Insurance - PricewaterhouseCoopers

The private health insurance industry faces a changing environment along with a
number of significant challenges.
The market continues to consolidate especially among the larger funds. In the past
year the merger of MBF and BUPA, the acquisition of AHM by Medibank Private
and the acquisition of Manchester Unity by HCF have contributed to a widening gap
between large funds and the rest of the market.
There are a number of pressures on health fund earnings. The Global Financial
Crisis has significantly impacted the investment earnings for a number of funds and
investment return forecasts are now conservative. To manage investment earnings
volatility there has been a move to more defensive investment asset allocations.
Slower or negative economic growth and rising unemployment will put pressure
on policy sales given the discretionary nature of private health insurance. In order
to mitigate these effects, claim and operating cost management continues to be of
high importance.
The Australian health fund industry is directly exposed to the effects of possible
changes in government policy around health. While the announcement by the Federal
Government of changes to the Medicare Levy Surcharge have to date not resulted
in the “shock lapse” predicted by many in the industry, the increases in the annual
income thresholds will increase pressure on funds. Moreover, the 2009 Budget
announcement regarding proposed changes to the 30% rebate scheme for private
health insurance members could also put downward pressure on the proportion of
private health insurance membership in the community.
The above factors present the private health insurance industry with significant
challenges and could well result in further aggregation or consolidation of health
funds particularly among the smaller funds. On the other hand, as the effects of
an aging population and increasing health care costs put further pressure on the
public system, and with Australia’s private health insurance membership at less than
45% of the population, it could be argued there remains a large pool of potential
customers for the private health funds.
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