Star Health wants mandated products kept out of Irdai’s expense cap

Star Health and Allied Insurance Co. Ltd wants the insurance regulator to exclude regulation-driven covers from the numbers it will use to cap insurers’ business-running expenses.

Motor third-party insurance and government-sponsored health schemes should be excluded from the base used to determine the proposed limits on expenses of management (EoM), the company said on Wednesday during a post-earnings call with analysts. Management argued that government health programmes should ideally come at zero cost, so counting such business blurs what insurers actually spend on selling retail policies.

Apart from that, Star Health backed the Insurance Regulatory and Development Authority of India’s (Irdai) distribution reforms and said its internal estimates show a credible path to meeting the proposed limits. Managing director and chief executive Anand Roy said several other proposals were also encouraging, including linking commissions to renewals.

Roy said linking commissions to renewal rates “removes incentive for commission-driven churn between insurers, which we see happening in large numbers”.

The comments came after Star Health reported that its September-quarter profit more than tripled to ₹265 crore from ₹80 crore a year ago. The company also reported an underwriting profit of ₹99 crore, compared with a loss of ₹40 crore a year earlier.

Irdai released the consultation paper on distribution on 23 September, and comments were due by 31 October. Responding to an analyst’s question, management noted the paper’s proposal that general and standalone health insurers follow a common EoM structure, but said regulation-driven business should be carved out.

The point matters more for multi-line general insurers, which write far more motor third-party, crop and government scheme business than Star Health does, and whose expense ratios would otherwise be judged on a mix that includes low-cost mandated covers.

Agent-led model may benefit

Among the other proposals Roy referred to are higher commissions for business from smaller towns and rural areas, a requirement that an agent represent only one insurer within a product segment, and closer scrutiny of dark patterns in digital sales journeys. Roy said the first two are “well aligned with our distribution footprint”.

Roy said the company’s business model is resilient to the changes, since over 90% of its retail business comes through its own agents and its direct-to-customer channel.

The agency alone contributed 85.3% of gross premium in the first half, and the insurer added 39,000 agents, bringing its network to 8.7 lakh. “Individual agents remain the better rewarded distributors under the proposed framework,” Roy said, adding that the company is working with agents to protect their earnings through higher productivity.

The insurer has no immediate plans to cut premiums in response to the regulator’s push on affordability and will wait for the final regulations before taking a call. About 80% of the book was repriced in the last cycle, with the rest being taken up this year.

Star Health’s stance is more openly supportive than that of some life insurers. Earlier this month, ICICI Life said the same paper proposes a fairly significant cut to commissions on credit life cover, though it stopped short of opposing it.

Roy also flagged that headline growth will slow in the second half, as last year’s surge in demand after the GST exemption on retail health premiums becomes part of the base. The company aims to grow fresh business by more than 20% over the long term. Retail fresh premium rose 36% to ₹1,630 crore in the first half, with 93% of new customers buying health insurance for the first time.