Corporate operators lead medical market of 1.37 million Kiwis

By Peter V O'Brien

Friday 2nd August 2002

Members of the Health Funds Association can be divided broadly into mutual groups, of which Southern Cross Healthcare is the biggest (and the biggest provider overall), friendly societies, union and occupation-based operations (Unimed, Police Health Plan, and PSIS Health Care) and companies (Tower Health & Life, Sovereign Assurance and State Insurance).

The industry structure has changed over the years, recent developments including Southern Cross' acquisition of Aetna Health and Tower's purchase of Axa's health insurance operations.

Industry pecking order in terms of business size puts Southern Cross first, Tower second, Aetna (as standalone) third and Sovereign Assurance fourth.

The corporate operators have developed a different approach from other providers.

Tower New Zealand chief executive Jim Minto said his company got into health insurance in 1992, when it launched a "major foray" into the business. It concentrated on major medical policies, which still form most of its policies.

Mr Minto said Tower was looking to its existing distribution network channels for life and general insurance to sell health policies. Sovereign Assurance followed a similar strategy when it entered the market.

Tower bought Axa Health at the end of 2000. The company had 180,000 health policies in late July, forming 13.73% of the national total of 1.37 million. Most were major medical schemes, although there were some elements of "doctors' and dentists' policies."

Tower's share of total premiums was 9-10%. The apparent discrepancy between that figure and the 13.73% of total lives insured is related to the much lower level of doctors' and dentists' coverage, which tended to skew the total providers of some other providers.

Mr Minto said the whole market started with comprehensive coverage, particularly with the emphasis on workplace group schemes.

"But fringe benefit tax knocked that and far fewer are coming through." About a third of all health policies were based on group schemes.

Mr Minto said workplace group schemes may use the employer as a premium collector but this was a labour-intensive exercise.

An increase in premiums meant direct-debit payments had to be adjusted, including payments for people who had retired but were still in the workplace scheme. They had to be followed up and the situation explained.

Some large industrial groups were exploring setting up their own schemes along the lines of managed funds but several medical and surgical procedures were expensive. Companies were cautious about being hit with a big claim.

Mr Minto said the private health insurance industry was very efficient in terms of administration costs as a proportion of each dollar of total costs. There was tight control of margins.

Members of the HFanz: Southern Cross Healthcare, Aetna Health (NZ), Tower Health & Life, Unimed, Police Health Plan, PSIS Health Care, Health service Welfare Company, AA GIO Insurance, EBS Health Care, Manchester Unity Friendly Society, State Insurance, American International Assurance, and IOOF Friendly Society.

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