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Medibank Private boss defends health insurance premium increases

Friday, 17 Feb 2017 12:47:33 | Alicia Barry And Stephen Letts

Medibank Private will increase its premiums by 4.6 per cent from April 1. (Reuters: David Gray)

The head of Medibank Private has been forced to defend its health insurance premium increases, while also delivering a disappointing half-year profit for investors.

Australia's largest health insurer reported a 2 per cent increase in first-half profit to $231.9 million, weighed down by higher claims and costly initiatives to win back customers.

The result would have been worse but for a 223 per cent increase in investment income, masking an 8.2 per cent drop in operating profit in its health insurance business.

CEO Craig Drummond told The Business that the company is working on lifting the value of its products for consumers.

"We've had some well-known issues in the early part of the new financial year which we've now corrected," he said.

"The service proposition has certainly been improved."

Services may be improving, but premium costs are going up.

Last week, Medibank Private announced a 4.6 per cent increase to the cost of its premiums from April 1, in line with the rest of the sector.

Mr Drummond said the company tried to keep a lid on the price increase.

"We understand that household budgets are under pressure," he said.

"That is a 4.6 per cent increase - and I appreciate it's still an increase - is actually our lowest increase for 15 years and is 0.24 per cent under the average increase that the industry announced a few days ago."

That may come as cold comfort to households who have seen premiums rise 28 per cent since 2012.

The Medibank CEO said the premium increases are necessary.

"There's a lot of structural impediments that we need to deal with going forward, like an ageing population and chronically diseased patients being a large percentage of the population," Mr Drummond said.

"We need to deal with this and we need to deal with it now."

Medibank has conceded underperformance against its peers in getting new customers and holding onto existing ones, with only its budget, low-margin, ahm brand showing growth.

The health insurer's market share fell from 27.6 per cent to 27.2 per cent in the December quarter.

The interim dividend edged up to 5.25 cents a share, but none of this impressed investors and at midday (AEDT) shares had slipped 4 per cent to $2.70.

You can listen to Alicia Barry's interview with Craig Drummond on Business PM at 6:50pm on ABC Radio or watch it at 8:30pm (AEDT) on The Business on News 24.

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