that the lifetime value of a health customer is significantly greater than the LTV of any other non-life customer.

Further, retail health has three broad distribution channels- agents, banca, and online aggreggators. Agent-based channel accounts for the majority. It is crucial to note that the agent model is high-touch and relationship-based, as oppossed to online aggregators and banca, which are transactional outcomes.

Agent attrition rate is lowest for SAHIs

Through Care Health’s Q1FY23 numbers (below), one can also get a broad idea of the premium per policy across different channels- policies sold through individual agents are presumably more granular as opposed to brokers (group business with higher ticket sizes).

Star Health & Allied Insurance Company Limited (‘Star’) is a retail-focused SAHI (India’s first SAHI), started in 2006 by Mr. Venkatasamy Jagannathan. He was previously CMD of United India, and he started Star after his retirement.

Star is the market leader in the retail segment, with market share of >30% and accretion market share of >50% as of Q1FY23. Star has the largest agent network in retail health, at 5.67 lakh as of Q1FY23.

Star’s premium-per-agent is the highest among SAHIs

By looking at retail health premium per person covered, one can get a broad indication of target customer segment. E.g., from the data below, one can infer that Cholamandalam GI probably targets high-income consumers while SBI GI probably targets the mass market. Most others (including Star) are somewhere in between.

Star also has a wide hospital network; among this, pre-agreed hospitals (hospitals with better, negotiated pricing) have a lower claims amount, and is growing as % of total cashless claims in Star’s network.

Star operates on a low-cost business model, as is evident from their low opex to GWP ratio (lowest among SAHIs).

Also, Star’s opex to GWP % and opex per person covered is reducing with time

Star’s claims management is entirely in-house; this gives them control over costs, preventing fraud, and lowering turnaround time.

Star has among the highest renewal ratios for any health insurer worldwide. At >96% ‘gross retention’ plus any ‘expansion ARR’ (borrowing from SaaS), one can imagine what Star’s ‘net revenue retention’ might be.

Indications of strong ‘expansion ARR’Indications of strong ‘expansion ARR’

As regards Star’s underwriting quality, we find that- a) their underwriting surplus per person covered has been rising and b) Star has consistently been in surplus even on an NPE minus 1 year forward claims basis.

Star’s market share (and accretion market share) has continuously been growing. Here and here are good sources for tracking monthly data (including accretion market share) for Star and competitors.

Geographically, many semi-urban/Tier II/III cities have been growing at a rapid pace for Star, suggesting a massive untapped addressable opportunity. Also, Star recently announced a partnership for expanding its distribution in rural markets.

They are also systematically exiting unprofitable group business where pricing is inadequate.

Star is also proactively adopting various digital initiatives

Now coming to the key negatives and risks. Firstly, even though individual agents are a large component of retail health (where Star is the leader), banca/other corporate agents is an important channel too. A simple Ctrl+F on this site (only a rough proxy, not a perfect indicator) shows that Care Health has 147 corporate agents (Star is 2nd with 82). Niva Bupa Health is at 40, ManipalCigna Health at 55, Aditya Birla Health at 52 and so on. Each bank is allowed to tie-up with upto three SAHIs. As seen from the data, Care (not Star) is the leader in the corporate agents (CA) channel.

Although, it does seem like Star is increasing its focus on banca, since CA/banca has been its fastest-growing channel in recent quarters. Further, Star announced a banca partnership with IDFC First Bank recently.

Competition from Care also presents a second dimension of risk; a Google Trends search shows that Care has gained mind share post-Covid. Further, Care’s hospital network is comparable, perhaps even greater than Star.

Another negative is that Star’s commissions per agent and commissions as % of GWP have been increasing (see below); while this data can be interpreted in many ways, one plausible hypothesis could be that Star needs to give higher commissions to drive growth (perhaps it is more of ‘push’ based demand).

Finally, looking at global precedents, we find that United Health Group has been a tremendous value creator. Here are some interesting snippets from UHG’s 1997 annual report.

Customer centricity
Data monetisation plans
Value migration from group to retail

Disc- no holdings as of now but planning to buy sometime in next few weeks. I am not a SEBI registered investment advisor. Please consult your financial advisor before taking any decision. This post is for educational purposes only.


Nice write up!

There is one more part now…life insurance companies offering health products now. Any inputs on how their products are or maybe different? Any regulations that can impact health product offerings of Life vs nonlife/standalone health firms?

Agree and mentioned same in my post here on insurance sector. Would be good to know your thoughts as well…

There maybe one aspect playing here, not sure though…in developed economies like US, health insurance is tried to be enforced by government. It used to be mandatory to have one sometime back and still have many incentives to have one or penalty to not have one…


Solidarity PMS invested in it and they have explained their thesis in their newsletter

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Here is another way to gauge the sheer extent of Star’s leadership: the top 4 related queries for “health insurance” in India have Star.

One can also see the massive difference in the values of the 4th and 5th search items

Disc- same as before

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For investing based on fundamental analysis, business quality and valuation will be determinants.
I think business quality is very good.

  1. It is in a sector where penetration is low and Covid-19 has raised awareness levels leading to acceleration in product adoption.
  2. Star has focused on retail segment where claims/loss ratio is on lower side and pricing is better. They are leader in this sector which bodes well for future profitability.
  3. Management could have easily focused on group business and increased topline aggressively. However, they have shunned this easy way and did hard yards of improving distribution reach and building a granular franchise. This reflects very well on management quality.
  4. They have best agency distribution network in the industry.

It is the valuation part which is mystery to me. How to value this business? There is no profit to gauge earnings multiple here, which is not the most relevant parameter to value insurance business anyway.
How are other members valuing this business? While valuing ICICI Lombard (another general insurance company), I had valued it based on the investments held and returns expected from investments, assuming that the company will bring combined ratio to 100% or below (after Covid related enhancement in claims).

Can Star also be valued in such a manner? What is the reasonable market cap for Star?


Some thoughts to ponder on…

Getting best agency and having best retail push through this channel by incentivising the agents best in the industry may not be the hardest thing to do…it’s like say a Jio health comes and give more incentives to agents and all will flock and sell Jio health to new as well as renewing customers…as product is more or less similar unless any industry leading product innovation…

So I am not so sure if this is really a moat or others are not adopting this strategy as they target to win in some other segment hence this is open to Star as long as they provide best incentive to agents?


This is actually not possible as per the current laws. The agency commissions are capped by IRDAI. In fact, the new regulations state that those who have expense ratios of <30% (including commission), will be free to set their own commissions and all other have to abide by the caps and will face other penalties as well. The initial agency force was built via a massive regulatory arbitrage available to Star and this new policy effectively means that competition becomes impossible. Even if hypothetically these regulations are lifted, Star already has the advantage of distribution, scale and a low cost structure. Thus to compete with Star, a new entrant would have offer higher commissions to agents, have a higher fixed cost structure compared to Star and offer the same or lower policy pricing compared to Star, aka incur massive underwriting losses while scaling up the business. This becomes a significant entry barrier


I don’t mean any disrespect, but this argument is broad-brush rejection of fine work done by management and lacks nuance. Same argument can be made regarding every sector and every company.

Star has among the highest renewal ratios for any health insurer worldwide. 94% FY 2020, 96% each for 2021 and 2022. Achieving such renewals is not possible without strong customer focus specially in a business where lack of transparency is a norm and customers feel cheated as insurers use fine print to reject claims.

Further, if it was not very hard to get sales in retail segment, not sure why others can not do the same. STAR is gaining market share despite having competition from entities promoted by whales such as ICICI Lombard, HDFC Ergo, etc, just to name a few.

Also, the first post mentions that the attrition rate for the SAHI’s is lowest. Since the company is the biggest SAHI and has three times agents compared to the next competitor, it is logical that its attrition rate would define average attrition for SAHI segment which is on lower side.
STAR is doing good job in retaining both the customers and agents.

Disc- Interested, not invested yet. Like the business, not sure how to value it.


None taken, I really liked the way you put your points. Not undermining the hard work of the management but only concerned of the human nature in need for greater incentives…

Having talked with some senior citizens, who are mostly the ones influenced more by agents compared to more digital savvy youth - I realized that their buying decision was completely dependent on the trust on the agent they knew personally rather than on the company itself. So, they were ready to switch if the agent wanted them to switch as they had complete trust on the same long term agent they had been using since years for policy renewals…this according to me is huge dependency - on both positive side as well as negative…

Good point. Insurance is very tricky sector. I am no industry expert but have observed that leaders such as HDFC do not go after sales at any cost. Maybe they did not like the cost structure to develop such an agency at such a speed. I do not know.

No denying that, hence I am also interested in Star and actively track it.

Disc: Invested in Life Insurance firms - HDFC & SBI. Interested in Star. Not eligible for any advice. Can be wrong in all my assessments.


I think most brokerage reports miss why Star was able to develop its agency force at such speed and others like HDFC Ergo, ICICI Lombard werent. That history is very important to understand. It was simply a result of regulatory arbitrage available to the SAHI industry. They had and continue to have 2 regulatory advantages over multi-line general insurers:

  1. Agents can empanel 1 Life Insurer, 1 Multi-Line General Insurer and 1 SAHI. There are far many more multi-line insurers than SAHI. Star being the first SAHI player was able to take advantage. Some agents try to get around this by making their spouse/kids agents as well but still there is incremental frictional cost.
  2. Existing Life insurance agents could sell health insurance via a SAHI without any friction, whereas if agents wanted to get empanelled with a general insurer (even to sell health insurance) they had to take an exam.
    What both these two in conjunction mean is that any SAHI player could pick-off any existing life or general insurance agent whereas the opposite was not possible. And there was a large 2mn+ agency pool available to be picked off. Again since Star was the first SAHI in the industry, it just had a massive headstart and was able to build the pool before other players

This is the single largest factor that explains why SAHI players are taking market share away at such a large pace. It has absolutely nothing to do with underwriting and/or being willing to underwrite poor policies. You can check the loss ratios of any SAHI to verify.

Now the logical extension to the question is what happens when/if these regulatory advantages are taken away. Would the business collapse and would agents attrition away en-masse? That is the important question to ask. In my opinion, it has now become a permanent competitive advantage. What incentive does an agent have to switch away from an existing insurer. Let me list a few and see if Star is at risk:

  1. Higher commissions: Not possible due to commission cap. If anything Star will have an advantage here due to a lower cost structure.
  2. Better price elsewehere: By and large except for Digit, most other players seem to have similar pricing (based on Policybazaar). One can see Digit’s Financials on their website and come to their own conclusion on what is going on there. In any case, given Star is now one of the lowest cost players, undercutting them on price doesnt seem to be a good long term viable strategy
  3. Better Service: Star already has one of the largest hospital networks, second only to Care I believe and a pretty high proportion of cashless claims. Quality of service can be ascertained via renewal rates.

It is unclear to me in the absence of any incentive, why an agent would want to move away from Star. Given these advantages and given the pitifully low penetration of health insurance in the country, I can only imagine what this business will look like in 5-7 years time.


The stock is being hammered like there is no tomorrow. But it’s going down with very low volumes. Something is brewing but nothing is being revealed at this point of time.


I don’t think the circulated rumor about IRDAI allowing life insurance companies to issue health insurance will impact SAHI players because ICICI, HDFC, and SBI already have multi-line insurance companies providing health insurance. Only thing to watch out for is LIC getting into the picture.


Did you come to any conclusion as to at which market cap can we invest? and at which price it provides MOS?

LIC will offer Health indemnity plans for consumers which is different from regular insurance. IMO, it is not a threat to the company but good that the stock price was corrected anticipating this.

The latest management (Mr. Anand Roy- MD) conversation with The Economic Times:-
-The company will take a price hike of 25% in its leading product- Family Health Optima product.
-It has a different rate of product for different regions, and accordingly, the management will make a price hike.
-The customers are comfortable with price hikes, which will play out over the next 12 to 15 months.
-Guiding to manage loss ratio between 63% to 65%.
-New accounting policies will help health insurance companies in better ROE- and there are 2 new major changes, 1st is a conservative method where 1 by 365 earnings of the premium. And 2nd is an aggressive method. Star Health is following a conservative method since the beginning.
-Bancassurance and partnership verticals are growing with a 50%+. The company will focus more on this vertical along with digital marketing for the next couple of years.
-Targeting digital marketing penetration from the current 10% to 20-25% by FY25.
-The current agent base is 6,00,000, added 80,000 new agents in this fiscal year, and guiding to add 1,00,000 new agents aggressively every year from now onwards.
-Also guiding to increase more focus in the Semi-urban and Rural markets for the next few years.

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As per the latest management con call and interviews- they will start focusing more on retail health than group health, and slowly will decrease on the group health side. This is reflected in the numbers, below is the latest Gross Direct Premium data published by the company.


Non-Life Insurers Gross Direct Premium Underwritten (GDPU) For & Upto February 2023
SAHI (standalone health) Insurers only For the month Growth% Cumulative upto month Growth% Market share%
Current year previous year Current year previous year Current year previous year
Niva bupa health 373.02 246.35 51.42% 3,520.74 2,430.96 44.83% 1.51% 1.22%
Aditya birla health 181.57 140.50 29.23% 2,369.72 1,516.62 56.25% 1.02% 0.76%
Care health 457.77 336.07 36.21% 4,596.51 3,399.14 35.23% 1.98% 1.71%
ManipalCigna health 122.11 83.02 47.09% 1,194.91 861.57 38.69% 0.51% 0.43%
Star health 1,185.30 1,022.98 15.87% 11,132.03 9,829.03 13.26% 4.78% 4.94%
Sub-total 2,319.77 1,828.92 26.84% 22,813.91 18,037.32 26.48% 9.80% 9.06%

Very apt observations.
Some actual facts, often ignored by inexperienced brokerage report writers.

1)star health in its initial period, opened their offices next to or opposite to LIC offices.
2) they made LIC development officers and their wives as Sales managers and thus targeted agents of each such development officers, so they need not recruit individual agents, instead most LIC agents automatically became Star health agents as their development officers ( LIC equivalent of sales managers) made them do so.
3) They also made some experienced agents as sales managers so that they can recruit their LIC agent colleagues as Star health agents.


Star Health Insurance Q4 Investor Presentation Notes

  • Growth in GWP – decelerated from 22.1% in FY 2021-22 to 13% in FY 2022-23.
  • Investment Yield reduced from 8.2% in FY 2021-22 to 6.9% in FY 2022-23
  • Net profit of 618.5 crore compared to loss of 1040.6 crore in previous year.
  • Combined ratio improved markedly from 117.9% in FY 2021-22 to 95.3% in FY 2022-23. For Q4, combined ratio was 91.3%.
  • Company retains retail health market leadership position with improvement in market share from 33% to 34% in FY 2022-23.
  • 62% of the premium was collected from policies issued digitally. More than 80% of the agents have downloaded STAR ATOM app.
  • Sum assured increased by 10% overall and 13% for newly issued policies.
  • Investment leverage at 2.4 times.
  • SAHI have continued to gain market share in retail health insurance. From 40% in FY2018, share increased to 54% in FY2023. SAHI’s have grown by 26% compared to Industry average of 18%. Predictably, PSU’s are ceding market share rapidly.

Disc- Invested.


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