Mutual health funds including Western Australia’s market leader, HBF, have launched their combined push to take on the private players, which now dominate the sector following the listing of Medibank Private, as well as the growing threat from online aggregators.
Mutual health funds including Western Australia’s market leader, HBF, have launched their combined push to take on the private players, which now dominate the sector following the listing of Medibank Private, as well as the growing threat from online aggregators.
HBF has played a leading role in the creation of Members Own Health Funds, a joint venture with 15 founding partners representing not-for-profit players across the country, as revealed by Business News last year.
The $20 billion per annum health insurance sector became more clearly divided between for-profit businesses and member-based funds last year when the federal government privatised Medibank Private via a stock market float.
However it is clear that the NFP sector is not just threatened by big listed companies with shareholder backing; the rise of online aggregators such as iSelect, a listed company that acts as a broker or intermediary in the market, is an emerging challenge.
Aggregators are understood to have captured about 25 per cent of new health insurance policies.
HBF managing director Rob Bransby has assumed the deputy chairmanship of the new body, Members Own Health Funds, which is understood to be taking a leaf out of the industry superannuation funds’ playbook in highlighting the improved position of members when health funds do not need to pay dividends to shareholders.
The message is that policyholders of those health funds in the alliance are considered members, not a profit centre, and as such will get better service and a higher percentage of their premiums returned to them as benefits. The group hired KPMG to substantiate this case via a report compiled in December.
While the superannuation model might offer a success story, the alliance will also seek to highlight markets such as supermarkets and banking, where dominance of a few major companies has created the perception that customers suffer because shareholder returns come first.
Mr Bransby told Business News banking provided an example of what happened when the NFP sector failed to sell its message.
The building societies and other mutual bank-style businesses have largely disappeared from the landscape, with the survivors having little chance against four majors listed on the stock market.
“Small mutuals can’t compete,” Mr Bransby said.
“The only way smaller players can compete is they have to come together to get synergies, value and their proposition heard.
“We don’t want to see a duopoly in health insurance.
“We want to create a third option.
“We have to work hard to come up with a proposition that is different.”
Medibank controls about 30 per cent of the national market, with around $6 billion in health insurance revenue, followed closely by UK-based Bupa, which is either first or second in every market except WA, where it is a distant third.
By contrast, the players behind Members Own Health Funds represent about 20 per cent of the national market in combination, or around $4 billion. At $1.34 billion in revenue for 2013-14, HBF represents about a third of that, the biggest player in the alliance by a considerable margin. Its revenue is about twice that of its next biggest alliance partner, Australian Unity.
Australia’s biggest NFP health fund, Sydney-based HCF, which had revenue of $2.3 billion in 2013-14, is not part of the alliance.
HBF, which is the state’s second biggest NFP business after grain cooperative CBH Group, has more than 50 per cent of the WA market, although it remains a relatively small player nationally due to its geographic focus.
The other lesson the banking market offers is the rise of intermediaries. Mr Bransby was working in the banking sector in the 1990s when mortgage brokers such as Aussie Homeloans, RAMs and WA Home Loans swiftly gained a foothold. They now dominate the key mortgage market.
Aggregation has been a later arrival in health insurance, aided by the ability of the internet to help customers find the best deal.
HBF uses its full-service offering, its broadening services such as its Friendlies pharmacy chain, and offers such as free fitness sessions to appeal to the market in other ways than just price.
“We have done a lot of work,” Mr Bransby said.
“We want to deliver more than just health insurance.”
The author has a beneficial interest in Medibank Private.
