PB Fintech healthcare foray via separate entity, company will act as minority investor: Group CEO Yashish Dahiya

In the last week, shares of online insurance aggregator PB Fintech nosedived, on news that it plans to foray into the hospital business. After the company’s clarification on Monday, shares have been steady, indicating that some concerns still remain.

In fact, brokerages across the board have voiced concerns over PB Fintech, the parent company of Policybazaar, diving into the healthcare sector.

Yashish Dahiya, CEO of PB Fintech, addressed these market reactions in an exclusive interview with Moneycontrol, stating that while he cannot control how the market responds, he can clarify that the firm does not plan to build hospitals out of its balance sheet.

“We don’t control reactions, whether positive or negative. We only engage with the media when we believe someone might be misled by a misunderstanding of the facts,” he explained.

Dahiya said that this is not a new move in the industry as hospital chains such as Apollo and Narayan Hrudayalaya have also ventured into insurance business. He quipped that he is not sure whether the board will approve this initiative and the project will happen at all. If it does not get a majority investment partner, PB Fintech might not go through with it. PB Fintech Limited operates an online platform for insurance and lending products in India and in some international markets.

In this in-depth conversation with Moneycontrol, Dahiya shared insights into the firm's vision for entering this new segment, how it aims to enhance the claims experience, and its potential impact on the company’s financials. He also noted that this new initiative could mark a significant shift in the industry toward a health maintenance organisation (HMO) model of insurance management.

Edited Excerpts:

Tell us about your plan to get into healthcare business and give us more details on the investment.

PB Fintech is looking to take a minority investment in this company, which may be somewhere between 20-30 percent or up to 45 percent of the company, for anywhere between $0 to $100 million. This entity will, of course, raise the remaining capital from other sources, which could include healthcare providers, insurance companies, private equity, venture capital, or other interested parties.

What is this new entity can you shed more light on what the new entity will be doing?

This company is trying to make the HMO (Health Maintenance Organisation) model work and prove that it can be successful. To demonstrate this, it plans to start in the national capital region (NCR). The approach involves acquiring 6-8 hospitals across NCR and working with the insurance industry to create more closed-loop systems, similar to what Narayana Hrudayalaya is doing or basically  products of that kind.

How does this HMO Model work and will it benefit PB Fintech in the long run?

The way an HMO works is that there are 4 crore customers who are already paying the insurance companies a certain amount of money, about Rs 10,000 each on average. So, about Rs 40,000 crore is collected at the beginning of the year by the health insurance industry. Then, over the year, claims have to be paid out.

What an HMO does is work as an outsourced partner for the insurance industry to serve insurance customers, ensuring a high level of trust so that claims aren't a difficult process. Claims get settled almost without needing approval. That’s how integrated care, value-based care, or HMO models work.

You don’t actually need approval at the point of claim. Additionally, it can reduce out-of-pocket costs for the customer. For example, if there is a Rs 5 lakh claim, the insurance company may settle Rs 3 or 4 lakhs, but the customer experiences anxiety over how much they’ll need to cover. All that pain associated with the claims process, due to a lack of trust, goes away once an HMO model is established.

…But will it be profitable for PB Fintech?

In terms of profitability, if dengue happens in Delhi, the insurance industry or the customers typically have to shell out money, and the hospital infrastructure receives it. In the case of the HMO, however, the hospital also loses money. Think about it this way: suppose out of the Rs 40,000 crore collected by the insurance industry, Rs 28,000 crore goes to the hospital industry. The hospital essentially gets that upfront, and from that point on, all care has to be provided within that amount.

So, if there’s less use of hospital facilities, fewer illnesses, or fewer surgeries needed, the hospital actually makes more money. It’s the reverse of the typical model. You make money by taking better care of people so they don’t fall sick in the first place. And if they do fall sick, there’s at-home care and various other methods of handling the situation. Eventually, if an operation or hospitalisation is required, it’s provided when necessary.

For example, if a person needs to stay in the hospital for three days, they don’t need to stay for five. Three days is enough, and that’s how it works. I believe that’s what an HMO does—it aligns with the payer.

Why do you think this will work in India now?

In the last four or five years in India, healthcare costs have significantly risen, by about 40-50 percent. That’s no longer affordable for the middle class. So, to some extent, this is the need of the hour—to try something out and see if it works.

It’s up to the company to decide, if it works, whether they go for an IPO or raise capital. That’s not PB Fintech’s problem. PB Fintech is simply a participant in making the experiment succeed.

Will it be a step-down subsidiary of PB Fintech or is it a new entity? 

Think of it like when InfoEdge invested in Policy Bazaar—what happened to Policy Bazaar after that was not InfoEdge’s responsibility. They invested the initial Rs 20 crore, the next round was led by Inventus, and the following round by Tiger (Tiger Global). InfoEdge was under no obligation whatsoever to continue investing in every round.

That is exactly PB Fintech's role here. Now, there is a significant advantage for both PB Fintech and this entity for a simple reason.

PB Fintech is a large company with many customers and can easily explain this model and product to consumers, thus creating volume for this entity. That is a major benefit to this entity from PB Fintech and why it would want PB Fintech to be involved. For PB Fintech, if customers have a great claims experience, it expands the insurance industry, and since PB Fintech is a large player in the insurance industry, that automatically benefits the company. So, this is a symbiotic relationship. If claims experience improves, it benefits PB Fintech. At the same time, if PB Fintech can help explain this product—they deal with hundreds of thousands of customers every day—and communicate this idea to them, it enables this idea to grow as well.

Has this entity already been created, can you give us more clarity on who will be leading this?

Yes, it is in the process of being set up and it will have its own independent management team.

Talks are on and some part of the management has been identified. There won't be common management besides one or two people at most. They are not going to have common offices, they are not having common management.

How long have you been planning this venture?

When the news came out from Dr. Devi Shetty (Founder of Narayana Health) about them setting up a model like this, we were just two to three months into thinking about it. So this idea has been with us for the past six to seven months. The ultimate focus is improving the claims experience, and that’s when we thought this model would work great for enhancing the claims experience among patients.

The insurance industry will also benefit significantly. In the last two analyst calls, I have been hinting at this; we are a transparent organisation and have been open about all these matters. The only thing is that we are a public company, and we cannot comment on things before they happen. We initially had an informal chat with our board members, and everyone thought this was a great idea. However, getting approval for that great idea from PB Fintech is a different matter.

Can you tell us about the shift that is happening in the industry presently? We are seeing healthcare providers get into insurance, insurance providers get into healthcare. I mean, are we going to see more of this?

See, if you look at the past, Apollo Hospitals used to own Apollo Munich; Fortis and Care were connected and if you really think about it, Manipal Signa is partly owned by the Manipal Group. This is not a new thing. This has been going on for some time and in my opinion, both have certain conflicts but there is a huge advantage in working together. So, I do suspect more and more of this would happen.

Will you be on the board of this new entity?

I would like to take permission from our shareholders to do that. Of course, we would like to have a board seat.

Is this an one-time investment plan or will you be setting up a new fund sort of with a separate fund to make be multiple investments?

I want to be very clear that this is a one-time investment.

When you say it is a one-time thing, can you give more clarity on how much is the exact quantum of investment?

This new company is collecting its consortium of investors, which may include hospital companies, insurance companies, and development finance institutions, they need to come to us and tell us how much they require from us. I cannot simply decide on my own how much is available from PB Fintech. We have been quite clear that PB Fintech would consider investing anywhere between $0 to $100 million.

…So the total investment will be higher than $100 million?

The total investment this project would require is around $200-300 million. And yes, PB Fintech does want to be a minority shareholder in it. That entity is still gathering interest from other investors. So, I cannot say how much I want to invest or how much our company wants to invest without board approval and without anyone informing us of the required amount. I don't know how much we are supposed to invest; it also depends on how much the other partners want to invest.

When is the board meeting to deliberate on this?

Not for the next month at least. This news just spread on it’s own. All we are doing is clarifying. So, there is no proposal, there is nothing out there. It's more of a vision debate at this stage.

Why has there been a negative reaction on the stock from the markets?

We don't control reactions or negative reactions. The only time we ever go to the media is when we believe someone could be hurt by not understanding the reality. We can't comment on, nor do we have any control over, how people react to various news or whether they take the stock up or down. That is not management's responsibility. The last time I spoke was just after our IPO, when some people concluded that we were a loss-making company forever. So, I clarified that, no, we would eventually be profitable, and that was just after the IPO.

Please appreciate that at the time, our total revenue was Rs 890 crore, and what I clarified was that by 2027, we would have almost Rs 1,000 crore in profit. At the time, some people thought we were being overly optimistic when we said that. Our job is to clarify when there is mass misunderstanding. The misunderstanding that came from recent news articles is that Policy Bazaar is going out and setting up hospitals on its own balance sheet, which is not the truth. Policy Bazaar has no objective of taking hospitals onto its own balance sheet.

Do you have a timeline as to when things will solidify?

I think it will be a few quarters not a few years. But I don't think it will be less than a few quarters either.

What kind of impact will this investment have on your balance sheet?

For us, there is no particular negative impact. If anything, there could be a positive impact. Today, the health insurance industry is worth Rs 40,000 crore, or about $10 billion, including corporate and government sectors. That's far too small. The US health insurance industry is almost $800 billion—80 times bigger. The US economy is not 80 times bigger than ours; it's about 6 to 7 times bigger.

If anything can improve that experience, and we can help in any way, it would obviously be hugely beneficial to us as a significant participant in the health insurance industry. It would help all insurance companies and the industry overall. Our objective is for the health insurance industry to grow faster, and within that, for PB Fintech to grow faster. Over a 10-year period, I hope it helps both the industry and PB Fintech grow more quickly if a model like this can emerge. We are evangelists of this model and would love for it to succeed.

If the world continues as it is, and in 5 years, health inflation rises so high that the middle-class person simply can't afford to buy insurance, and insurance companies can't afford to settle claims conveniently, it would not be good for Policy Bazaar or the insurance industry. I believe that future is 5 to 10 years ahead, but anyone who wants to preempt that and ensure it doesn't go wrong will help avoid a major pain point for customers.

This $100 million investment that you mentioned, will it be coming from your IPO Proceeds?

Investments and acquisitions were mentioned in the IPO and that is perhaps where this money will come from. This will not be treated as an acquisition but as an investment.

The focus will be on India market or will you be looking to take this model to other markets like UAE?

No, the focus is entirely on India. We've been in this one market for the last six years. We haven't entered a second market outside the UAE, so international expansion is not something we are considering. In the last 17 years, how many random acquisitions have you seen from Policy Bazaar or the PB Fintech Group? Even on the day of the IPO, we had 2,000 crore rupees with us. That’s not our usual approach, and all I'm saying is that a person doesn’t change their DNA overnight. So, I don't think this is anything out of the ordinary.

So Yashish will this be like brownfield hospitals and not greenfield hospitals that this entity will absorb? Are they like smaller hospitals that will get acquired?

I don't think they're talking about very small hospitals. They're referring to fairly large, reasonably sized hospitals. So, there may be a combination of brownfield and greenfield developments. This is all in NCR, but I don't think we have all the answers at this stage regarding what Company XYZ wants to do and how it plans to acquire them, etc. Of course, that is for the company to decide.

What kind of reactions have you received from hospitals on this? Do they see it as a conflict?

I don't think hospitals have any dearth of demand. There are queues outside hospitals all the time. So, I think there is enough demand for everyone. One venture may be more aligned with the insurance industry specifically, and of course, interests differ. I don't think interests are the same; they are somewhat different. One model focuses on maximizing revenue while providing great care. Actually, both provide great care, but one works on maximizing revenue from operations while the other minimizes costs from operations. They just operate in different ways.

If you had two cities, each with 10 million people, in City A, all 10 million people pay upfront every year, and then they appoint a hospital and 100 doctors to take care of them. In City B, nobody pays upfront; everybody pays when they fall sick. The chances are that there are different interests for the infrastructure in both City A and City B. City A will ideally try to invest in public healthcare and ensure that people don't fall sick because that is when they make the most money. When all 10 million people remain healthy, that's when they profit. In contrast, in City B, profits come from people falling sick and being admitted to hospitals.

Over time, City A will likely require fewer hospital beds for the same population, and its population will probably be a little healthier because everyone's interests are aligned. In City B, however, interests are misaligned, so I believe City A represents a better model. You could argue that City A will never happen—that it's utopian—but it has happened in some countries. It did occur in South Africa, Brazil, and somewhat in Spain, and in certain areas of the US. Wherever City A has been implemented, healthcare costs have come down.

We can either do nothing and say it will happen when it happens, or we can choose to be investors and encouragers of this model. Policy Bazaar is a huge communication medium that can explain this to customers. Otherwise, we can develop this model and remain isolated, with no one discussing it regularly. It’s not just a matter of once a year in the media or on social media; we need to engage with the masses on a regular basis. That is the role Policy Bazaar can play in ensuring the model becomes successful. And of course, we stand to benefit significantly if this succeeds because health insurance will grow. But whether those are greenfield or brownfield ventures is a question for a later date.

Have you received any investor feedback on this?

We got a lot of investor feedback and we got a lot of investor feedback that people are misunderstanding it. And people are saying that PolicyBazaar is going to set up a nationwide network on its own balance sheet of hospitals. And also people had not understood the HMO model. So we decided that look let's clarify it. Once it's clarified it's up to people what they want to make out of it. Our initial reaction was let's not react to it let's just let it be. But the feedback we received from most of our investors was listen I think there is confusion out there you need to clarify.

Yashish are you confident of getting the board's approval?

I have no clue. See so far out of hundred people I've spoken to whether they are normal customers or whether they are people who have nothing to do with this business, 99 percent of the people have said this is a phenomenal idea.

What are your institutional investors saying?

See I'm not going to comment on what people are saying. Everybody individually thinks it's a great idea. What they are worried about is what is the risk for PBFintech. And PBFintech is not doing it, it's an investor. And I think that part clarifying it is our job. It's because somewhere people can start believing that PBFintech is going about setting up hospitals on it's own balance sheet. And I think that is the part that caused confusion. And that is just not true.

Will any of your cap table investors look at this entity, have those conversations happened like will this be an interesting bet for Infoedge or a softbank which has exited PB Fintech?

I cannot comment on that.

Are there any other adjacencies that you will be actively looking at like this HMO investment?

No, we are not people who invest in unrelated pieces. We invest when there is a significant strategic benefit. For example, PolicyBazaar and InfoEdge have no operational synergy whatsoever, and neither do Zomato and InfoEdge. So that is not what PolicyBazaar does, at least not now. Never say never. Maybe 10 years from now we will become like that, but today it’s definitely not on the agenda. Where we invest is when we find some strong synergy. So, if you were to set up a car garage network across the country, yes, we could consider investing in that.