The country's largest health insurer has posted a healthy surplus. Photo / Supplied
The country's largest health insurer has posted a healthy surplus. Photo / Supplied
The country's largest health insurer Southern Cross plans to use a surplus made due to lower claims to help keep a lid on premium rises as it experiences its highest membership in 30 years.
The not-for-profit friendly society made a surplus of $90.14 million in the year to June 30,up from $52.5m in its previous financial year.
While its premium revenue grew from $1.28 billion to $1.384b its net claims expense fell from $1.115b to $1.103b.
Chief executive Nick Astwick said there had been fewer claims due to lockdowns restricting access to medical treatment and sickness preventing or delaying people from getting surgery.
"We're expecting to see much higher claims costs and volume next year, as those who delayed seeking treatment will now seek access to healthcare. This, combined with a challenging high inflation environment, would usually indicate a need to adjust premiums upwards at a sharper rate.
"We're seeking to avoid significant premium volatility for our members, so we will apply a large portion of the surplus toward keeping premium increases as low as possible."
Astwick said over the last five years its premium inflation, outside of adjustments for ageing, had been around 6 per cent per annum.
Around 70 per cent of that had been driven by members using more services while 30 per cent had been due to procedure prices rising.
But, as with all other households and businesses in New Zealand inflation was dramatically higher, he said.
"We are looking down the track of procedure prices increasing because our contracts have them adjusted to inflation so they are going to be up 6 or 7 per cent.
"So there is pressure in the next couple of years and that's really why we are going to use our higher-than-planned surplus to try and slow the premium inflation down as close as we can get it to that long-run average of 6 per cent."
He said the premiums would be going up because of the demand but they would not be as high as they would be without the surplus cushion.
The insurer has also seen strong membership growth in the last year.
Around 20,000 new members had signed up, increasing its members to 908,000 - a 30-year high for the society.
Astwick said it was the seventh year of membership growth for Southern Cross.
But it would typically add around 13,000 to 14,000 new members on average.
The society had won some business after ANZ moved its health insurance to Southern Cross from NIB.
But he pointed to three factors driving the rise.
"As you know talent is tight in the market. Employees see health insurance as the number one benefit. We are seeing a lot more demand, particularly from groups and corporates who are investing in their employee benefits. I think that is driving acquisition."
He said a lot more New Zealanders were valuing their health after coming through the last few years of pandemic conditions and it was also seeing fewer members leaving.
"They are looking for assurance that they can be seen quickly if need be because the wider environment is seen as more challenging."
Since the end of June its membership had continued to rise at a fast pace and was now at 915,000 as of the end of August.
"That run rate is still continuing."
Astwick said it was also taking a proactive approach to help members cope with rising costs.
The average age of its members was 40 and for them price was not such an issue as they paid for their risk.
But from the age of 55 onwards, when people typically used all of their surgical benefits, costs rose.
He said the society had contacted many of those members and around 80 per cent were comfortable with their current plan and price.
"About 20 per cent did change their plan and price largely through our excesses."
Astwick said taking on an excess was one way to keep premium costs manageable.
He said it paid out 87c for every $1 in premiums paid to cover healthcare claims compared to the industry average of 65c.
Travel insurance buy-up
Its annual accounts also show Southern Cross Health Society acquired Southern Cross Travel Insurance from its sister organisation Healthcare Group, a separate entity which runs hospitals, in June for $28.5m.
Astwick said buying the travel insurance business would bring all the Southern Cross insurances together as it had previously bought the pet insurance business.
"The society is now the owner of both the pet and travel insurance as investments."
It hoped the returns from those businesses would also go towards keeping premium growth low in the future.
"We do think over the long term they will produce a good return for our members."
Nick Astwick, chief executive of Southern Cross Health Society. Photo / Supplied
The travel business had net premium revenue of $13.4m and made an after-tax loss of $6.8m during the financial year but this was not included in the group result as the acquisition took place on June 30.
Astwick said it was starting to see that business turn around with the opening of the borders.
The travel insurance business reduced to just 40 people during the low point of the pandemic but had since grown to 80 and would likely grow to 100 people over time.
