The Hindu Business Line : Star Health expects to be profitable in Year One

Chennai, April 20 The year 2007-08 was Star Health and Allied Insurance Co Ltd’s first full year of operations. The stand-alone health insurance company expects to make a net profit for the year. Its Chairman, Mr V. Jagannathan, believes it is a first for an insurance company, because “no insurance company turns in a profit in the first year of operations.”

Star Health, part of the Chennai-based ETA group, is the first of the only two stand-alone insurance companies in India, the other being Apollo DKV. The company has reported premium income of Rs 173 crore for 2007-08. Mr Jagannathan, a former Chairman and Managing Director of the public-sector United India Insurance, spoke to Business Line about the company’s operations. Excerpts from the interview:

Why are you not disclosing the profit figures for 2007-08?

The figures are being worked out. We will let you know as soon as our full performance results are finalised. All I can say is that we are confident of making a profit, which is a record in the insurance industry.

Underwriting profits?

No, we may not make an underwriting profit. But our investment income has been good, so we are likely to report a net profit.

How much of the premium earned is retained?

Our retention is over 75 per cent. We retain most of the risks. We have ceded only little more than the mandatory 15 per cent (with General Insurance Corporation.)

How was the claims ratio?

Around 42 per cent, which is very good for a health insurance company. Anything under 60 per cent is good.

But last year, you said your claims ratio was around 15 per cent? There has then been a sharp increase in claims?

Last year was not a full year of operations. Claims do not come in the first few months. But what we are reporting now is steady-state figures.

The Andhra Pradesh government business has been the only critical component of your premium collection, is it not? (The AP government is paying the premium for insurance coverage of very poor people.)

Not really. Premium income from AP government would be about Rs 70 crore. Rest of it comprises individual and group healthcare policies.

Do you find the AP government portfolio profitable?

Not at the moment. After paying for administrative expenses and reinsurance premium, we are not making any profits on that portfolio, but the business has bolstered our image. We expect to make profits on that in the coming years.

How have you been able to keep claims ratio under check?

I have always believed that health insurance is a very good business, if only it is well managed. First of all, we take only profitable businesses. Secondly, through our doctors we deal directly with our customers, so the treatment and bills are pucca. We also have a good network of hospitals.

How big is this network?

We have tie-ups with 3,800 hospitals across the country. We have 114 offices, staff strength of 1,500 and agent fleet of 1,600. After paying for all these, we are turning in a profit.

You launched a policy for senior citizens and one for those with diabetes? What has been your experience with these?

That has been very profitable. We collected premium of Rs 3.1 crore. ‘Claims’ was only Rs 30 lakh.

As regards diabetes, we collected premium of Rs 26 lakh. There have been only two claims amounting to Rs 40,000.

What is the scope for product differentiation in health insurance?

There is plenty of scope. We are the only company that has a policy for those affected with AIDS. We have another covering medical expense of out patients.

How do you see your business in the coming few years?

This year we are confident of reaching Rs 350 crore in premium income. In fact, we have already collected around Rs 270 crore. Our target is Rs 600 crore next year, and Rs 1,000 crore the year after.

Would it be correct to say that your performance as the Chairman of Star Health is better than your performance as the CMD of United India?

Well, in United India, I was like a tiger in an iron cage. Now, I’m like a tiger outside.

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Star Health expects to be profitable in Year One