Medibank pushes on with cuts as members switch
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 non-profit health fund Westfund, said the comments on cost cutting suggested Medibank was preparing for privatisation.
Mr Danaher said Medibank's focus on its lower-cost AHM brand risked devaluing its premium 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 focus on trimming costs "regardless of ownership".
Mr Savvides told senators that Medibank was seeing "an increased amount of sell-down", 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…
Medibank's management says the insurer is running a "fairly intense program of cost reduction" to offset rising payments and the trend of members switching or downgrading policies. The company told senators it met this financial year's cost-cutting targets and is continuing the program into next year — a move aimed at protecting margins regardless of ownership.
Yes. Medibank reported an "increased amount of sell-down" as some members who prepaid last year to retain the government rebate faced price rises of 40% or more. Many people are now asking what cover they can get for less, or whether to drop ancillary cover and keep only private hospital cover.
Some industry voices, including Westfund's managing director Grahame Danaher, warn that emphasis on the lower-cost AHM brand could devalue Medibank's premium products and bolster cheaper products with exclusions or restrictions. Medibank's representatives, however, say the cost-cutting program is about efficiency regardless of ownership.
The Coalition has a policy to sell Medibank, and Westfund suggested Medibank's cost-cutting comments look like preparation for privatisation. Medibank executives maintain their cost-trimming is part of a broader efficiency push "regardless of ownership."
Medibank's management criticized aggregators for "churning the market," saying that churn is a cost to the sector. They called for regulation around discounting that occurs through aggregator channels, arguing some discounts can't occur directly through insurance firms.
Medibank sells its AHM policies through comparison site iSelect. iSelect has indicated there has been a thawing in insurers' attitudes toward aggregators and forecasts 2–3% market growth and premium increases of 5–7% over the next few years — a combination it says points to high single-digit percentage premium growth for the industry.
Member sell-downs and policy downgrades reduce premium income per customer, while steep price rises (some reported at 40%+) have prompted customers to seek cheaper cover or drop ancillary benefits. Medibank is responding with cost reductions to protect profitability while the market adjusts.
The article says iSelect, through which Medibank sells AHM policies, was preparing to list on the sharemarket. That matters because iSelect's revenues (commissions and fees) are directly linked to premiums; projected premium growth could support iSelect's revenue outlook if the listing proceeds.
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