Health Insurance for Health Security Priya Gilbile Head – Health Risk Management Date: 26th May 2016

Health insurance industry – Overview In most of the developed countries, healthcare is largely funded by the government, leading to limited role of health Insurance

Health insurance industry – Overview However, most of the Indian spending takes place in out of pocket expenses, excluding which, Private spending is lower than most markets

Key growth drivers for the health insurance industry Health insurance industry – Overview Key growth drivers for the health insurance industry

Health insurance industry – Structure & Growth Overall health insurance expected to grow 2x in next 5 years & exceed INR 40,000 cr Indian health insurance GWP (INR cr) – Split by segment SAHI market is expected to grow at 21-25% from FY 2014-15 to 2015-20 General insurers are expected to fall from 29% of market in 2012-13 to ~21% in 2019-20 driven by falling GWP of big players like ICICI Lombard Public insurers are expected to remain steady ~60% of the total health insurance market by FY 2019-20 15,453 17,494 20,443 41,923 SAHI 21-25% insurers 8%-12% 13%-17% insurers FY 2012-13 FY 2013-14 FY 2014-15 FY 2019-20 Source: IRDA reports, market data, team analysis

Health insurance industry – Structure & Growth B2C is the fastest growing segment and is expected to be the largest segment by FY19-20 Current focus area for Max Bupa Segment wise GWP (INR cr) 13,062 15,453 17,494 20,443 41,923 6-10% B2G 43-45% B2B 45-49% B2C 2011-12 2012-13 2013-14 2014-15 2019-20 (E) Source: IRDA reports, market data, team analysis

Shift towards B2C segment is predominant amongst SAHIs Health insurance industry – Structure & Growth Shift towards B2C segment is predominant amongst SAHIs Standalone Health Insurers Private General Insurers Public Sector Insurers 1,608 1,668 2,172 2,852 3,438 4,205 4,482 4,763 8,015 9,580 10,841 12,829 2% 2011-12 2012-13 2013-14 2014-15 2011-12 2012-13 2013-14 2014-15 2011-12 2012-13 2013-14 2014-15 MBHI’s strategy of non-participation in B2B segment in line with the market trends; others seem to be following suit Source: IRDA reports, market data, team analysis

Health insurance industry – Structure & Growth While the market is fragmented with 23 active players, 4 large PSUs still command ~60% of the market Health Insurance market - GWP split by players (FY 14-15) Standalone Health Insurers Private General Insurers PSU Insurers Rs. 2,852 Cr 14% Market Share Rs. 4,763 Cr 23% Market Share Rs. 12,829 Cr 63% Market Share Max Bupa share has increased to 4.9% of private insurers during FY 14-15 (from 4.4% in the previous year) Source: IRDA reports

Cost of activation for distribution channels Impediments and Challenges Impediments and Challenges Poor Penetration Low Product Differentiation Need for greater customer engagement Fragmented product market Price Barrier Discretionary Purchase Cost of activation for distribution channels Cost of activation for distribution channels Lack of Trust Lack of Trust

Key shifts and trends in the HI industry Health insurance industry & our play Key shifts and trends in the HI industry Health insurance industry Still dominated by PSU insurers, but private insurers gaining share Advent of Standalone Health Insurers (6 currently) – focus on wellness and health partners New entrants evincing interest in the HI industry (Kotak, Birla, Reliance Capital) Early signs of niche product proposition visible – disease specific (cancer, dengue), maternity, & alternative treatments (Ayush, Homeopathy, Bariatric surgery) Low profitability due to irrational pricing, high medical inflation and moral hazard Huge potential going forward Small but rapidly growing health insurance market Policy changes and regulatory developments to boost growth Prudent underwriting/pricing, HRM oriented products and ability to manage claims are critical to success Policy & regulatory developments Insurance laws (amendment) bill Universal Health Assurance Mission - fully funded for poor; incentives for others Increase in tax exemption for HI Distribution related changes (Banca, Agent recruitment & licensing, deregulation of commission rates, rural and social obligations) Pro-consumer regulatory activism (Exposure draft on Protection of Policyholder’s interest) Health care industry Rising healthcare costs and increasing burden of non- communicable diseases Mostly state-run and free hospitals with low overall quality Organized private sector healthcare providers small, but growing rapidly Economic developments & demand demographics Economic recovery with positive impact on healthcare/HI industry Majority of the population not covered by health insurance Two-thirds of health spends funded by own sources Growing middle class with high expectations and higher disposable income increasing demand for better health care and risk mitigation

Health insurance industry is set for a quantum growth Health insurance industry & our play Health insurance industry is set for a quantum growth Opportunities Looking forward Low health insurance penetration and coverage HI penetration (premium as % of GDP) is only ~0.2% Only ~5% of total population covered under personal HI FICCI estimates that only 15% of population has any kind of health insurance 2X industry growth over 5 years (~ Rs 40,000 cr) Rising healthcare costs and standards of care Regulatory & policy level incentives Increase in government funding Overall boom in the opportunities for access to necessary treatment 45% PHI coverage as % of total population 13% 12% 5% Australia Spain UK India However, industry is faced with challenges too Rising burden of non-communicable diseases Unregulated health ecosystem Regulatory headwinds Margin pressure Increasing claims cost and operating expenses putting a downward pressure on cost structures India has one of the highest out-of-pocket expenses (primarily OPD, consultation, diagnostics & pharmacy) Double-digit medical inflation Continued increase in lifestyle related diseases Increasing affluence Base of middle class expected to increase by 150 mn 76% 86% 59% 53% OOP as % of private expenditure Increased regulatory activism Continued focus on consumer protection impacting re- pricing, product sophistication, etc Australia Spain UK India * SAHI – Standalone Health Insurers

Thank you