News eDaily19 May 2017

Australia:Growing health insurers' profits seen as unsustainable

19 May 2017

Earnings in Australia's private health sector are unsustainable, according to analysts from Credit Suisse, even as quarterly data from APRA shows profit across the private health insurance sector increased by 18.2% to A$1.3 billion (US$970 million) over the year to 30 April 2017.

Credit Suisse analysts say that as policyholder growth slows, insurers face extra costs as they spend more to attract new clients.

“The number of net new policies in the 12 months to March 2017 was 78,000 which is down 35% from a year ago, however up by 9% on the December 2016 quarter,” the Credit Suisse analysts said.

The nature of the growth is skewed towards older customers. The decline in new customers among younger age groups “highlights the affordability and value proposition that the health industry is facing, particularly with younger customers”.

Credit Suisse said: “With 70+ year olds accounting for most of the growth in insured persons over the past 12 months, this could put pressure on growth in benefits which would require larger premium increases and further discourage younger users from taking up private health insurance.”

The profit surge of 18.2% is attributed to last year's premium hike of an average of 6% and better returns from investments. The industry was granted another 4.8% increase earlier this year which came into effect on 1 April.

APRA does not provide a breakdown on the elements of the profit increase, but notes that total net assets among the insurers, which includes the value of investments in shares and bonds, as well as property, grew by almost 9% to A$13.6 billion, reported ABC News.

Premium revenue rose by 5%, or A$1 billion, to A$22.8 billion over the year. However, this was slightly outpaced by the 5.4% growth in benefits paid out. Overall, the net margins in the sector narrowed from 5.6% to 4.8% over the past 12 months. At the same time, average out-of-pocket expenses for hospital care rose 4.3% to A$318 over the year, while the gap for general ancillary services increased by 3.5% to A$48.

Ms Rachel David, CEO of Private Healthcare Australia, the peak body for insurers, said that regulators, including APRA, the Australian Securities and Investment Commission and the Australian Competition and Consumer Commission, had determined that profit levels of health funds were "appropriate".

"Profitability is good but the sector is also heavily scrutinised by APRA, ASIC and the ACCC. They have a lot of insight into data and reporting," she said.


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