Brokers driving up costs, say health funds
Australia's biggest health insurer, Medibank Private, and largest insurance broker, iSelect, have engaged in a brawl over fees charged by comparison sites as both companies prepare for potential public listings.
Medibank Private, which has 3.7 million members, said the growth of comparison sites - which recommend and sell policies for a commission - have led to higher premiums. Its managing director, George Savvides, said the costs of $800 commissions paid to the sites and an industry-wide surge in advertising costs were ultimately borne by policyholders.
And Bupa Australia, fresh from settling its misleading and deceptive advertising claim against iSelect, said it wanted to "work with the government to develop appropriate regulation".
The claims come at a busy time for Australia's private health insurance industry: iSelect is set to release its prospectus for a sharemarket listing and the Coalition has flagged plans to float Medibank Private if it wins the federal election. Funds are also reporting policy downgrades as many customers face price rises of 43 per cent or more, because of the means-testing of the private health insurance rebate and annual price increases.
Comparison sites account for more than 20 per cent of sales in the private health insurance industry, which reported increased premium revenue of $17.35 billion and profit of $1.17 billion last year.
Bupa does not use the comparison sites. Medibank sells its cheaper AHM brand through iSelect. But iSelect chief executive Matt McCann said it had increased the size of the private health insurance market, helped match people to appropriate insurance, and had been explicit about commissions.
"Our incentive is for when a consumer is well advised about a product that's right for them, they should stay in that product," Mr McCann said. "Sometimes a word like 'churn' gets used. Churn is where a comparison site ... actively goes back to a customer and says to them, 'You should move somewhere else', without regard for their needs or personal circumstances. That is something that we don't do."
Mr McCann said funds that used comparison sites were "doing it in a cost-effective way" because they were able to "build products that suit customers without the need for mass-market advertising".
The private health insurance industry is estimated to have spent $150 million on media in 2012, about double the amount spent in 2008.
Medibank's Mr Savvides said comparison sites "haven't really changed the dynamics of affordability. In fact, I'd argue they're adding to costs because of the commission."
He said Medibank had been advocating for changes to laws restricting health funds from strongly discounting their policies, but allowing them to spend money on commissions to aggregators. "We think there's a disconnect in the legislation," he said.
Mr Savvides also called for greater disclosure on commissions by health funds. "Say you're signing up for a $2000 policy - you don't know that you've just committed $800 for that policy as a charge to the company that put that product on that site," he said. Emma Zipper, Bupa Australia general counsel and company secretary, said she would like to see "more regulation on what is communicated at the point of sale".
Bupa settled a misleading and deceptive case against iSelect last month. Under the agreement, iSelect agreed to temper its advertising claims and to make a payment to Bupa's medical fund.