Southern Cross history in the making

Peter A. Smith looks back at the early years of Southern Cross, whose founders believed
New Zealanders deserved access to quality, private healthcare options.

Southern Cross open for business

The Southern Cross Medical Care Society began business in the first week of May 1961. For five guineas per adult, New Zealanders could become members, thus purchasing annual health insurance coverage aiming at reimbursement of 80% of average private surgical hospital fees and average surgeon’s and anaesthetist’s fees, provided those fees were charged in accordance with the Society’s schedule.

The overall maximum payable per person in respect of one operation was 128 pounds 15 shillings or 200 pounds for two operations in any one year. A cardinal principle adopted from the outset was that members would first pay their own medical expenses, surgical fees and hospital charges then be reimbursed by the Society in accordance with the schedule.

From the very earliest discussions the idea that a conventional company should be formed had been ruled out, not because there would have been any difficulty raising capital through equity shareholding, but because all those involved had the foresight to agree unanimously that the enterprise should be run on a not-for-profit basis.

This did not mean that there wouldn’t be “profits” – or surpluses – on each year’s operations; rather it meant that any such funds should not be disbursed to shareholders, thereby enabling individuals to profit. Instead, the committee believed that any residue should be accumulated as reserves against future claims or to help temper any premium rises that might ultimately be needed.

The nearest existing entities to the proposed health insurer were the many Friendly Societies, especially lodges such as Manchester Unity, the Druids and the Independent Order of Odd Fellows, most of which had their origins in nineteenth century Britain and had been established in New Zealand for many years.

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Hospitals network formed

The development of health insurance had transformed the private hospital movement. This may not have been so in the 1960s when Southern Cross’s growth was modest and orderly and there was ample spare capacity in private hospitals, but it was a different story in the 1970s when rapid growth began to put pressure on private hospitals – not just for beds but for theatre facilities and improved quality of equipment and care.

Southern Cross directors had always taken this matter very seriously – they believed they were selling a quality service that required quality facilities and these were not always available in some hospitals. Soon to become more important was not just quality, but quantity too. The public hospital waiting lists were approaching 40,000; private hospital patients expected no waiting.

Late in 1973 the Society’s directors discussed forming a free-standing trust as many private hospitals battled to cope with the new strains that the fast-growing health insurance industry was placing on them. Few totally new private hospitals were being established – capacity instead tended to be provided by the expansion of existing facilities.

The question arose whether the Society should be in the hospital business or whether there should be a free-standing, arms-length entity. In the end the directors chose a middle ground; there would be a completely separate trust capable of managing and operating any hospitals that might come its way.

But because the trust began with no capital other than an initial $30 [donated by its inaugural trustees], any such hospital facilities would somehow have to be financed by the Society as a form of investment. The new Southern Cross Hospital Trust [later renamed Southern Cross Health Trust] was registered in 1977.

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Travel insurance launched

With the business still growing rapidly and a strong national infrastructure in place, the executive team was realising that Southern Cross had the potential to develop one of the largest individual customer bases of any New Zealand company or organisation.

The most-discussed option had been to branch out into the wider financial field. In the end, however, it was agreed that what made Southern Cross different was its ‘health-related’ expertise, its core business.

One health-related service which was developed was travel insurance. New Zealanders about to travel overseas - especially to the United States – were often apprehensive about what appeared to be the astronomical health care costs should they take ill or have an accident while holidaying in a foreign country.

As Southern Cross had a growing profile for health insurance expertise, many would-be travellers were approaching the Society for advice and help. An agency had been set up with the South British Insurance Company to sell their travel policies and later Southern Cross-branded products were introduced, although still underwritten by South British.

The success of all this led directly to the later formation of a new travel insurance company, Southern Cross Benefits Limited [in 1982].

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An edited extract from Peter A. Smith’s The Private Prescription, published in 2000 to mark Southern Cross’ 40th anniversary.
The book is available at most leading libraries (ISBN 0-473 06469-3).