Medibank Private sale on track as advisers named

The planned privatisation of Australia's biggest health insurer, Medibank Private, has progressed, with business advisers announced to recommend on sale method, timing and estimated proceeds.

After a "very competitive" selection process, the government confirmed on Friday that Lazard had been hired as business adviser for the sale and Herbert Smith Freehills as legal adviser. Ernst & Young has been appointed accounting adviser, and the Australian Government Solicitor as process/probity adviser.

The companies will hand in a scoping study on the sale by February, before the federal budget.

Finance Minister Mathias Cormann reiterated that the sale needed to "contribute to an efficient, competitive and viable private health insurance industry" while maintaining service and quality levels in country Australia. Other priorities are ensuring Medibank's employees are treated in a fair manner, reducing post-sale risk and liabilities to the Commonwealth, and maximising net proceeds, he said.

Medibank has about 4800 employees but cut about 300 people from its flagship private health insurance division this year.

A sale of Medibank has been considered controversial given Medibank's capital base has almost entirely been built on taxpayer contributions. A trade sale would require the Medibank Private Sales Act to be amended to remove a 15 per cent ownership limit.

Medibank has about 29 per cent market share of the private health insurance market, and has more than 120 branches. It also sells life insurance, travel insurance and pet insurance and has a contract servicing the Australian Defence Force.

It has paid about $1 billion in dividends to the government since being converted to "for-profit" status several years ago.

Medibank managing director George Savvides recently told Senate estimates that although its revenue had grown $1 billion over two years, claims costs were rising faster than premium prices.

"Overall, we are seeing the market intensify in competition," he said, adding that many policyholders had received price increases of more than 40 per cent when they lost the government rebate. "We have seen increased activity of customers coming in and downgrading their products to a lower price product."

Mr Savvides said Medibank's cheaper AHM brand was "probably the fastest growing health insurance brand that we have seen for many years."