While policyholder and revenue growth remain positive, there is a need to focus on further managing claims costs. This will play a significant role in improving our future underwriting result.
arhi had a mixed year with strong sales and top line performance hampered by higher than expected claims experience, including on a new extras only product as well as policyholder lapse. For the full year we generated more than 71,000 policyholder sales and posted annual policyholder growth of 3.1%. This compares favourably to the overall industry average of 2.7% and is the 13th consecutive year nib has achieved above-industry net policyholder growth. More than 50% of our policyholder sales for the 2014 financial year were to customers aged 40 years and under, which continues to reflect our level of marketing investment towards this demographic and the success of those campaigns.
Highlights from the arhi business include:
- Annual net policyholder growth of 3.1% (industry growth: 2.7%).
- Premium revenue up 10.7% to $1.3 billion.
- Claims expenses (excluding risk equalisation) up 11.5% to $961.7 million.
- Management expenses up 8.3%, equating to a management expense ratio of 8.1% which is down from 8.3% in FY13.
- Operating profit of $57.0 million, down 3.5% on the 2013 financial year result on the back of high claims inflation.
Claims inflation remains easily the most significant challenge confronting arhi. Claims costs grew 11.5% (excluding risk equalisation expense), while our risk equalisation expense grew 13.8% to $190.6 million. Controlling claims inflation within an overall macro-environment of rising healthcare spending is problematic. Nevertheless, there is a wide range of efforts underway to ensure utilisation of healthcare services are appropriate and the costs of services no more than they should be.
Despite increasing investment in customer acquisition, our management expense ratio of 8.1% is comparable to the 2013 financial year’s result of 8.3%. Monitoring and managing costs, as well as continually improving operational efficiencies, remain priorities for us in order to maintain our price competitiveness.
While we remain appreciative of the Commonwealth Government’s support for private health insurance, a number of regulatory and policy changes have not assisted the arhi performance. In particular, the income testing of the Australian Government Rebate and lifting of the Medicare Levy Surplus income thresholds have contributed towards slower system growth and higher customer lapse.
In June 2014 we announced a new distribution alliance with leading over-50s insurance brand, Apia. As a result, Apia now offers its own branded private health insurance products designed and tailored specifically for its over-50s target market.
We also launched an innovative website, Whitecoat, to help consumers make more informed choices about purchasing decisions. Developed over three years, the website contains the contact details of approximately 30,000 ancillary providers with information and comments from nib customers about their service experience. Almost 100,000 users have visited the site – whitecoat.com.au – since its launch in November 2013.