Big savings in mutual merger

Almost $100 million could be saved through a merger of health insurance mutuals HBF and HCF, while Western Australian customers would benefit from better services in dental and optometry, according to HBF managing director John Van Der Wielen.

Perth-based HBF and Sydney-based HCF announced today that they had signed an agreement to merge, which would make the new entity Australia’s third largest health insurer.

A combined entity would have around 2.5 million members, or 18 per cent of the health insurance market, and about $4 billion of assets.

Mr Van Der Wielen told Business News the Perth-based insurer needed increased scale to be more competitive.

“When you talk acquisitions, usually you're outlaying big money therefore you have to deliver a benefit on that money,” he said.

“There's been no money change hands on this, its a merger of equals.

“The synergies and efficiencies you get out of a merger where you haven't outlayed any money is quite amazing.

“If we save $1, its $1 better off because we haven't outlayed any money.”

The major synergies would be in procurement, such as media buying, in sharing systems, and in hospital contracting nationally, Mr Van Der Wielen said.

To put the potential $100 million of annual savings into perspective, HBF has said that it’s insurance operating margin fell from 6.2 per cent in 2013 to be negative 1.7 per cent last year.

That was thanks to growing competition in the sector.

Other benefits for existing HBF members would be from the new entity having a broader service offering,” Mr Van Der Wielen said.

One example was dental, where HCF already had a strong offering, as with life insurance.

The merger will still be subject to approval from the HBF board and council and by regulators.

Mr Van Der Wielen said HCF had a similar brand and ran their company in a similar way.

Both the HBF and HCF brands would remain, and continue as not for profits, he said.

HBF’s headquarters would also remain in Perth, Mr Van Der Wielen said.