Daybreak - Bajaj Finserv wanted to make waves in healthcare. So, it bought a wobbly ship.

Episode Date: September 18, 2024

Back when it was launched in 2020, Bajaj Finsev Health had a clear plan: it wanted to provide a complete healthcare package to its consumers. And it did that by happily playing a supporting role in India’s booming healthcare industry. Here's what Bajaj Finserv Health does. It is essentially a health management platform. So it facilitates things like doctor consultations and health checkups to its 400-odd corporate clients. Simple enough. But four years later, the company’s vision has evolved. They want to take things to the next level. It’s clearly sick of playing a supporting role. So it has decided to step into the spotlight. The first step was to acquire 22-year-old Vidal Healthcare, which is a third party administrator.Tune in. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.PS. While you're here, here's the happiness survey for the season finale of The First Two Years. 

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Back when it was launched in 2020, Bajaj FinServe Health had a clear plan. It wanted to provide a complete healthcare package to its consumers. It did that by happily playing a supporting role in India's booming healthcare industry. which I might add is worth over 31,000 crore rupees. Let me acquaint you with what Bajaj FinServe Health actually does. It's essentially a health management platform,

so it facilitates things like doctors' consultations and health checkups for its 400-od corporate clients. Simple enough. But four years later, the company's vision has evolved. They now want to take things to the next level. It's clearly sick of playing a supporting role, so it has decided to finally step into the spotlight. And the first step was acquiring 22-year-old Widal Healthcare,

which is a third-party administrator. You see, Bajaj Fincer of Health wants to look at the whole journey of an individual and to find solutions to make it smoother, easier and cashless. At least that's what BFH's chief executive, Devang Modi, told the Ken recently. The Vidal acquisition could definitely take it closer to that goal, especially considering that it is one of the top three TPAs in the whole country. So this acquisition is a big deal. Bajh Finnsar Health, or BFH, means business.

But before we get into its business strategy, let me try and explain what a TPA actually does. Basically, they're a very important thread between the insurer, the policyholder and the healthcare provider. So, say someone is hospitalized one day. assuming they have health insurance, they'll have to submit some form of documentation to the hospital to get the process started.

They then have two options. Either the insurance claim is settled in-house, this is usually the case with retail claims, meaning health insurance that you and individual has availed of, or there is another possibility. In other cases, very often, an IRDAI licensed TPA is hired to take care of the rest of the journey. So they take care of document processing, verification,

and making sure that your insurance claim goes through. And that's exactly what BFH will be able to do now that it has Widal on board. It will be able to add processing and settling insurance claims between health insurance and the insured to its list of offerings. So basically it's trying to pull off exactly what De Wang Modi said. It's trying to look at the entire health journey of an individual. And the Widal acquisition does seem like a great start. It is, after all, one of the biggest DPAs.

in India, like I said a little while ago. But the flip side of that is, it's loss-making. And that's not on Widal. This is a very tough space. In fact, of the 17-odd licensed TPAs, a grand total of three are profitable. So this is a real baptism by fire for four-year-old BFH. It bought a wobbly ship,

but now, will it sink or will it swim? Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahal Philippos and I'll be joining my colleagues Nika Sharma every day of the week to bring you one business story that is worth understanding and worth your time. Today is Wednesday, the 18th of September. Most people would agree that the Vidal acquisition is a big win for BFH.

It allows the organisation to introduce a variety of services into the ecosystem. In other words, it'll get to do a lot of the paperwork and handle the exhausting, clean settling process. Now, this may sound like painful work, but it makes a lot of sense for BFH, especially considering its parent company owns the health insurer Bajarajal Alliance general insurance in a joint venture through which it can sell insurance policies. So to be able to take care of claims just make sense.

It also helps that BFH gets access to Vidal's 20 insurers and substantial corporate clients, one of whom might I add is Google. And BFH Chief Modi has to say that this isn't a bad deal for Vidal's. Vidal either, because the acquisition means access to cutting-edge technology and digital-first solutions. But the thing is, compared to its peers, Vidal still has ground to cover. One senior industry executives said it has a near 10% market share in the group segment, while a BFH executive pegged it around 20%. Potato potato, because at the end of the day, that's a much smaller pie compared to its largest competitor,

a TPA called Medi Assist. Now, Medi Assist commands over 36% share and has established an incontestable supremacy. In fact, it's acquired three TPAs, Paramount, Med Vantage and Raksha health insurance. What this essentially means is that it has access to top-tier clients. Even in terms of financials, Medi-Assist is on top of its game. But the thing is, TPAs, all of them, Medi-Assist included, have an inherent problem. They can generate revenue only from regulated entities, which in this ecosystem is an insurance company.

So take Paramount, for example. Earlier, it was a joint venture between Hong Kong-based insurance firm Fairfax Asia and Nayan Shah, founder of Paramount Health Group. They wanted to get into the larger healthcare picture, including insurance. But with a TPA license, it just was not possible. So it sold its business to Mediassist, and the rest, as they say, is history. The next big issue facing TPAs is that corporates invariably have the upper hand. The larger their volumes, the better their power to negotiate on TPA fees.

What about the government segment? Well, most people agree that that too is a lost cause. Just to be able to back government health insurance schemes, TPAs have to quote absurdly low fees. So even if the winning TPAs get to pat their top line, it ends up turning into a loss-making deal very often. As for the retail segment, gains seem like an uphill task. Such policies which can fetch fees of 4 to 5% of the premium collected per life are on the decline.

And to top it all off, private insurance are making matters worse for TPAs. More on that in the next segment. Hello, daybreak listeners. This podcast you're listening to is produced from the newsroom of the Ken. And guess what? We have a lot of other podcasts too. I'm Aksha Chandrashakran. I host the Ken's Olds.

early careers podcast the first two years. And I am on a mission to find out what makes people happy in their early career. Even if you're way past the first two years of your career, looking back, can you recall what had the biggest impact? Was it the job, the company, the people? What was it? Well, what if we asked the same question to dozens or even hundreds of people and create a wealth of valuable experience, repository,

of knowledge from people of different backgrounds. What would that look like? That's exactly what we set out to do. We created a survey and we want to hear from you. The link is in the show notes. I read and review eight submission and might even have you on the show. I look forward to hearing from you. Now back to your daybreak host, Rahil.

You see, the thing is, it isn't mandatory for insurance companies to use a TPA. So many private insurance companies have in-house claim-settling processes. So what ends up happening is that TPAs like Medi Assist and Vidal only get about 15 to 20% of their total business from private insurers. A former industry executive also explained that handling retail in-house is better business for private insurers. Here, the average premium per life is $5,000 to over two times that of group policies. So basically, TPAs get a chunk of their business

from the four public sector insurance companies. Let me list them up. out for you. We have the new India Assurance Company Limited, National Insurance Company Limited, Oriental Insurance Company Limited and United Insurance Company. But all of that might change soon. Because there's a new player in the TPA game and it's one that was floated by these public sector insurers themselves. Health Insurance TPA of India. It's a joint venture between the four public sector non-life insurance companies and GIC of India. If public sector insurers end up picking HITPA,

which is the acronym for Health Insurance DPA of India, over other TPAs, it would be a pretty big blow for companies like Vidal and Medi Assist. And that's not the only problem TPAs are faced with at the moment. In May, I.RDAI laid out the requirements for monitoring TPA's performance. The insurance regulator has told insurers to pay TPAs only after customers have satisfactorily availed of their services. But it's not all bad news

because the upside of all of this, the silver lining for TPAs, is that as a result of this, the TPA business will end up mainly being for corporates. And the more corporates they're able to accumulate, the more profitable you can become. Now, back to BFH. The goal is to be able to take care

of the whole healthcare journey for an individual. We've covered that. In fact, one industry executive said, BFH is trying to pull off what Narayna Health, a for-profit private hospital network headquartered in Bangalore tried to do. It first floated an insurance company, Narayana Health Insurance, and now wants to come off as a health maintenance organization.

This is basically someone who provides health insurance coverage for a monthly or annual fee. The catch is, to make a claim, you will have to go to a specific network of doctors who are under contract with the HMO. Now, this makes complete sense for an organization like Narayana that happens to have its own hospitals as well. Now, with the Vidal acquisition,

Bajaj is in a similar situation. It has its own TPA vertical and can access a database of corporate and insured customers. For BFH to have its own TPA vertical, even if it's currently loss-making, only opens a portal. One, Bajajaj can really use in its favour.

One ex-executive explain this with an example. Imagine a company gets a group policy that covers about 1-1-lac employees. Each employee pays a premium of about $4,000. So this would be a 40-crow business opportunity for a TPA.

But the overall health expenditure for this sort of group would be 150 crore plus rupees. Now, the ex-executive explains that the combined entity of Bajajar and Vidal can offer solutions to target that additional 110 crore rupees of spending. And that really is the game. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small, sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's, produced by me Snigda Sharma, and edited by Rajiv Sien.