Health insurer Southern Cross has confirmed premiums will rise this year after stunning a couple with a 20 per cent increase.

This comes shortly after the insurer stripped 800,000 customers of insurance funds set aside to cover their funeral costs after Southern Cross pulled the pin on the benefit.

Read more:
More than 800,000 Southern Cross customers stripped of funeral insurance

The couple, who spoke to the Herald under the condition of anonymity, was notified on January 1 that the monthly premium for their joint Southern Cross Health Insurance policy would be increasing from $251.88 to $301.48.

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This amounts to 19.7 per cent increase or $595 over the course of 12 months.

And it could have been worse.

The letter shared with the Herald shows that the $301.48 cost includes 10 per cent "no claims" discounts for both the husband and wife, aged 64 and 62 respectively.

If the pair had lodged claims in the past year, the spike in price could have been as much as $83 per month or $997 for the year.

The husband said they had been with Southern Cross since 1993, initially paying only $150 per month for the whole family on the comprehensive "UltraCare" plan.

He said he and his wife had more recently been forced to switch into a cheaper plan because fees for the comprehensive packages had skyrocketed.

At its AGM in December last year, Southern Cross noted that it was increasing premiums for a number of reasons - most notably, members claiming more benefits.

To counter this, Southern Cross increased the average premium for each age group by about 6 per cent last year.

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A Southern Cross spokeswoman Joanne Mahon told the Herald that there would be further increases this year.

"On an individual level, each member will this year experience a premium change that may be significantly different to that average," says Mahon.

"This is due to a number of factors, the biggest of which is ageing. Each year as each member gets older their premium will increase, reflecting a person's greater likelihood of needing to claim."

Mahon says that those aged over 65 make up 13 per cent of Southern Cross membership, yet account for 36 per cent of claims costs.

Mahon says Southern Cross is currently working through a change in its charging structure, when it comes to older customers.

"Until November 2016 Southern Cross Health Society operated a common rating approach for members aged 65 and over, which meant that a 65-year-old paid the same as a 95-year-old on the same plan," she explains.

"The intention of this was to give certainty to members, so they could budget for their health insurance over their retirement years.

"However, the effect was that there was a large increase in premiums for members when they turned 65. We are gradually transitioning the common rating approach [in one-year increments] to come into effect at age 75 by 2025."

Changes on the horizon

In speaking to the Herald, the Kiwi husband reiterated that he and his wife were fit and healthy, as evidenced by their "no claims" discount.

His frustration arises from the fact that the rising cost of his insurance policy is dictated by his age rather than his physical wellbeing.

There are, however, signs that this is set to change in the coming years - and it's largely due to the growing trend of health tracking.

It is having such a big impact that companies in the UK and US are completely changing their businesses to better align them with personalised health insurance.

In September 2018, 156-year-old US insurance company John Hancock Financial announced that it would only sell so-called interactive policies, which are adjusted in accordance to the data customers share with the company.

Taking online nutrition classes, wearing fitness tracker and meeting pre-determined goals, and regularly visiting the doctor can all lead to discounts for the customer.

Fitness trackers are set to have a major impact on the health insurance market. Photo/Getty Images.
Fitness trackers are set to have a major impact on the health insurance market. Photo/Getty Images.

The strongest indication of a local player adopting a similar approach has come from Insurance giant AIA, which last year acquired Sovereign and shortly thereafter announced plans to roll out its Vitality programme that gives cheaper insurance to Kiwis who lead healthier lives.

The programme, which is tipped to launch in February this year, encourages people to exercise more, eat healthily, quit smoking and reduce alcohol intake in exchange for lower premiums and rewards like gym memberships and discounts on healthy food.

This shift has some clear advantages, but it also comes with a risk in the sense that the customer will hand over more personal data to yet another major corporation.

In an article written for The Conversation, University of Illinois assistant professor Andrew Boyd expresses concern that fitness data could be used by insurers in the future to deny payment for a patient's healthcare.

While these concerns are still speculative at this stage, fitness tracking technology is quickly evolving. And as the tech marches forward, there'll be no shortage of businesses looking for ways to capitalise on it.