Aussie insurer targeting under-40s

16:00, Nov 10 2012

Australian health insurer nib is preparing to write its name large in New Zealand.

Its purchase for $102 million of the Tower health insurance business this month, came as a bolt from the blue, particularly for the 99 per cent or so of Kiwis who had no idea the NZX-listed Tower sold health insurance.

But during the coming months and years, nib will import some of its big brand direct-to-the-public business models to New Zealand, chief executive Mark Fitzgibbon said.

Tower sold its health insurance through brokers, and the deal with nib will see that continue for the next 10 years, Fitzgibbon said. But in nib, New Zealand would not just be getting a new health insurer.

In Australia, nib is a player in the direct health, life, income protection and travel insurance markets, and Fitzgibbon indicated that would be the model for nib this side of the Tasman.

Fitzgibbon told the Australian Financial Review he was "chuffed" not only at having struck the deal but because investors have welcomed it warmly.


"I once read many years ago [that] how you feel immediately after you made a big decision can be very instructive," he said.

"It's either ‘Oh my God, why did I do that?' or ‘This is terrific'. I must say, it's the latter this time. There were no regrets in the back of my mind."

Fitzgibbon believes that although the coverage of health insurance in New Zealand is falling, the future is bright for the business, if not for reasons most Kiwis would feel pleased about.

The drop in the number of people with health cover has been the result of premium rises that have been driven by a mix of medical inflation (the cost of treatment) and the increased propensity of people to have treatments such as hip and knee replacements.

But Fitzgibbon said in time, New Zealand would find what Australia has found - that ordinary people have to take on a greater share of the nation's health spending to take some of the burden off a state that was having to cope with an increasingly aged population.

Fitzgibbon said the current funding of health treatment in New Zealand was "absolutely not sustainable".

"It is the same issue as in Australia," he said, with one difference. "The New Zealand system is even more heavily reliant on taxes than Australia."

There have been significant rises in government spending on health provision but, said Fitzgibbon, "at some point the New Zealand government is going to have to find ways to make people take more responsibility for their own health care".

Moves such as subsidising health insurance, or making it compulsory, were among the options, Fitzgibbon said, though the current government has ruled out tax rebates on health insurance even for the elderly who are struggling to pay their rapidly rising premiums.

There has been a fair bit of coverage in recent years about how hard it has been for elderly people to afford to keep their health insurance with market leader Southern Cross.

But they should not hold out any hope that nib - which Fitzgibbon says will be a "challenger brand" in New Zealand - will be wooing their business with lower premiums. Fitzgibbon has made it clear that it is interested in those aged 40 or below - people who are by and large healthy, and more profitable to sell health insurance to.

The New Zealand market does not have the laws requiring "risk equalisation" that exist in Australia, which have the effect of forcing younger policyholders to part-subsidise older ones through their premiums.

That makes the under-40 market here especially attractive.

The focus will be on simple and affordable cover, Fitzgibbon said.

But it will not just be Southern Cross customers nib hopes to sell policies too. Fitzgibbon said the plan was to grow the market in New Zealand.

"Inevitably, we will take some from incumbents, but we can stimulate some demand," he said.

"What consumers in New Zealand will see is a new brand. They will see a new emphasis on product simplicity and affordability and an emphasis on ease of service, particularly online service," he said.

It is not just hospital and specialist cover that provide opportunities for nib. Dental and optical are areas where Fitzgibbon sees opportunity.

Shareholders in Australia were told that the Tower transaction was particularly attractive for a number of reasons. There was the fact that there was "almost no government regulation in the market". Though nib did not say it in as many words, Tower policyholders are a profitable proposition compared to its Australian policyholders, and the transaction would offer, in business parlance "substantial earnings per share and return on equity accretion".

The latest Tower annual report shows the ratio of claims paid to premium earned for Tower was 69 per cent compared to more than 84 per cent in Australia.

Until 2007, nib was a mutual called the Newcastle Industrial Benefits, owned by its policyholders. Policyholders were induced with the offer of shares to allow nib to demutualise and list on the Australian Securities Exchange. Since then, sales by those holding small share parcels and a compulsory buyback of smaller shareholdings - designed, Fitzgibbon says, to keep costs down - has seen around half of those who got shares in the demutualisation leave the shareholder register.

The company, which has the naming rights on Super Rugby franchise Western Force's Perth stadium, has been something of a sharemarket darling in Australia, increasing profits since its demutalisation, through reducing its claims paid to premium revenue in four of the five financial years since listing.

Fitzgibbon said the return to shareholders was about 150 per cent since nib demutualised.

Last year the Sunday Star-Times reported on a failed attempt by Australian health insurer Medibank to initiate a demutualisation of Southern Cross Medical Society.

Sunday Star Times