What's cooking? Investors line up for a share of the health insurance pie

A spate of buyouts in the standalone health insurance segment has seen private equity (PE) players, hospital chains and large mortgage lenders jumping in to get a piece of the cake. So, what’s cooking?
 
The latest to get on to the bandwagon is the Housing Finance Development Corporation (HDFC) – it is to acquire the 51.2 per cent stake held by Apollo Hospitals in Apollo Munich Health Insurance for Rs 1,347 crore; and plans to merge the company with its general insurance subsidiary, HDFC Ergo.
 
Earlier in February, True North bought Max India’s 51 per cent stake in Max Bupa Health Insurance for Rs 510 crore. Then, you had billionaire Ranjan Pai’s Manipal group hike its stake to 51 per cent from 19.52 per cent in the health insurance joint-venture between Cigna and TTK by buying out the latter in the company. And, Star Health Insurance was bought over by West Bridge AIF, Madison Capital and Rakesh Jhunjhunwala.
 
The score-line: Four out of the seven standalone health insurers have seen stake buyouts either by PEs or strategic players in recent months. Aditya Birla Health Insurance, Reliance Health Insurance and Religare Health Insurance are others left in this segment.
 
What’s going on?

Joydeep Roy, Partner at Price WaterhouseCoopers (PwC) points to the size of the country’s healthcare market at close to Rs 4 trillion and within it, the health insurance business at around Rs 50,000 crore. “It gives a huge headroom for top-line growth.  In the insurance business, this is the fastest growing making it an attractive investment proposition. There is also huge scope for innovation too”, he says.
 
Adds Prasun Sikdar, managing director (MD) and chief executive officer (CEO) at ManipalCigna Health Insurance Company: “To stay afloat in this highly competitive market and to address the massive challenges our nation faces on health care affordability, quality and access, we have recently seen few consolidations to fill the gaps between healthcare delivery and healthcare financing”.
 
Analysts are of the opinion that while the high deal interest is arising ­out of growth opportunities, they also feel players still struggle to build sufficient economies for profitability, which is reflected in the high expense ratios and low underwriting.
 
“At present, we are vastly under-insured as a nation, hence there is significant growth opportunity for the health insurance sector, which has been growing at the rate of 25 per cent every year. The factors driving growth in the sector are growing incidences of lifestyle diseases, high medical costs, rising incomes, and the increased prevalence of health insurance”, adds Sikdar. A report by Jefferies says standalone health insurers command a 24 per cent market share in the Rs 45,490 crore health premiums written in FY19. They have registered a 34 per cent year-on-year growth and the sector has been growing at a compound annual rate of 37 per cent.
 

Ashvin Parekh of Ashvin Parekh Advisory Services points to the shrinking portfolios under the non-life insurance segment. “There has been a slowdown in the auto segment. So, motor insurance – which is a huge portion of any general insurance company’s business – is under stress. Non-life insurers are not so aggressive in crop insurance whereas health has substantial potential against the backdrop of rising life expectancy and high out-of-pocket expenses”, he explains.
 
In the health insurance business, the share of stand-alone insurers in gross premiums underwritten has grown hugely – to 24 per cent in FY19 from a meagre one per cent in FY07.
 
India is under-penetrated when it comes to insurance – non-life premiums as a percentage of gross domestic product (GDP) stands at 0.9 per cent while the global average is 2.8 per cent of GDP. Moreover, public health and insurance expenditure accounts for one-third, while an overwhelming two-thirds is met by out-of-pocket expenditure, wherein the individual consumer bears the cost of health care.
 
This is because the retail health insurance market has not picked up and has been relying on government and corporate schemes all along.
 
Deepak Parekh, Chairman of HDFC Ltd, said at the time of the acquisition of the Apollo stake that an estimated 42 crore individuals have health insurance, which includes government and corporate schemes. “But when these schemes are stripped out, only 3.3 crore individuals have a retail health policy. Fortunately, there is a changing mindset where people are beginning to recognise that health insurance should not be construed as an expense, but as a necessity and as an investment to safeguard their future”, Parekh had observed.
 
A moment to seize
 
The Ayushman Bharat scheme has helped many more individuals get themselves insured, but insurers have not been able to capitalise on the opportunity.
 
“It (Ayushman Bharat) could have been totally different from the insurer’s point of view, but many states have decided to take the trust route. And because of that, insurers are not directly involved now. The states themselves are funding it and it is the buyer who is getting empowered now”, says Ashvin.
 
With only a few players left in the stand-alone health insurance segment, the chances of this trend (stake buyouts) continuing is less. However, a large private non-life insurer buying out a stand-alone health insurer will help in consolidating the market further. For insurers, customer acquisition cost is huge. In that context, a large general insurance company buying them out will help as they have a distribution base which can be hooked into selling more at a lower cost.
 
Health, is indeed, wealth.