Health insurer NIB has posted a 23 per cent fall in first-half profit, blaming a rise in claims for the softer result.
The company will maintain its fully franked interim dividend of 10 cents per share even after profit slipped to $57.3 million for the six months to December 31.
Managing director Mark Fitzgibbon said the earnings result was disappointing.
“We didn’t expect to be hit so hard this year but we have,” he said.
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.
NIB last year underestimated claims to come, and is paying the price.
The result was frustrating when revenue was growing, Mr Fitzgibbon said.
Group revenue was higher by 6.4 per cent to $1.3 billion as members continued using NIB services.
However, an industry-wide increase in claims dragged the overall result down.
Mental health services and prosthetics were big factors.
More than 500 members used the mental health waiver, which allows them to use hospital services and skip the usual two-month wait.
In 12 months, this has cost the insurer $7.1 million.
“We’ve got to do much better in keeping our members healthy and out of hospital,” Mr Fitzgibbon said.
He believed there were many ways to reduce claim costs, with using data science to better educate members on their health and working closely with doctors among the measures.
Mr Fitzgibbon was also frustrated by NIB’s higher payments as part of the industry risk equalisation pool in Australia.
The equalisation system transfers funds from insurers with lower-than-average claim costs to those with higher-than-average claim costs.
NIB paid $126.5 million in the first half, 10.3 per cent more than the same period last year.
Mr Fitzgibbon said NIB was being penalised for its success and for attracting younger people who mainly paid the cost.
NIB’s grew membership by 1.4 per cent compared with 0.3 per cent for the industry.
That increase comes as Australians increasingly abandon private health insurance.
Only 44.1 per cent of Australians have hospital cover, the lowest level since 2007.
Australian Prudential Regulation Authority executive board member Geoff Summerhayes said earlier this month that smaller insurers were only a few years from being forced to merge or fold due to the downturn.
NIB shares were trading lower by 7.79 per cent at $4.91 at 1521 AEDT.
Source: The Mercury