Star Health and Allied Insurance reported a 233% surge in net profit to ₹265 crore for the September quarter, supported by improved underwriting and AI-driven fraud detection. While the company faces potential regulatory shifts regarding insurance distribution fees, management expects these changes to promote long-term affordability. The insurer is currently focusing on expanding its retail health business in Tier-2 and Tier-3 cities to sustain its margins.
Star Health and Allied Insurance posted a significant turnaround in its financial performance for the second quarter of the current fiscal year. The company reported a net profit of ₹265 crore, a 233% increase compared to the same period last year. A major driver of this improvement was the shift in its core insurance business. The company generated an underwriting profit of ₹99 crore, a sharp recovery from the underwriting loss of ₹40 crore reported in the same quarter last year.
Operational Efficiency and Underwriting Gains
For an insurance company, the combined ratio is a crucial metric that measures profitability. It represents the claims paid and operating expenses relative to the premiums earned. A ratio below 100% indicates that the insurer is making a profit from its core insurance operations, while a ratio above 100% suggests it is spending more on claims and expenses than it collects in premiums. Star Health improved its combined ratio to 98% this quarter, compared to 100.9% in the same period a year ago.
This improvement was achieved through a strategy of disciplined price adjustments and a retreat from high-risk business segments, such as portability schemes, where claims tend to be higher. Additionally, the company has increasingly deployed artificial intelligence tools to detect and curb fraudulent claims, which has helped reduce overall claim payouts. The insurer also shifted its focus toward Tier-2 and Tier-3 cities, where data indicates that loss ratios are generally more favorable than in larger metropolitan markets.
Regulatory Landscape and Distribution Risks
The insurance sector is currently discussing potential regulatory changes from the Insurance Regulatory and Development Authority of India (IRDAI) concerning distribution commissions. These proposals aim to regulate how much insurers can pay intermediaries and agents for selling policies. Some investors worry that capping these commissions could lead to lower agent productivity or higher churn, which would be a risk for Star Health, given its significant reliance on its agency network to sell retail health policies.
Management has noted that while these changes might introduce temporary volatility, they view the regulator’s move as a step toward making insurance products more affordable for a wider population. Currently, about 96% of the company’s premiums come from the retail health segment, with the remainder linked to group policies. Looking ahead, investors may track whether the company can successfully transition its business model if the final regulations force a shift in how policies are distributed through bancassurance or other channels. The company’s stated goal is to achieve a long-term return on equity in the mid-to-high teens over the next three years.