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Nib ‘penalised’ for attracting younger members as profit outlook cut

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The blowouts come amid ongoing concerns about the sustainability of the private health system, as insurers’ claim costs rise faster than their revenue and younger people – who are meant to subsidise older members – drop their coverage at unprecedented rates.

Nib managing director Mark Fitzgibbon said the “disappointing” downgrade was due to higher than expected growth in medical claims, both within its own membership base and industry wide.

He said nib’s relatively young membership base meant it was the biggest contributor to the “risk equalisation” pool – which sees money transferred from health funds with lower-than-average claims bills to those with higher-than-average claims bills.

The fund expected its risk equalisation contribution to rise by 9 per cent, or $20 million, to around $250 million – well ahead of its average premium growth for its own members of 3.8 per cent.

“Year on-year growth of 9 per cent is demonstrating how problematic it’s becoming as a system, where you have an insurance population that is ageing and more and more younger people leaving the system,” Mr Fitzgibbon said.

“We are being penalised by the fact that we are growing, and our growth is still … skewed towards the youth market.”

‘We are being penalised by the fact that we are growing, and our growth is still … skewed towards the youth market.’

Nib managing director Mark Fitzgibbon.

Mr Fitzgibbon said nib’s Australian resident health insurance business, including the cost of its risk equalisation payments, accounted for about a third of the $30 million profit shortfall. Another third was from adjacent businesses (including insurance for overseas students and workers, and its New Zealand operations which are having their margins crunched due to both rising claims and sharper competition). The balance was due to the cost of launching a health data joint venture with US insurer Cigna.

Morgan Stanley analyst Daniel Toohey said nib’s cost shock was consistent with trends seen across the industry, as claims inflation rose from historic lows and noted it followed a period of nib outperforming its peers.

“You wouldn’t expect that to be sustained over the medium term,” said Mr Toohey, who has a sell recommendation on the stock.

“We saw evidence of that in the numbers for the fourth quarter of 2019, and we expect to see the trend continuing”.

Mr Fitzgibbon said the main domestic insurance business would deliver a profit margin of around 6 per cent his year, down from 6.5 per cent last year. He also raised to prospect of lifting its target dividend payout ratio from between 60 and 70 per cent to 70 to 80 per cent.

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