Medibank pushes ahead with cuts as members leave or downgrade policies
Medibank Private managing director George Savvides said the government-owned insurer had a "fairly intense program of cost reduction happening at the moment".
"We have been able to meet our [cost cutting] targets for this financial year," Mr Savvides told Senate Estimates. "We are continuing that program into next year."
It is the Coalition's policy to sell Medibank.
Grahame Danaher, managing director of not-for-profit health fund Westfund, said the comments on cost cutting suggested Medibank was preparing for privatisation.
Mr Danaher added Medibank's focus on its lower-cost AHM brand risked devaluing its premium Medibank products and bolstering products with exclusions or restrictions.
But Dan O'Brien, general manager, corporate affairs at Medibank, said the cost-cutting was part of a broader industry focus on trimming costs "regardless of ownership".
Mr Savvides told senators that Medibank was seeing "an increased amount of selldown", as people who prepaid their policies last year to retain the government rebate faced price rises of 40 per cent or more.
"People are asking, 'What cover can I have for less dollars that covers the things that I am looking for?' or "Will I drop my ancillary cover and only stay with my private hospital cover?"' he said.
The comment come as health insurance comparison site iSelect, through which Medibank Private sells its AHM policies, prepares to list on the sharemarket.
Mr Savvides continued his criticisms of the rise of aggregators, saying they "churn the market, and that is a cost to the sector".
"We think there ought to be some regulation around the discounting that can occur through regulator channels which cannot occur directly through insurance firms."
But iSelect said this week that there had been a thawing in insurers' attitudes over the past year. "Four years ago, there were people who wouldn't even talk to us. We're now seeing more discussions with them."
iSelect tips 2 to 3 per cent market growth and premium increases of 5 to 7 per cent over the next few years. "Combined, these factors point to high single-digit percentage premium growth for the industry, which in turn is supportive of high revenue growth for iSelect as commission and fees are directly linked to premiums."
Frequently Asked Questions about this Article…
According to the article, Medibank’s managing director George Savvides said the insurer is running a “fairly intense program of cost reduction” because payments are rising and members are switching or downgrading policies. For investors, sustained cost-cutting can help protect margins and earnings if membership or premium growth weakens, but it also signals pressure on the business from higher claims and customer churn.
The article reports Medibank is seeing more customers sell down or downgrade cover — for example dropping ancillary benefits and keeping only private hospital cover — largely after some customers prepaid last year and then faced price rises of 40% or more. This type of downgrading can reduce average premiums per customer and put pressure on top-line revenue unless offset by new customers or higher prices.
The Coalition’s policy is to sell Medibank, and Westfund managing director Grahame Danaher suggested Medibank’s cost-cutting and focus on its lower-cost AHM brand looked like preparation for privatisation. Medibank representatives countered that cost trimming is an industry-wide response regardless of ownership.
AHM is Medibank’s lower-cost brand, sold through channels including comparison site iSelect. The article says Westfund warned focusing on AHM risks devaluing Medibank’s premium products or increasing products with exclusions. For investors, brand mix decisions can affect product pricing, customer mix and long-term margin profile.
Medibank’s George Savvides criticised aggregators for ‘churning the market’ and said discounting via aggregator channels creates sector costs, calling for regulation of such discounting. iSelect, which sells AHM policies, said insurer attitudes have warmed and predicts growth that could boost its commissions. Aggregators can therefore change customer acquisition dynamics and fee flows in the industry.
iSelect forecasted 2–3% market growth and premium increases of 5–7% over the next few years, which together point to high single-digit percentage premium growth for the industry. The article notes this would support higher revenue growth for iSelect because its commissions and fees are directly linked to premiums — a relevant consideration for investors looking at aggregator or insurer earnings exposure.
Savvides said Medibank was seeing an increased amount of ‘selldown’ — customers who prepaid policies last year to retain the government rebate but then faced big price rises (40% or more). This matters because prepaid customers reverting to cheaper cover or leaving can produce sudden revenue declines and indicates sensitivity to large premium increases among consumers.
Yes. The article highlights Medibank’s cost-reduction program and its emphasis on the lower-cost AHM brand, which industry peers say could alter product value perceptions. Combined with aggregator activity and projected premium growth, these shifts could change market share, margin dynamics and future profitability — key metrics everyday investors should monitor.
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