11th asia conference on health insurance & health care, singapore, sharad mathur

1. Health Insurance Business – India perspective  Healthcare Trends  Products  Penetration  Claims Analysis  Distribution Channels  Profitability Sharad Mathur Senior Vice President & Head – Agency, Digital & Alternate Channel SBI General Insurance Company Limited (A JV between State Bank of India & Insurance Australia Group) 11th Asia Conference on Healthcare & Health Insurance, Singapore

2. Healthcare expenditure expected to grow backed by macro drivers & growing awareness • India’s healthcare spending as a % of GDP is lower than some of the key economies • Currently India’s healthcare is predominantly through out of pocket expenses • The healthcare spends in India is expected to grow at ~14% over the next 5 year as per EIU projections Trends in healthcare spending • Large growing population with changing lifestyle • Advent of lifestyle related diseases • Increase in healthcare delivery prices and introduction of complex medical interventions Macro drivers for healthcare spends • Increasingly insurance is being adopted by the Indian retail segment • There has been growing penetration of rural mass market and BPL population through Government sponsored schemes Coverage and awareness 3.10% 4.0% 4.60% 4.00% 5.60% 6.2% 8.90% 9.70% 0.0% 4.0% 8.0% 12.0% Total expenditure on health as % of GDP India’s comparison with key countries Source: World Bank database, WHO database

3. Growing contribution of health insurance to GI market is supported by increasing volumes & prices of health insurance Expected Growth in total premium of Health Insurance in billion USD Source: IRDAI, Industry Discussions Contribution of Health in overall GI industry Premium Volume Pricing Health insurance penetration backed by shift in disease pattern, higher awareness Growth in “Addressable population” 1 Healthcare inflation will lead to cost of insurance Detariffication impact – elimination of cross subsidies and continued upward revision of health premiums Low priced policies will attract large volumes of low income consumers 2 5 6 7 Government push for greater coverage 3 Access to multiple channels including digital 4 18% 21% 24% 25% 28% 25% 25% 22% 25% 82% 79% 76% 75% 72% 75% 75% 78% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Health Other GI 2.50 2.83 3.33 4.00 4.67 5.50 6.33 7.50 - 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Expected CAGR = 17%

4. CustomerMix • Retail : ~37%, Group: ~51%, Govt: ~12% • Mass market focus Focusing on increasing retail business • Retail : ~35%, Group: ~48%, Govt: ~17% • Focus on younger customers with better income profile Focus on Retail and government business • Retail : ~73%, Group: ~22%, Govt: ~ 5% • Strong technical capabilities while starting operations Huge focus on retail and profitable group business Product • Low priced products especially in the group segment Significant focus on right pricing (Group + retail) • Profitable products • Offers a basket of products with high risk products being priced better Profitability focus through innovative products • Innovative products with focus on wellness and wider coverage Develop integrated care model as scale of medical partner improves Channel • Large branch presence • Well developed agent base • High focus on the bancassurance channel • Aggressively developing alternate channels (online/telemarketing) Focus on Bancassurance channel as a key channel • Limited branch presence • Focus on agency channel • Shifting focus towards alternate channels (online, telemarketing) Focus on Agency and direct channel Operations • Claims management outsourced to TPAs • Plan to enhance control over claims management by setting up a new TPA, promoted by the four PSUs Insourcing health claims management • In-house claims management (e.g. ICICI Lombard, Bajaj Allianz), stake in a TPA (e.g. Reliance) Captive claims administration for superior service • In-house / captive claims management In the current market, three broad segments of insurers exist which have varying strategies PSU insurers Multi Line private players Pure Play health insurers Source: IRDAI, Industry discussions

5. Health Products Composition - Existing 17% 12% 5% 14% 48% 51% 22% 47% 12% 9% 48% 13% 23% 28% 25% 26% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Pvt Insurers Public Insurers Stand Alone Health Grand Total Individual Ins excluding Family/Floater Product Family/Floater Ins excluding Individual Product Group Ins excluding Govt. sponsored Schemes Govt sponsored Health Schemes

6. Health Products linked to Customer Buying Behavior/ Segments Retail Corporate and SME Central and State Governments Customer Segments • Indemnity products - Individual or family floater • Benefits : predominantly hospitalization expenses • Fixed benefit products - hospital daily allowance or critical illness • Exclusions: OPD, GPs, pharmacies, etc. • Typical loss ratios of 60% - 68% • Single policy covering all members • Higher restrictions compared to retail individual policies • Sold across corporates; however limited purchase by small enterprises • Typical loss ratios of 75% - 135% • Low sum insured products • Simple hospitalization cashless covers with per member price between US$ 5 – US$ 15 • Typical family floater sum assured limited to US$ 1550 – US$ 4500 • Typical loss ratios of 80% - 120% Product Features • Needs to be actively sold the product • High loyalty to agent / intermediary • Recent grievances data shows increasing ‘mis-trust’ of health insurers • Highly price –sensitive market • High bargaining power of client • Uses either broker or direct route • Increasing migration to self- insurance • Large state wise or district wise contracts • Not intermediated • Bids based on combination of technical and commercial scores Customer Buying Behavior

7. Product Innovation - Approach Customer centric innovation: • Short-Term Medical Plans • Accident, cancer & critical illness coverage • Prescription insurance and discount • Dental insurance and discount • Vision insurance • Health & wellness programs • Lifestyle discounts Ideation: • Identify unique & unmet customer needs • Define customer segment-specific plans • Develop the operational capabilities to effectively deliver these plans (services) • Monitor and learn from them How do we innovate on services? • Ease of sale – right products for the right channel • Simpler & effective underwriting • Policy wordings adapted for local market with illustrations • Ease of claims submission with fast assessment • Identification of trusted hospitals • Sharing of information on fraud • Better communication with customers Innovation has to be collaborative & effective:

8. Two types of innovation — sustainable & disruptive: • Sustainable innovation takes something that exists today & makes it better. Insurance product features may be added or fine-tuned, processes streamlined or distribution channels expanded upon. There is tremendous value in consistent, targeted change that occurs over time. • Disruptive innovation is a game changer, something that completely alters the way an industry operates. Four examples of insurance industry disruptors that have occurred in recent years include: – predictive analytics – usage-based insurance (UBI) – insurance-linked securitization – micro-insurance Product Innovation – Approach Continued..

9. Health Protection Gap/ Penetration – Indian Scenario Only 288 mn (22.2%) are covered by health insurance, of which 214 mn are insured by government schemes, 48 mn are covered by group insurance, while 25 mn use individual or family floater plans Health protection gap is big in India. Gap is projected to rise by 12.3 % annually to $214 bn by 2020 Government & society ‘ll ‘ve to spend more in the future to make up for the growing demand for healthcare services due to higher income growth & a large population out-of-pock-et expenses account for 60% of the total healthcare expenditure, with a very minor contribution from private insurance plans With emerging middle class estimated to grow 10-fold from 50 mn at present to 475 mn by 2030, the demand for quality health-care & speed to access services will be greater Increased consumer awareness along with easier access to healthcare are essential to drive penetration & double health insurance coverage in India by 2020 Health protection gap is the difference between the level of health-care costs, versus the amount that is available to cover those costs. If total healthcare expenditure remained a constant % of GDP, the country is likely to face a shortfall in health-care financing of around $43 bn in 2020. This will require additional spending or higher out-of-pocket funding by individuals

10. Health Claims Analysis – Male & Female Demography Male Age Band Highest Claim Frequency Age Band 2nd Highest Claim Frequency Age Band 3rd Highest Claim Frequency Infectious 1-5 years 0.915% 6-15 years 0.704% 25-36 years 0.52% Clinical Findings Above 70 years 0.762% 1-5 years 0.758% 61-65 years 0.51% Digestive 66 - 70 years 0.574% Above 70 years 0.544% 61-65 years 0.48% Injury Above 70 years 0.335% 66 - 70 years 0.330% 26-35 years 0.31% Urology 66 - 70 years 0.993% Above 70 years 0.827% 61-65 years 0.77% Circulatory 66 - 70 years 1.910% Above 70 years 1.219% 61-65 years 0.93% Female Age Band Highest Claim Frequency Age Band 2nd Highest Claim Frequency Age Band 3rd Highest Claim Frequency Pregnancy 26-35 years 0.95% 16-25 years 0.36% 36-45 years 0.17% Infectious Above 1-5 years 0.94% 26-35 years 0.79% 16-25 years 0.72% Clinical Findings 1-5 years 0.81% Above 70 years 0.64% 61-65 years 0.55% Urology 66-70 years 0.80% 61-65 years 0.78% 56-60 years 0.59% Digestive 66-70 years 0.48% 61-65 years 0.46% 26-35 years 0.42% Eye 66-70 years 1.73% 61-65 years 1.42% Above 70 years 1.32%

11. In-house Health Claims Management v/s Third Party Administrator (TPA) 1204 1386 508.67 701.41 422.42 506.13 0 200 400 600 800 1000 1200 1400 1600 TPA In-house No of Claims (in '000) Claim Paid (in Million Dollars) Average Claim Paid (in Dollars)

12. Preventive Health Care Approach – Spreading awareness Limit your salt intake Don't load up on high protein foods such as meat & steaks Keep your blood pressure at 130/80 or lower Keep your blood sugar below 120 mg/dl Drink 8 glasses of water a day Watch your intake of pain relievers & other drugs Be careful with tests & procedures using contrast dyes Don't drink too much Vitamin C Don't rely on food supplements to protect your kidneys Get a kidney check-up Example: 10 ways to protect your Kidney…

13. Distribution Mix - Channel wise contribution in health insurance Health indeminity (Top Up, HNI) 87% Hospi Cash & CI 13% Health Products Share

14. The profitability of the Health insurance industry - gradually improving Standalone health insurers seem to have lower claims ratios, showing better pricing ► Net Claims Ratio for the PSU insurers exceeded 100% largely due to group health policies ► Since Jan 2007, post- detariffication, health premiums have been increasing faster than the rest of the non-life insurance markets Group Segment ► Historically unprofitable segment ► Claims Ratio’s exceed 100% due to uncompetitive premium rates and waiver of key policy exclusions ► Although, claims ratios are more favorable ► Effective claims management, strong underwriting and efficient distribution could lead to lower claims and distribution expenses ► Individual business can be written more profitably Individual SegmentPremiums and Claims Source: IRDAI Annual report and Journals Claims ratios

15. Source: Company annual reports Performance of a 5 years old Standalone Health Insurer - showing gradual move towards profitability Financial Performance of one of the Key Standalone Health Insurers (Figures in million USD) -14.67 -10.17 -4.33 -9.50 -3.67-13.17 -7.83 -1.67 -6.00 -1.00 62.33 76.67 85.67 93.83 100.33 - 20.00 40.00 60.00 80.00 100.00 120.00 -16.00 -14.00 -12.00 -10.00 -8.00 -6.00 -4.00 -2.00 - FY11 FY12 FY13 FY14 FY15 Technical Result PBT Capital Infusion

11th asia conference on health insurance & health care, singapore, sharad mathur

11th asia conference on health insurance & health care, singapore, sharad mathur

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