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Aditya Birla Financial Services Launches Health Insurance Business

Aditya Birla Group looks to capitalise on under-penetration in health insurance. 

Ajay Srinivasan, the chief executive of Aditya Birla Financial Services. (Photographer: Kuni Takahashi/Bloomberg)
Ajay Srinivasan, the chief executive of Aditya Birla Financial Services. (Photographer: Kuni Takahashi/Bloomberg)

Aditya Birla Financial Services Group has entered India’s health insurance space through a joint venture with South Africa’s MMI Holdings Ltd, the company said on Thursday.

The two partners in the joint venture, called Aditya Birla Health Insurance, will make an initial investment of Rs 250 crore, said the newly formed insurance company’s Chief Executive Officer Mayank Bathwal.

Aditya Birla Financial Services Group will hold a 51 percent stake in the joint venture, and the rest will be held by MMI Holdings, said Ajay Srinivasan, chief executive of Aditya Birla Financial Services.

The joint venture is the outcome of an agreement that was signed between Aditya Birla Nuvo and MMI Holdings in June last year.

The health insurance business will initially have nine branches in the top seven cities in India, said Bathwal. Apart from the physical presence, the company will also utilise brokers, banks, and online distribution channels to sell its products, he said.

We’ll expand that (physical branches) very rapidly as we get to the next year and we want to reach 100 cities very quickly. Brokers are very large in the health insurance space in India. And even the banks are starting to get more active. And specially given the open architecture, many more banks are looking at health insurance.
Mayank Bathwal, CEO, Aditya Birla Health Insurance

India is severely under-penetrated in the health insurance space, said Srinivasan explaining the company’s rationale for launching the venture.

According to data from sector regulator Insurance Regulatory and Development Authority, there are five private sector general insurers that exclusively underwrite health insurance. These are Star Health & Allied Insurance, Apollo Munich Health Insurance, Max Bupa Health Insurance, Religare Health Insurance, and Cigna TTK Health Insurance.

For the period between April and October this year, these five private insurers had a market share of 3.64 percent of premiums underwritten by non-life insurance companies. Private sector non-life insurance companies as a whole had a 44.8 percent share of the premiums underwritten, the data showed.

In the insurance sector, health insurance is the fastest growing segment. If you see the last ten years the sector has grown from $250 million to around $3.5 billion. I see this growth continuing, because the public spend on healthcare is not going up.
Shashwat Sharma, Partner and Head-Insurance, KPMG

KPMG estimates that the health insurance industry in India will grow to $8 billion over the next four years.

According to Sharma, public spending accounts for only 30 percent of the overall healthcare spend in India. Of the remainder, 61 percent is out of pocket and only 9 percent is financed by insurance companies or other entities, an indication that the penetration in the segment is very low, he said.

“The penetration of health insurance is relatively low, because most people look for corporate coverage rather than individual coverage,” said Kalpesh Mehta, parther at Deloitte Haskins & Sells. “Globally what you see is that there are corporate policies, where employees have to have a minimum personal coverage over and above the corporate coverage.”

According to Mehta, the government’s drive on financial inclusion through its Jan Dhan mission is opening doors for products like accident insurance. With payments banks entering the picture, there could be more opportunities to cross-sell insurance products, he said.

The Aditya Birla Group’s proposed payments bank, Aditya Birla Idea Payments Bank, a 51:49 joint venture between Aditya Birla Nuvo and Idea Cellular is one of nine entities that have received licenses from the Reserve Bank of India.

Airtel Payments Bank Ltd. was the first to roll out operations through a pilot project in Rajasthan on Wednesday.

According to Srinivasan, Aditya Birla Idea Payments Bank will likely be launched in the first half of 2017.

As far as the payments bank is concerned, we’ve done a number of things to get prepared for it, including a tech platform, people, all of that. We’re now in the process of looking for regulatory approval so my guess is in the first half of the calendar year, you should see the launch of the payment bank.
Ajay Srinivasan, Chief Executive, Aditya Birla Financial Services

The licences that were issued by the RBI in August last year will be valid for a period of 18 months. Srinivasan said the application to the RBI for the payments bank venture would have been made before the deadline and that the roll out would then depend on regulatory approval.