Star Health and Allied Insurance Company Ltd

NSE:STARHEALTH

Earnings Call Analysis

Company's Ambitious Growth and Price Strategy

The company is steering towards a 20% growth rate, aiming for consistency in this progression both for the current year and the future. Key to maintaining growth will be careful management of profitability and sustainability, with planned price increases in parts of the portfolio seen as critical to these objectives over the next 12 to 18 months. Price revisions are primarily driven by medical inflation and will be implemented as the last resort; they ensure the loss ratios remain within acceptable thresholds. The company has confirmed that several products will undergo near-term price revisions to address these changes.

Claims Management and Underwriting Adjustments

Cashless claims have seen a significant increase, rising to 84% of paid claims from the prior year's 79%. The company has achieved a remarkable 90% settlement within two hours through auto adjudication. Anti-fraud digital efforts have led to a 1.2% incremental benefit in the claims ratio, contributing to total savings of 2.9%. Nevertheless, an onslaught of fever and respiratory disease claims has pressured the claim ratio beyond initial guidance. Changes in underwriting standards, particularly recalibration in certain geographies and the portability business, have been implemented to focus on quality business with higher long-term value (LTV).

Dispute Resolution and Industry Challenges

The company resolved a dispute with the Ahmedabad Association, reinforcing cooperation on fraud identification without any price hikes in hospital services. This maintains their strong position without compromising service quality. Although claim costs are alarmingly high, the company's sizable market presence and rigorous claim processing controls ensure economic resilience, dismissing concerns about the long-term viability of the retail health insurance model in India.

Financial Performance and Guidance

Due to the higher claims frequency and severity, the total impact on the loss ratio ranges between 7% to 8% over last year's second quarter. Despite this uptick, and even after a 25% price increase on Family Health Optima (FHO), the claim ratio may exceed the company's previous guidance.

Strategic Growth and Profitability Measures

The company has set a strong goal of achieving 20% growth, 20% return on equity (ROE), and maintaining 200% solvency, forging ahead not just for the current year but for the foreseeable future as these are seen as the pillars of the business mission. Digital business and bancassurance are notably outperforming with larger tickets than the agency channel, with recent partnerships potentially enhancing their product mix with both indemnity and group health products. Premium retention has remained stable despite a projected drop-off of up to 5% in the FHO renewal.

Moderated Business Expansion

Star Health's current 18% growth rate falls slightly short of the industry standard, a deliberate outcome of recalibration strategies in lower LTV geographies where loss ratios remained unimproved over time. This strategic choice signals a preference for sustainable long-term growth over fleeting gains.

Outlook on New Business and Agent Network Expansion

While Star Health's new business premium growth has faced scrutiny due to perceived stagnation, the response involves a robust expansion of the agent network with an additional 60,000 agents expected to join in the second half of the year, which should underpin future growth.

Future Growth Prospects

Despite the necessity to overcome the short-term pain for long-term gain, the company remains confident in its growth drivers, with a steadfast focus on achieving the guided 20% growth.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Star Health and Allied Insurance Company Limited's Q2, H1 FY '24 Earnings Conference Call [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Pratik Patil from Adfactors PR, Investor Relations team. Thank you, and over to you, Mr. Pratik Patil.

[Pratik Patil]

Thank you, Rico. Good evening, everyone. From the senior management, we have with us Mr. Anand Roy, Managing Director and Chief Executive Officer; Mr. Nilesh Kambli, Chief Financial Officer; Mr. Aneesh Srivastava, Chief Investment Officer; Mr. Amitabh Jain, Chief Operating Officer; and Mr. Aditya Biyani, Chief Strategy and Investor Relations Officer.

Before we begin the conference call, I would like to mention that some of the statements made during the course of today's call may be forward-looking in nature, including those related to the future financial and operating performances, benefits and synergies of the company's strategies, future opportunities and growth of the market of the company's services. Further, I would like to mention that some of the statements made in today's conference may involve risks and uncertainties.

Thank you, and over to you, Mr. Anand Roy.

[Anand Roy, executive]

Thank you, and good evening to all of you. Thank you for joining the Star Health's earnings call. I will first give you a brief about the overview of the industry trends and the developments that we have witnessed in the last few months as well as walk you through the company's performance in terms of premium and distribution. Later on, I will cover the financial performance and aspects related to claims, including the steps that are underway to manage them. In quarter 2 2024, the health insurance industry, including PA business, grew by 26% on the back of 30% growth in group health and a 19% growth in retail health.

Now we'll talk about the growth in market share for Star Health. In the first half of FY '24, our retail growth rate of 18% versus the industry's retail growth rate of 18%. So we are growing in line with the industry. In H1 of FY '24, Star Health has registered 33% market share in retail health, which is more than 3x the second largest player in the industry. We continue to aspire to grow faster than the market growth rate and increase our retail health market share in the days to come. As regards to accretion shares, Star Health has registered 32% retail health accretion market share in H1 of 2024.

The agency business contributed around 82% of our overall business in the first half of this year. Our agency strength has increased to 6,65,000 agents with a net addition of close to 40,000 agents in the first half of FY '24. The contribution of fresh business from non-agency has grown to 32%. The bancassurance business is growing at 57% in the first half of this financial year, fresh business through bancassurance. And the fresh digital business has also grown by close to 40% in the first half of this financial year.

Some of the highlights in H1 FY '24 for us -- were as follows. We had taken a price revision in one of our leading products, Family Health Optima, where the renewal price increase was effective from 1st May of 2023. The policy renewals in terms of volumes and also in the terms of value are in line with our expectations when we file this product. We have launched 4 new products during the quarter. Our digital first product, Star Smart Health Pro will be -- is available on our online platforms where the customers can avail online discounts, providing health information, which is required as per the policy.

We are also augmenting our existing product suites by launching various add-on covers such as Young Star Extra Protect, home care treatment covers and flu vaccination covers. Our existing bank and corporate agents tie-up continue to show good traction. With the new open architecture and the expense of management guidelines, this provides an immense growth opportunity for us, and we have so far 44 tie-ups, and the full effect of these tie-ups will be seen in the coming months.

The new Star Wellness app has been launched with the addition of new condition management programs. The number of customers, who have availed of the wellness services in quarter 2, has grown by 77%. The home health care program is now live in 11 cities, and Star Health customers can now avail home health care services by speaking with our doctors and the medical professionals will visit their homes to provide them of their service.

In order to increase the penetration in semi-urban and the rural geographies, we plan to open 1,000 sales manager stations. These are small individual service centers and sales distribution centers, of which 753 have already become operational in the first half of this financial year. With 869 branch offices, we now have a total of 1,622 customer touch points to ensure better services and distribution in all parts of the country. Of the 19,000 PIN codes in India, we are now present in 16,900 odd PIN codes via our agency network.

The average sum insured of our new policies has increased by 10% on a year-on-year basis to about INR 9.6 lakhs per policy. Policies with sum insured of INR 5 lakhs and above now constitute more than 77% of our portfolio versus 69% in the last financial year same period. The share of long-term policies with retail GWP has increased to 6% in the first half of this year versus 4% of last year. The premium from benefit products has also grown substantially by close to 30% in the first half of FY '24 as compared to the last year. Organic traffic to our website grew by 52%, and this is directly reflecting in our digital business growth over the same period last year.

Coming to the financial performance of the company, I would like to reiterate that Star Health -- at Star Health, we are focused on sustainable and long-term profitable growth, and we are taking decisions to achieve that goal by focusing on quality business. We've also tightened some of our underwriting processes relating to recalibration of some of our portfolio mix.

The combined ratio for H1 FY '24 was 98.4% versus 97.9% in H1 FY '23. The claim ratio in the first half of the year improved to 67.1% versus 67.3% in H1 FY '23. The claim ratio for quarter 2 of FY '24 was 68.7% versus 68.2% in the quarter 2 FY '23. The expense ratio for H1 FY '24 was 31.3% versus 30.7% in the previous year. The expense ratio in quarter 2 of FY '24 was 30.5% versus 29.7% in quarter 2 of FY '23.

Our investment assets have grown to INR 14,020 crores in quarter 2 FY '24 versus INR 11,653 crores in quarter 2 of FY '23, showcasing a growth of more than 20%. The yield for H1 FY '24 rose to 7.4% versus 7.1% in H1 FY '23. The investment income in the first half of this financial year grew by 23% to INR 506 crores versus INR 411 crores in the last year.

H1 '24 recorded a profit before tax of INR 551 crores versus INR 409 crores, representing a growth of 35%. The PAT for H1 '24 was 4-1-3 crores, INR 413 crores versus the PAT of INR 306 crores in H1 FY '23, thereby showcasing a growth of 35%. The quarter 2 recorded a PBT of INR 167 crores versus INR 121 crores in the last year. The quarter 2 PAT came in at INR 125 crores versus INR 93 crores PAT, representing a growth of 35% in -- the increase in PAT.

The non-annualized ROE for first half of this year was 7.3% versus 6.5%. The non-annualized ROE for quarter 2 was 2.2% versus 1.9% in the last financial year. We have provided the reconciliation from IGAAP to IFRS in the investor presentation for FY '23. The PAT, excluding the ESOP cost, would have increased by INR 168 crores. As you know very well, the IRDAI is closely monitoring the implementation of IFRS very soon, and we believe that this will be very positive for Star Health.

So the PAT, excluding ESOP cost, would have increased by INR 168 crores, coming in a total of INR 897 crores. The ROE would have increased substantially by 13 -- 3.1%, reaching to 17.7% under the IFRS model. Solvency as on 30th of September 2023 is 2.13x compared to the regulatory requirement of 1.5x.

I will now talk about some of our claims initiatives and the outcomes. 66% of number of sales claims in H1 FY '24 are through the cashless mode versus the same percentage in the last financial year. In terms of the claims amount paid, 84% of the paid claims are cashless versus 79% in the last financial year first half. Cashless TAT came in around 90% for claims settled within 2 hours time. The auto adjudication of claims basically helps us in drastically reducing the turnaround time. 33% of our agreed network hospitals, representing 71% of the cashless claims, have been onboarded under our auto adjudication initiative.

Our anti-fraud digital initiatives have produced good savings in the claims out go. There is a 1.2% incremental benefit in terms of lower claims ratio in H1 FY '24. The total savings are 2.9% through these measures. Based on our recent claim experience, our claim ratio may be pushed beyond our guidance due to high incidence of fever and respiratory diseases across the country. We have tightened our underwriting standards to enhance our focus on quality business, leading to recalibration of some geographies and portability business, which are 4 LTV.

To conclude, we continue to believe in the long-term profitable growth opportunities available in the health insurance segment, and we are on our desired path of realizing the same. Thank you very much.

[Operator]

Sir, should we start the Q&A session?

[Pratik Patil]

Yes, please go ahead.

[Operator]

[Operator Instructions] The first question is from the line of Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

Sir, I have two questions. First is on the loss ratio side. Sir, loss ratio in the second quarter higher on Y-o-Y basis, right? So is it fair to say that [indiscernible] seasonal diseases are a little worse off this year than last year? And if you can help us to understand any provisional numbers for October loss ratios?

And my second question is on your conflict with the Ahmedabad Hospital Association, sir? It would be helpful if you could help us understand how much progress has happened on that space? And any views on the same?

[Amitabh Jain, executive]

This is Amitabh. On the Ahmedabad Association, we had reached out to the association members and have discussed all the issues thoroughly. In the end, what came out was some concerns they had on some of the excluded hospitals, and we explained them our process of how the hospitals are put on the exclusive list, which is a well-defined process and it's something that is assumed by the regulator. And post that, we've had couple of interactions and the matter stands and it could be resolved.

As far as the October numbers are concerned, at this point in time, we don't know how long this persists to estimate the impact of the fever and infection diseases and how it will pan out. But we have taken initiatives like telemedicine, home health care and other wellness measures to ensure that the impact is minimized. Thank you.

[Shreya Shivani, analyst]

Sir, just a follow-up on the Ahmedabad issue. So when you say that the matter is amicably resolved, is it on -- have you guys taken any, what you call, hike on your hospital prices or something like that? What would include in amicable resolution going up? Some color around that would be helpful.

[Amitabh Jain, executive]

No, we've not taken any hike or anything. It's just that they wanted to understand some of our processes and how things are done. And what we have done is that we have assured them that we'll keep them informed about some of the actions that we take against hospitals. Also, we will work closely with them in terms of identifying fraudulent hospitals, et cetera. They -- in fact, they encouraged us that if there are fraudulent network providers, they will help us in taking action.

[Shreya Shivani, analyst]

Got it, sir. So there is no chance of any suspension of cashless or anything in Ahmedabad for Star, right? That matter is closed for now, right?

[Amitabh Jain, executive]

It was never situation of suspending cashless for Ahmedabad as a city or there were specific hospitals, which were -- and this is an action we keep taking whenever we find any such activities or fraud or abuse in any hospital across India. It's not specific to Ahmedabad.

[Operator]

Our next question is from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

A couple of questions. The first one, I would sort of try to go more around this claims ratio, particularly because we have been taking price hike on new policy starting February and on renewal starting March, I mean, for a significant part of portfolio. Now even in this backdrop, of course, seasonality is there, but then Y-o-Y basis seasonality is taken care. And it is not also that you are sort of growing very fast. So I mean, there could be some kind of, if at all, for growth sacrificing some sort of profitability or underwriting compromise. So that is not the case. You're growing in line with the industry. You have taken price hike. And of course, you are big enough, you have processes and better sort of claims processing or control. Yet I mean the claims cost is sort of surprising on the higher side.

Now the question is, does this raise sort of some kind of a challenge in terms of the business model itself? Because, I mean, now in a pretty normal year because, I mean, now COVID or it's delayed impact on COVID everything is behind, yet I mean 68% plus claims ratio and of course, combined, it will go 99%, that sort of raises some concern around the 95% combined ratio kind of a business model. Because I'm saying that all the things that should have been there or you can do, you've already done. So still -- so is that something that is kind of some challenge around the business model of health -- retail health insurance in India? Or what is it? I mean, because 99%, of course, I'd not say sort of a comfort engine for you. I will have next question after this.

[Anand Roy, executive]

So Avinash, a couple of things. One is the price hike. As far as the price hike is concerned, we have taken that, but the reflection of that will play out over 12 months' time because, as you know, the renewal portfolio price revision keeps -- has started only from May of FY '23 -- sorry, this financial year. And so it will play out over the next 12 months up to the May of next -- I mean, May '24. And only then it will reflect in our total books. So price hike, we will continue to take some risk-based pricing, not only on FHO we have taken, but we may take on other products also as in the necessary.

But as far as the elevated loss ratio is concerned, if you look at the performance of Star Health versus the industry, I think we have done fairly well to manage our loss ratios, given the efforts that we have taken in various initiatives on our wellness side, on our telemedicine, on the home health care. Otherwise, the delta of the loss ratios, which has been showcased by the industry, has gone up substantially due to the fever and epidemic like malarias and dengue, which happens during this monsoon season.

So as you know that this second quarter is always on an elevated loss ratio in terms of high incidences of fever and respiratory diseases. This year, we have seen a huge amount of outbreaks in various parts of the country. So there is an impact there. But there is nothing that we are not confident of the model and the model is well proven. We believe that, as this slowly dies down, we'll be back on track as far as our business model is concerned.

[Avinash Singh, analyst]

And so now sort of -- I mean, where would you like to sort of guide at least for FY '24 your claims this year? And also, if I were to break down on your H1 experience, can you help us understand, I mean, if I have to -- what has been a sort of average claim ticket size increase or if there is any sort of a change in claims frequency vis-a-vis last year? So I mean, how much of this claims cost going up? Has been due to claims frequency change, Or -- and claims severity?

[Amitabh Jain, executive]

So the impact due to frequency change was close to about 2% and above -- from severity about 6%. So overall, about put together, the range of about 7% to 8% over last year quarter 2.

[Avinash Singh, analyst]

Okay. You said for quarter 2? Okay. Okay. And yes -- and sort of a claims ratio now the target or guidance FY '24?

[Anand Roy, executive]

So Avinash, based on the recent experience that we have seen, the claims ratio that we have guided might be pushed beyond our guidance, given that the higher incidence of fever and respiratory diseases we are seeing across the country. We are taking all efforts to ensure that it doesn't go beyond the guidance and to the level possible. But the last 2, 3 months have been quite -- we have seen the inflow of fever and respiratory claims on a higher side.

[Operator]

[Operator Instructions] Our next question is from the line of Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

So my question revolves around the renewals In the fresh business. So if you could share -- I can see that in terms of premium, I think, for the second quarter, you have almost got back the whole renewal book of last year's second quarter of 99-odd percent is the renewal number, which I can triangulate. What would that be in terms of number of policies? How much -- what proportion of policies would you have been able to retain, given that you have taken a price hike? So that is one.

And also, if I try to understand the new business growth, specifically in the retail health space, excluding the group business that you have started to scale up also. I mean, I think that number compared to last year is lower right now. And I just wanted to understand that 2 elements of it. One is that you have mentioned that the new business is growing from the bank and the digital channel. So how would the ticket sizes in these newer channels vis-a-vis -- how we were used to write it earlier when it was primarily agency-driven indemnity products? So is there like it's coming from a lower ticket size, say, in the digital or the banker side?

And also given the fact that we have consistently been adding new agents, what is the activation levels of these newer agents? And why is it not translating into relatively larger ticket-sized, the retail health indemnity products? So if you could give some color on that, that what is going on? And in conjunction to this, if you could help us understand how would we plan to achieve our growth target of around, say, higher than industry growth? So I'd assume that maybe you look upwards of 18% for next financial year.

[Anand Roy, executive]

So internally, we have set our mission for ourselves to grow at -- there are 3 numbers that we are driving, which is 20% growth, 20% ROE and 200% solvency. These are the 3 mission statements that we are driving internally, not for this year, but for the years ahead also. So we would like to have a consistent and long-term profitable growth story rather than anything else.

As far as the bancassurance and digital business, our digital business ticket size is actually larger than our agency ticket size, much better. And also the overall operating performance of that vertical is also quite -- very highly profitable. So we are investing a lot of time and money and efforts to make that business larger and larger. The bancassurance partnerships that we have recently signed up are going to give us a mix of both indemnity health as well as group health products.

So on the indemnity health, we sell, obviously something, which is similar to our retail health products through the bancassurance branches. And on the group health, there are attachment products, which we offer to the customers of the bank. So on the ticket size, we are quite comfortable both on the digital and on the bancassurance piece. As far as the renewal retention is concerned, we have, as I have guided earlier that we expected a drop off of up to 5% customers in the FHO renewal, which we are noticing somewhere around that. So we are quite comfortable with that, and our premium retention is at our expected lines.

So overall growth of Star Health, right now, we are at 18% growth. We hope to end this year better than the industry's growth rate. And all our channels are firing. The only -- we have consciously taken some calls to recalibrate our low LTV geographies where we are not seeing loss ratios coming down over a period of time. So some internal underwriting strategies have been calibrated, which is resulting in slower growth in some of the markets, but that is by design, and that is not something that we are not aware of.

[Swarnabha Mukherjee, analyst]

Right, sir. So I just -- I mean, still, I think I have -- if you could provide some more clarity, why is that -- if the ticket size is not a concern and you are confident of growing also, I mean, why is like in the last 2 quarters, we are seeing around, say, maybe INR 500 crores to INR 550 odd crores of fresh business coming in, which was a bit higher last year? And how we can kind of drive that ahead? What would be the factors that will kind of take this to a higher scale?

[Amitabh Jain, executive]

Avinash can you -- sorry, Swarnabha, can you just rephrase the question again, please?

[Swarnabha Mukherjee, analyst]

So I just wondered was that the fresh business, which we can -- I can triangulate from the renewal premium ratio that you have given, that has been muted vis-a-vis last year. So I just wanted to -- I mean, my initial thought was that maybe the average ticket size of some of the newer channels are lower. Now that you have mentioned that the ticket size is also comparable and better. Just I was trying to understand that is there any kind of, say, extreme competition that is there in this space or some other challenges which are kind of...?

[Unknown Executive]

No, I think -- Swarnabha, you've got it right. The average ticket size of Banca will be lower than the other vertical, which is there. But our average ticket size overall in the portfolio has grown by almost 10%. And right now, we are almost around 17,000 odd, which is our average ticket size currently.

[Operator]

Our next question is from the line of Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Just extending this question on the growth on premium, see, we've taken a 25% hike in both new business and in terms of your renewal business. We have seen very strong growth in Banca. We have seen very strong growth in digital. Possibly then the ratio would have gone down in terms of number of policies would have been 5%. So still in that sense, is there an industry-wide issue where -- the industry also has grown by 18% on retail health. Is there a slowdown that is being seen where the demand for the health insurance on the retail side is kind of, after the pandemic, has slowed down a bit? Because the price hike also has been across the industry for most players. So the large proportion of the growth seems to be coming from price hikes rather than new -- or customer additions.

[Anand Roy, executive]

So definitely, the elevated demand, which was there during the pandemic or immediately post-pandemic, the industry has seen scale down in the high growth, which was noticed during the pandemic and after that. But I think, overall, there is a sustainable demand for the health insurance retail products. As you can see from the market behavior also, almost all insurance companies, including Star Health, continue to focus on the retail side of things. The penetration levels of health insurance still is a big opportunity for companies like Star Health and others to increase their portfolio.

So we do not see any challenge in the demand for the product at least for many years to come. What we are doing at Star Health is we are recalibrating some of our strategies to make the business more profitable and more sustainable in the long run. There are pockets where even on retail health, the business may not be very, very having a good LTV. So we have identified certain areas, and we are trying to be more calibrated in those pockets. So probably, that is leading to some amount of lower growth for us other than what would have been an ideal situation. But then this is a short-term pain that we are willing to take for the long-term gains rather than just doing a quantity business over quality. That has been our strategy.

[Prayesh Jain, analyst]

Just a couple of more questions. Firstly, on the -- even if I look at the loss ratio, you've seen around 120 basis points benefit coming in from the claim fraud reduction mechanism, which you have implemented. And in spite of that, you've seen an increase in loss ratio. So is the severity so high and rightly asked by someone that how is the October experience? You've almost gone through the entire month of October now, whether it's kind of sustain what we've seen in the months of July, August, September? Or that has kind of weighing down a bit?

And lastly, on the specialized health products, that again seems to have declined in terms of share. Is there -- and that is the more profitable product. Whether is it just an element of the price hike on the FHO? Or it's just -- or is there a slowdown there? Yes, that would be my questions.

[Unknown Executive]

So as far as the loss ratio goes, if you compare the H1 of last year to this year's H1, there has been a significant improvement from 67.3% to 67.1%. So it's almost 20 basis points, which is positive in terms of loss ratio. And Prayesh, what was your next question?

[Prayesh Jain, analyst]

Just is it -- before going to the next question, so 120 basis point benefit gets absorbed by the severity and frequency?

[Unknown Executive]

Yes, absolutely. That's what Amitabh also mentioned a few minutes back.

[Prayesh Jain, analyst]

And second was on the specialized health products where the share seems to have come down.

[Unknown Executive]

So you -- I think you've answered the question yourself, itself. Basically, the focus is still there, but because of the FHO price hike, the share is looking a bit lower as compared to last year, but it's still a healthy of 15-odd percent.

[Prayesh Jain, analyst]

Okay. Nothing else that some of the products would have seen slowdown in terms of growth or demand, nothing on that, sir, right?

[Unknown Executive]

No, absolutely not. In fact, we are trying to push all the specialized products through various channels.

[Operator]

Our next question is from the line of Supratim Datta from AMBIT.

[Supratim Dutta, analyst]

First question. So I just wanted to understand how has the Life Star grown during this quarter? And a corollary to that would be, is there a slowdown in the new lives added, which is resulting in losses from the back book now becoming more evident? Because typically the new policies have a wait period of 4 years and hence, the claims are lower that compensates for older policies. So is that also an element, which is playing out in this higher loss ratio? If you could answer that before I move to my second question.

[Nilesh Kambli, executive]

Yes, in terms of value and volume growth, the value growth is roughly 65%, and the volume growth is around 35%. And as mentioned, the loss ratio in second quarter was mainly impacted because of the epidemics. It has nothing to do with the quality of the portfolio. The impact of epidemic was severe. The print of dengue was also severe, which led to a higher length of sale for some of our customers that we have seen. So it's mainly on account of the medical cases that loss ratio is high.

[Supratim Dutta, analyst]

Got it. Also I just wanted to understand, given this year itself, you have taken a 25% price hike. And during the price hike, wouldn't you be factoring in that there could be the team or the experience could be different? Because I think from the start of the year itself because evident by the customer trends have changed. People are visiting of hospitals more frequently. So just wanted to understand, despite the price hike, how was this such a surprise?

[Nilesh Kambli, executive]

See, the price hike is effective 1st May 2023, and it's only 5 months. The current premium is over a 12-month period, and there are still 7 months left for the portfolio to be repriced on the renewal piece. So while we have taken the price hike, the impact in the earned premium is still only for 5 months or 5 months of portfolio. So it will play out over the next 12 to 18 months.

[Supratim Dutta, analyst]

Got it. Perfect. And last question from my side. So do you see more price hikes coming forward now and all that experience this year to be worse, now do you see more price hikes coming in the next year and which products would be up for price revision?

[Anand Roy, executive]

So we definitely follow a risk-based pricing model where we keep evaluating all the products on a regular basis. We may be looking at a few more products other than FHO for a price revision in the short term.

[Operator]

Our next question is from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

A few questions from my side. Firstly, on the new business, if you can kind of give you a growth for the quarter and also split it between retail -- core retail growth through the agency in terms of fresh business?

Second, if you look at the premium growth on the retail health side ex of the Banca-led business for 1H, which is around 18%. Now a good chunk of it is a mix of premium growth because of FHO, offset by some amount of loss in renewal rates. But going into FY '25 or '26, I mean, the absence of this repricing of the product on the back book, how would you kind of -- sort of justify the 20% growth target that you're kind of building in?

And lastly, you mentioned something on changing strategies based on LTV of the customer and also some portability-related changes. If you can elaborate on how are you kind of reducing the LTV today on the back book, I mean, on specific geographies, or what are the key parameters you are considering? Or is there any change in strategy of payout to the agent based on the claims ratio that they are witnessing? So could you give some color on the strategic changes that you're implementing on the underwriting processes out there? Those are the 3 questions.

[Anand Roy, executive]

So on the recalibrating our underwriting strategies, definitely, we have taken some decisions based on the long-term profitability of the book. And certain segments and certain geographies where we have seen that there is a huge amount of nonviable, I mean, business, we are slowing down our growth in those markets. And you're right. At the strategic level, we also have taken some calls on the agency commission payouts, where we have linked our agency commissions and rewards to the performance of the agents as well as their profitability.

And based on that, there are certain calls that we have taken. Some of the good performing agents have really got motivated and they're working harder, but some of them, who have very high loss ratios, have probably moved away from us or have slowed down their business. But that is part of the design of the strategy that is not something, which is happening without our knowledge.

So we are looking at a long-term sustainable profitable growth. We are not trying to do something which is not going to be sustainable in the long run. Our group business strategy that is excluding the non -- I mean, Banca and all of that corporate groups, we have still not been able to make enough inroads. Hopefully, second half will be better, because we are sticking to our pricing strategy. We do not want to undercut prices and grow the top line. It is not very difficult to do so, but it is definitely not good for the long-term business. So we are taking some calibrated calls, and we are very confident with all the strategies that we have in place that we will grow our business by 20% for many years to come.

[Dipanjan Ghosh, analyst]

Sir, the first question on your retail health growth to the agency, fresh business for the quarter and first half?

[Anand Roy, executive]

So these data points we don't publish in the public domain. You can connect with us offline, and we can discuss this.

[Operator]

Our next question is from the line of Nidhesh from Investec.

[Unknown Analyst]

Just on the new premium growth -- new retain premium growth, is it negative for Q2 Y-o-Y? And if you look at the trends on the new premium growth for last couple of years, that growth has been quite weak. So what is the strategy going forward? So if you can verify that whether the number is negative Y-o-Y for Q2? And what is the strategy to improve the new premium growth for the entire -- on overall basis?

[Anand Roy, executive]

For new premium growth, the strategy is to improve the numbers. We are adding close to -- 40,000 agents we have already added in the first half of the year. We hope to add another 60,000 agents in the second half. So in the long term, every year, we will add 100,000 new agents. We are opening, as I had mentioned in my speech, a lot of offices in the semi-urban and the rural markets. We are seeing good quality growth in those markets also.

But at the same time, as I've told in my earlier comments, we are also taking some calibrated calls on markets, which are not profitable for us, some geographies. So it is a mix of both. This year is a recalibrating plan. But we believe that given the brand of Star Health, given the products that we have and the services that we offer, we are going to grow strongly at 20% plus for many years to come.

[Unknown Analyst]

Sure. And sir, what will be the difference in combined ratio of agency and non-agency channel?

[Anand Roy, executive]

I can't give you the data, but I can tell you that our bancassurance and digital businesses have significantly better combined ratios, and we are focusing on that. Also on the group business, though the business hasn't picked up too much to our expectations, the corporate group I'm talking about, we hope that in the second half of the year, we'll be able to do a better performance.

[Operator]

Our next question is from the line of Madhukar Ladha from Nuvama Wealth Management.

[Madhukar Ladha, analyst]

A couple of them. I'm not sure whether you answered this question or not. On the Star Family Health Optima, what was the renewal rate in terms of numbers? So I understand that the average price hike is 25%. But in terms of volume, what would be the renewal rate?

Second, see, there's a lot of news on the industry coming together and forming a cashless network for all the health insurance and private insurance companies together, even the PSU ones. So how would that impact the industry, especially, see, your -- one of your moats is that you have this strong hospital network and cashless network. Would that reduce your competitive advantage, given that now all players would have access to that network and could offer that to customers? So yes, those two would be my questions.

[Unknown Executive]

So Madhukar, on the FHO, the volume number, as envisaged, whenever we have taken a price hike, the number of policies not being renewed worth around 3% to 5%. So even in this time, it was absolutely as per what we have envisaged in the -- while taking a price hike.

[Anand Roy, executive]

And on the industry level of coming together for a uniform network, so there are two initiatives that is being envisaged. One is 100% cashless, which is also the vision of the IRDAI Chairman. And I think this will be something very, very unique and beneficial to all customers. So basically, the concept is that the customer should be able to avail cashless facility in any hospital, which is registered as per the norms in India, irrespective of whether that hospital is in the network of the company or not.

Of course, this also has a condition where the customer has to inform the insurance company in advance before going in for the hospital admission. So it is beneficial for both the insurance company and the customer in that context. So definitely, we welcome this. And if it happens soon, it will be quite useful for all of us. This will help us in prior intimation, engaging with the hospital in negotiation in a more effective manner and also improving the customer experience.

Second point is uniform standard tariff for hospital network, that is still in the concept stage. We will have to see when that comes into being. There is a committee that has been formed. We are also part of that. We understand that there is a significant moat that Star Health has in terms of our direct negotiation with the hospital, we would obviously want to protect that moat. But since this project is still in the concept stage, we'll see how it pans out and then we will work it out. But we are very confident that all of these initiatives will be beneficial for the industry and the customers and also to us.

[Madhukar Ladha, analyst]

So on the -- just a follow-up on the first point that you made that customers would have access to the hospitals also provided, they let you know in advance and that may be an out-of-network hospital. So how would pricing work in that case? And I mean, it would still mean that practically any insurance company would have access to any hospital with whom -- with all the hospitals, right, I mean, for a cashless sort of settlement? So wouldn't it sort of dilute your edge, because you have a higher number of hospitals, you will be like a preferred name to buy health insurance from, right? So...

[Anand Roy, executive]

No, we don't look at it that way. We think that -- definitely, this will improve the perception of health insurance in the industry, and that will help all the companies, including Star Health. We do have a network of 15,000-odd hospitals. Many other companies have 10,000, 8,000 whatever numbers they have. So there is already a pool of hospitals, which is common to most of the insurance companies. There are many hospitals, who are not in the network. And right now, we'll have to see how we can utilize their services to bring them into the network of the insurance companies. So I think this project is in the right direction. We do not see that this will affect our competitive advantage in any way.

[Madhukar Ladha, analyst]

And sir, how far along are we in the first phase, like the first one that you mentioned where you could go to any hospital and the person just has to inform in advance? The tariffs, the second part of it, right, which is still in conceptual stage. The first leg, how far along is the -- in that...

[Amitabh Jain, executive]

So this is being done through the GI Council as a nodal body for the entire general and health insurance industry. And as a overall body, that's driving it. We are also a member of that committee and working along with the other members to make this happen as soon as we can. But obviously, a project of such nature is, you can understand it's very mammoth in its proportions and it will take time for it to fructify.

[Operator]

Sorry to interrupt, Mr. Ladha. May we request you to return to the question queue for follow-up questions as there are several participants waiting for their turn. Our next question is from the line of Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

I have basically 2 questions. First question is that, if I do the math of new business contribution to the total retail GWP, it seems to be around 17 percentage. So the company, when we came with an IPO, the new business contribution was almost 29%, 30% of the total business. Today, it has fallen to 17%. So honestly, I just wanted to check from your perspective at what number, 15% or 17% or 12%, will make you a little worried, given the new business growth is not happening and then the contribution is not there? Because it has to fall it, but it reduces the [indiscernible] system to the new business or renewal and then it can potentially have a negative impact on these claims if the price hikes are not taken on a regular basis. That's the first question.

And the second question is, honestly, you said that your new business, 32% of the contribution came from non-agency channel. If new business for the half has declined, which means that agency channel has seen a significant decline, because other channels have grown positively, Banca or your digital. So if agents you're adding more people specialized agents, strength has increased, you have added more branches. But obviously, the new business declined despite making investments into the capacity not happening seems to be a worried trend. So just wanted to understand what exactly will lead to reversal of this basically?

[Anand Roy, executive]

So Sanketh, as I mentioned, we are running after quality rather than quantity right now. And we believe that there are certain steps we have to take along the way to recalibrate our portfolio to make sure that the long-term profitability of the portfolio is sustainable. So we have taken some calls. Some tough underwriting calls on some segments like portability business. We have taken some calls on certain geographies where we have closed down a few offices, we may propose -- we may probably do that in few other areas also.

So I think these are decisions which are -- as I mentioned, it's a short-term pain for long-term gain. We have to live with this. But we are not at all concerned about the new business growth. We are growing quite well, and we expect that the growth will only pick up going forward. So these numbers, which you are talking about, is an impact of certain calibrations that we have done consciously.

[Sanketh Godha, analyst]

Anand, when you can expect, given you have taken already the measures. So at some point in time, you will see that now everything is done and now you will see a revival, so can you just guide us by which quarter or how many months away, we are away from seeing that pain to revive back?

[Anand Roy, executive]

So we are guiding for 20% growth, and we expect that to happen from this year and as well as for the future.

[Sanketh Godha, analyst]

Okay. So sir, which means that, effectively, the second half the new business growth should be strong. And what are the corrective measures you have taken are almost done and dusted, and then it's now like a growth path, is the fair assumption to make?

[Anand Roy, executive]

Yes, you're right.

[Operator]

Our next question is from the line of Anirudh Shetty from Solidarity Investment Managers.

[Anirudh Shetty, analyst]

Sir, I have two questions. My first question is we had -- over a long period of time, we're looking to do 20% growth, which is above the industry and 20% ROE. Do you think there could be any sort of inherent conflict between achieving these 2 outcomes? Because to achieve that 20% ROE, there is a certain loss ratio we'd like to kind of maintain, which would mean we need to take price hikes, exclude certain customers to achieve that number. And so by definition, our ability to grow ahead of the industry would be constrained to that extent. Or do you feel that this is something that you can manage this? Wanted your thoughts on that.

[Unknown Executive]

No, I think it is very, very manageable because the Star Health has always been growing profitably. So as long as you are growing profitably and your denominator in terms of network remain same, your ROEs would improve. There is no reason why ROE should not improve, correct? So it's absolutely doable. There's no problem. We don't see any reason why it's not doable. There may be some technicalities here and there. But ultimately, it would be difficult.

[Anirudh Shetty, analyst]

Got it. And do you believe that once the price hikes that we take are fully in the book are price competitiveness versus the industry? Is that something that will be able to maintain?

[Nilesh Kambli, executive]

See, price hike is a continuous process. We keep on evaluating the products. As I mentioned in the call, we are looking at price increase in part of our portfolio. This should help us in terms of pointing over the next 12 to 18 months. So we are looking on quality growth and ensuring that long-term sustainability of the business, which will include price increase, quality of the business to achieve the profitability.

[Unknown Executive]

And Anirudh, the price hike is never taken with the vision of showing a growth. The price hike is taken, because we have an envisaged loss ratio for every product. And as and when we reach that number, we go back and start doing this base pricing again.

[Anirudh Shetty, analyst]

Right. I understand that. I understand that. And so my second question is of late in the news, there's been a couple of reports around [indiscernible] claims settlement ratio and the claim rejection ratio. And I understand that there's no standardized number and product mix will be different for peers. But can you just elaborate on whether -- at least for our general customers, what would the -- what is the right claim settlement ratio to look at for the general claims that come?

[Anand Roy, executive]

See, I think we would not comment on the media reports. But what I would like to tell you is that at Star Health, we are very, very sensitive to customer service. We have a very strong grievance situation mechanism in case any customer is not satisfied with our services. What we have seen is we track two metrics. One is the retention of our customers in our franchise, and second is our NPS scores at various levels. We have seen that both of these are tracking very much in trend with whatever we are expecting. So we are quite comfortable with what is being done. We are -- of course, there is always scope for improvement, and there is -- we'll keep doing that.

[Operator]

Our next question is from the line of Neeraj Toshniwal from UBS India.

[Neeraj Toshniwal, analyst]

One question. How many customers in FHO would have shifted to other policies from FHO at the time of renewal?

[Unknown Executive]

I think what's more important is the renewal rate is as far what we have envisaged for FHO and the growth rate of this.

[Neeraj Toshniwal, analyst]

So to understand what that could have impacted your, obviously your claims to some extent?

[Unknown Executive]

No. So if I have to give you a number, almost 90% of the existing policies got renewed in the FHO portfolio, and probably around 8% to 9% would have got transition to our new product within Star Health.

[Nilesh Kambli, executive]

And that's the choice we give to the customers.

[Unknown Executive]

And that's the choice we have given proactively to the customer to decide.

[Neeraj Toshniwal, analyst]

And any impact on [indiscernible] from that 10% [Indiscernible]? I know it would be very small out of 45% of that in the same.

[Nilesh Kambli, executive]

No, no. There is no impact, because when there is an upgrade to the customer in terms of coming sort of the Star Comprehensive, the average ticket size is higher than FHO basis. So there is no complement on the premium.

[Neeraj Toshniwal, analyst]

And a follow-up on this if we increase price on these sort of gain, as you mentioned, you will be looking at increasing price except for FHO, will these customer gain will have a higher pricing from mix intervals? Is that understanding correct?

[Anand Roy, executive]

So the price hike is a function of -- insurance price hike is a function of the inflation that we see in the medical side, right? And as you might be aware, the industry is looking at very high medical inflation for many years now. So I think, unfortunately, the loss ratios in case they hit the comfort level that we are operating at, we have to take a price revision. But as mentioned, that is never the first choice of call. It is always the last option. We try various measures of keeping our severity under control for negotiation with the hospitals. But to your point, we do go for a price hike. So yes, we are looking at a couple of products in the near term for a price revision.

[Neeraj Toshniwal, analyst]

Got it. And one more question on the sum insured given that presently 10% for new and 11% for overall, which implies that the older portfolio people are looking for increasing there sum insured at the time of renewal. So how many percent of [ customers ] would be actually increasing the sum insured or giving a follow-up in the pool?

[Unknown Executive]

I'm sorry, I wasn't able to get that question. Can you repeat it?

[Neeraj Toshniwal, analyst]

Sir including sum assured is higher for overall the new business, which would mean that the older guys would have been increasing their sum insured given the cover from Star Health, so how many customers would have [indiscernible] that facility?

[Unknown Executive]

So I've mentioned the objective of making the customer aware of a higher sum insured is to mitigate the medical inflation. It's a win-win for all the 3 parties, which is the customer so that we can beat the inflation in the coming days. So we ensure that our agents are trained in order to give the right advice. And for the agent also, the average ticket size increasing, which actually leads to a better commercial for them also. And for us, obviously, the loss ratio is much better if the highest sum insured So that's the win-win situation which we want to create for -- in the ecosystem.

[Neeraj Toshniwal, analyst]

I got it. My question is a little different. In the sense overall sum insured seems to have increased higher in the new business. So wanted the [indiscernible] because of the fact that older customers are increasing the sum insured on their older policy at the time of renewal.

[Unknown Executive]

No, absolutely. I think as the customers start buying the policy, the customer awareness goes up, and then he actually decides what is the right sum insured in the coming days. So the more he spends time as a health insurance customer, he understand that, okay, this is the standard of living, which he would like to avail off when he gets hospitalized.

[Neeraj Toshniwal, analyst]

So how many percentage of the customers of the pool would be on an average would actually go for an upgrade?

[Unknown Executive]

So it's almost -- so we -- what we can do is -- this is a question which we would like to take it off-line, but there's a lot of -- a good amount of customers, majority of the customers are being trained and we made them aware of this feature.

[Operator]

Our next question is from the line of Nischint Chawathe, Kotak institutional Equities.

[Nischint Chawathe, analyst]

Just a small one. How far do you think are we from another tariff hike? I believe if our claims ratio remains like this, and I think you're guiding that this year will be a little tough year. Are you sort of looking at another hike in the later part of the year?

[Nilesh Kambli, executive]

So as I mentioned, we are looking at some other products, which have reached the threshold level. And we'll continue to take price hike based on the performance of the product. What we have to see is the price hike that we have taken, the benefit of it has not come fully. It's only 5 months and 5 months of portfolio. And this 5 months also, it will come over a 12-month period. So we have to see the full impact of earned premium benefit in our portfolio, which should come by March and coming periods.

[Nischint Chawathe, analyst]

No, no, sir, that's what my question is that would you want to wait for the entire impact? Or given the fact that probably, it looks like that [indiscernible] looking tough, you kind of go ahead and do a hike sooner than that?

[Nilesh Kambli, executive]

Yes, Nischint, so what we're talking about is other products which are reaching the threshold, we are in the process of getting the price hike in this quarter.

[Operator]

Ladies and gentlemen, due to time constrain, that was the last question of our question-and-answer session. I now hand the conference over to Mr. Nilesh Kambli for closing comments.

[Nilesh Kambli, executive]

Thank you all for joining the call. What we have seen is a good growth in the Banca, digital business, our proprietary [ IT 38 agents ] and majority of our preferred geographies for the agency channel, we continue to focus on growth and long-term profitability in the near future as well as coming period. Thanks for joining the call.

[Operator]

Thank you. On behalf of Star Health and Allied Insurance Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.