Southern Cross loss of $13.3m ‘not ideal’

Southern Cross Health Society’s 867,000 insurance policyholders faced average premium rises of about 6 per cent in the past year.

And there will be similar rises again this year.

The non-profit society, which is owned by its policyholders, has announced a loss of $13.3 million despite collecting health insurance premiums of just under $1 billion in the 12 months to the end of June.

‘‘It’s not ideal, but it’s certainly not unexpected, or concerning,’’ chief executive Nick Astwick said.

‘‘We only ever aim to make a modest surplus. We do need to budget for a modest surplus each year. We certainly want to be in that range of $20 million or $30m a year, but the insurance business has inherent volatility to it.

‘‘It’s like landing a jumbo on a pin at times.’’

Claims were slightly higher, and premiums were a bit lower than expected.

The lower Nick Astwick premiums were partly a result of some policyholders opting for higher excesses to keep premiums affordable, or ‘‘stepping down’’ to a cheaper plan with less cover.

Premiums were up on average about 6 per cent, but the average premium increase for those aged 56 to 60 was 6.5 per cent. It was 5.8 per cent for those aged 61 to 65, and 6.8 per cent for over-65s.

Despite the rises, the society managed to grow policyholder numbers by more than 14,000, and maintain the average age of policyholders at just under 40 years.

Knee replacement surgery cost the society more than any other treatment. In the year to the end of June, it paid knee replacement claims of $45.3m.

Unlike most other health insurers, Southern Cross does not have shareholders it has to pay dividends to, which means it pays out a high proportion of the premiums it collects in claims.

It paid out 92 cents for every dollar of premium collected, with $906.6m spent on claims from the $987.8m of premiums paid to it by policyholders.

‘‘This compares to an average of 65c in the dollar among the remaining New Zealand health insurers, with some returning as little as 59c in the dollar,’’ Astwick said.

The target was to pay out 89c in every dollar of premium collected each year.

Southern Cross has used its market power to require private healthcare providers to sign up to its ‘‘affiliated provider’’ programme in a bid to keep a lid on runaway price inflation for medical services.

The programme, which requires private healthcare providers to agree to fixed pricing, had saved about $90m over the past four years, Astwick said, with $40m of that falling in the past year.

The $13.3m deficit is covered by the society’s financial reserves, and did not affect its credit rating of A+ from Standard and Poor’s.

‘‘This deficit represents 1.3 per cent of premium income this year so in that context it’s something we’re comfortable with,’’ Astwick said.