Southern Cross Health Society Group annual results reflect steep increase in demand for private healthcare

Today Southern Cross Health Society Group (“Group”) shares its annual results for the year ended 30 June 2024, highlighting extraordinary growth in claims over the year; in volume and value.

Monday, September 30th 2024, 9:01AM

Nick Astwick, Chief Executive for Southern Cross Health Society says more people are prioritising their healthcare which is driving more demand into the private healthcare sector.

“We have never been in more demand by our members as they prioritise their health needs, largely in the private system. In 2019 33% of our membership claimed, last year it was 50%,” he said.

“We’re also continuing to grow, welcoming more than 15,000 net new members to Society over the year taking us to 955,301 members, our highest membership since 1992.”

Astwick says the surge in claims has contributed to a Society Group deficit of $88 million. This follows a combined surplus of $73.6 million in the prior two financial years.

“Overall, the cost of claims increased 15% on the prior year, which compares to an increase of 9% in premiums. As a member driven, for purpose organisation, we made it a priority to keep premium increases as low as possible for members in this cost-of-living crisis. As a result, we anticipated a deficit in FY24.

“It’s this timing gap between claims cost inflation and our ability to apply premium increases that is the primary reason for the Health Insurance deficit,” he said.

Almost half of the deficit, ($43 million) is attributed to a change in international financial reporting standards introduced in this financial year. Astwick says the balance of the deficit, $45 million, is driven by the higher claims cost from a persistently high inflationary environment combined with increased demand, and partially offset by investment returns.

“The cost of claims in 2024 was steep and rapid, driven by a combination of price, volume, and the mix of claims. The growth in the volume of claims results from an increase in the number of members claiming, the frequency, and claims being made for more expensive procedures,” he said.

Southern Cross Health Insurance paid $1.498 billion in claims from $1.605 billion received in premiums. The previous year the health insurance business paid out $1.302 billion in claims out of $1.466 billion received in premiums.

“More than 93% of premiums were returned to our membership in claims for their private healthcare this year,” adds Astwick.

“This is the highest return in more than ten years. Compared to the market return of 73%, this represents $326 million more paid to our members in the form of claims than the rest of New Zealand’s health insurance sector would have paid out.

“This remains the Southern Cross difference.”

Astwick remarks that generating a small surplus in most years is essential to ensure the Society has sufficient capital reserves to remain financially sustainable into the future. Over the past five years, the Society has reported an average surplus of $13 million per year.

“Over our 63 years we have built a strong capital position to navigate times like this where we generate a deficit. We are committed to generating the surpluses required to maintain our A+ credit rating and to meet our capital adequacy needs.”

Like many households and businesses in Aotearoa New Zealand, Astwick says the Society has a significant cost control programme underway.

“Our operating costs grew by 4% in this financial year, slightly below the average inflation rate and we are planning to reduce our operating cost base in the next financial year.

“Alongside this is our more than 2,400 healthcare partners are keeping their cost increases as low as they practicably can, to support a united goal of keeping premium increases as low as possible for our members. To this end, our unique Affiliated Provider (AP) programme continues to provide savings for members. We are committed to evolving the AP programme to ensure more procedures are included.”

Astwick points to ways members can reduce premium costs.

“Throughout our shared cost-of-living crisis, we have focused on ensuring our members are aware of and can access ways to reduce the premiums they pay to ensure they retain their Health Insurance cover.

“Members can easily make changes to their cover to ensure affordability, such as adding an excess or changing their plan.”

In October this year, Southern Cross Health Insurance will introduce benefit improvements to nearly all of its policies in a major product review.

“While we are increasing benefits, we are also very mindful of costs to members and we’re using our contracting tools with APs accordingly. We’re also making it easier for our members to engage with Southern Cross – removing excess on some benefits, rewriting policy documents in plain language and making sure members are better informed about benefits, approved procedures and how to get the help they need,” said Astwick.

Astwick also points to the value derived from membership including liaising with the ACC on members’ behalf, and how almost 40,000 members have accessed unlimited standard virtual GP consultations with Care HQ with no cash outlay, 4,635 mental health consultations with Raise, and 4,016 annual check-ups with MedPro.

Regulation

Astwick says the Society is also working diligently to meet obligations under the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI).

“The introduction of CoFI has presented us with the opportunity to align our member-focused values and business practices with the regulatory expectation to treat our members fairly and to deliver fair outcomes.

Astwick is clear on the future focus for Southern Cross.

“We are committed to earning our position as our members trusted health insurer, providing assurance that access to healthcare is there when they need it. As a member driven organisation, we will continue to evolve our products and services to empower our members to live well for longer.”

Southern Cross Medical Care Society Chair Murray Jordan has announced he will retire from the Board at the AGM on 4 December this year. The Board has appointed current Society Director Chris Black to take on the Chair role, which will take effect at the close of the AGM.

Tags: Southern Cross