Apollo Munich has managed to break into the black by shifting focus from group insurance to retail, and from health care financing to health management
It may seem like common sense that health insurers will make more money from healthy people rather than the unhealthy.
Unhealthy people making too many illness claims is the reason why most health insurance companies are themselves under water, ratcheting up losses on mediclaim policies. It may also seem like a no-brainer that selling insurance to companies—a few hundred customers in one sales pitch—should be more profitable than selling to individuals, one policy at a time.
But Apollo Munich has managed to show black on the balance-sheet by standing these ‘self-evident’ truths on their heads.
After an initial trot down the same beaten track, it has decisively shifted course and found that winners are those who take the paths less taken. Recently, it surprised industry observers by announcing that it had broken even in 2012-13 (FY13), earning a profit of Rs 5.1 crore. While it is too early to claim that Apollo has found the Holy Grail, there is quiet satisfaction that it has at least established a ‘proof of concept’ for standalone health insurers—that is, those who don’t cross-subsidise health insurance losses with profits from other forms of general insurance.
This should give hope to the three other standalone health insurers—Star Health, Max-Bupa and Religare—and many more potential ones. Currently, Star Health has a higher market share but is still in losses. As for Max-Bupa (only three years in the business) and Religare (just one year old), Apollo Munich is the arrow pointing in the right direction.
Says Yashish Dahiya, co-founder of policybazaar.com, a site that helps customers compare policies and costs: “Both Star Health and Apollo Munich are innovators, Star Health was the early innovator, and Apollo Munich leads the current round of innovators. Apollo Munich also seems like a really well-run company.” This is a sentiment echoed by a few other insurance brokers, agents and customers of Apollo Munich.
But before we proceed with the Apollo Munich story, here’s the backgrounder. In India, health care and health insurance have seen costs soaring. The public sector health insurers offer mediclaim benefits more like a bounden duty than a real business, and, thanks to the high costs of insurance, especially for older people, 75 percent of India does not have any form of health cover. If you are among the other 25 percent, chances are you depend on your employer to provide you with cover. Only 6 percent of Indians have individual health insurance covers, according to a World Bank study. Indians pay for 60 percent of their health costs from their own pockets.
Given acute poverty and unhealthy living conditions, it stands to reason that money can be made in this business only by insuring the relatively healthy. And this is where Apollo Munich pioneered a strategy to focus on the relatively unhealthy to redefine the insurance market in India. Coming up is a product specifically targeted at so-called unhealthy people—people with known illnesses.
How does Apollo Munich propose to square the circle here? Its product is based on the concept of managing a disease, rather than just paying for its treatment. The new product, slated for an October release, is based on the company’s experience of applying this approach to its group insurance clients over the last three years.
THE DNA OF SUCCESS
A joint venture between Apollo Hospitals and Munich Re, a re-insurance group, Apollo Munich started life in 2007 soon after the government started dismantling the tariff regime in various insurance products. Earlier, health insurance was subsidised from profits earned on other products, but once the fixed tariff regime was ended, cross-subsidisation was no longer an option and pure health insurers entered the fray.
It was in this de-tariffed market that two new standalone health insurers—Star Health and Apollo Munich—made an entry. Both laid stress on innovation and tried to target the group insurance business. The logic: Offer low protection tariffs and obtain hundreds of customers at one go.
However, while this strategy seemed to work for Star Health, which bagged many big government contracts and quickly posted profits in 2008-09, Apollo Munich faltered. “The typical strategy was to undercut your competition by quoting unrealistically low premiums and getting a big group insurance contract,” explains Antony Jacob, CEO, Apollo Munich. This strategy beefed up the topline but hurt the bottomline of all companies.
Apollo Munich suffered heavy losses since it was not willing to quote unreasonably low premiums to grab contracts. And since its initial overwhelming exposure was to the group insurance business, the claims ratio was also pretty high (see Pay Back Time). “Our idea was to sell a product that married healthcare financing with healthcare management, but in the price sensitive Indian market, it was an uphill task to find many takers for such products,” recounts Jacob. So, between 2007 and 2009, Apollo Munich failed to take off despite having innovative products that later became industry standards (See What Apollo Munich did differently). When Jacob joined Apollo Munich in 2009 with a mandate to find a way out of the morass, he had a reputation to live up to. As head of Royal Sundaram General Insurance, he was one of the pioneers in ‘cashless’ health insurance in India, way back in 2001.
(This story appears in the 09 August, 2013 issue of Forbes India. To visit our Archives, click here.)