You have taken 25% price hike across 50% of your book. Give us a perspective of as to what this will do to your growth guidance and how well have customers accepted this?
The price hike that we have taken in our product, Family Health Optima is approximately 25%. But it has different hikes in different regions because the pricing is based on regions in this product. So, it ranges from 10% going up to 35%. So, we believe and we have done some market surveys that customers are comfortable with the price hike.
Almost all players in the industry have taken a price hike. Customers are aware that cost of hospitalisation has significantly gone up in the last couple of years. So, I think we are very comfortable with the price hike that we have taken. The sales team is geared up to convince the customers to ensure that there is no drop off.
So is there a change in the growth guidance given that you have undertaken this price hike?
Absolutely. So, we definitely expect uptick in our growth for the next financial year. As you might be aware, the price hike plays out over the next 12 to 15 months because only when the renewals are due, the pricing changes for the customers. So that will take about 15 months to exactly reflect in our total book. But we do expect a significant bump up in our growth for the next financial year. We are guiding that we should be able to grow at more than 20% to 25% in the next financial year in our retail book and I think this price hike will also play a role in that.
What should this do to your loss ratio and your combined ratio down the line?
Yes, so the price hike definitely is a step towards managing the loss ratio of this particular product and as I mentioned, the actual price hike will play out over the next 12 to 15 months and the loss ratio should definitely have an impact on that for the next year and also for the year after that. Typically, when we take a price hike, at least for the next three to four years we see that the loss ratio of that particular product becomes manageable. So, we expect that the Family Health Optima, which is one of our leading products, this price hike will help us to manage the loss ratios better. As far as our company is concerned, our guidance is that we should manage our loss ratio between 63% to 65% and this price hike will help us to operate at the lower end of that loss ratio guidance.
There is also an analyst report that suggests that the new accounting method ought to improve the company’s ROE. Can you tell us what the change is and what the impact is going to be going down the line?
The regulations allow that health insurance business can be accounted in two forms. One is a conservative method where you do your reserving based on per day earning of the premium so it is followed as 1 by 365 method and then there is another method which is a little more aggressive in nature. Star Health has been following the conservative accounting method, so we have not made any change as such. So, we do not see any significant impact on the accounting change because we have always been following this. I think the analyst report probably talks about the IFRS which is likely to happen in 2025 and which will have an impact in our bottom line but that is a couple of years away.
Also wanted to understand, the last time you came on the channel, you spoke about how you wish actually to grow Banca in the mix from 10% to about almost 25% now and that is a substantial jump. How is it that you plan to execute going forward and how quickly do you plan to get there?
Our Bancassurance and partnership vertical is already growing at 50% plus which is significantly higher than our company’s growth. So, we expect that many new relationships are in the offering and maybe in a few quarters I will be able to announce some new tie-ups that we are planning to have. So, Bancassurance and alternate channels will be our biggest growth focus for the next couple of years other than digital marketing. We do have significant plans for improving this line of business. But yes, to reach a growth, I mean contribution of 25% which you mentioned I expect that to happen by FY25 in the next two years’ time. Right now, as you rightly said, it is around 10%. We expect that we should be able to take it to around 20-25% in the next two years.
And will you continue to grow your agent network? Do you have any target in mind?
Absolutely. So, agency remains the mainstay of our business at Star Health. We do have about 600,000 agents. We have added 80,000 new agents this financial year and we hope to add 100,000 agents every year for the next few years. So, agency will remain the mainstay but since it is a very large piece, the agency business will grow slower than the other lines of business like Bancassurance and digital. But having said that, agency contributes around 80% of our business right now and we expect that this business will continue to grow faster than the industry. So, we have very significant plans in increasing our agency business. We are looking at increasing the insurance penetration in the semi-urban and the rural markets and this is where our focus is going to be for the next few years.