Media releases 2014


Kiwi stalwart delivers outstanding value to members

Monday, 15 September 2014 by Aimee Bourke

The 2014 financial year saw Kiwi not-for-profit health insurer, Southern Cross Health Society, continue to deliver excellent value to its members.

For every $1 of premium, the Society returned 90.4 cents in claims – a market leading rate of return. By comparison the rest of the health insurance industry returned an average of only 67.5 cents.

Health Society Chief Executive Officer, Peter Tynan, says this return really highlights the value proposition for Southern Cross’ 815,000 members.

“We are a Kiwi not-for-profit that exists solely for the benefit of our members – not to deliver profits to offshore shareholders.”

During the year the Society earned $738.4 million in premiums, up 5.9% on 2013, and incurred $694.5 million in claims, up 8.7%.

Members benefited from:

  • More than 155,000 elective surgical operations
  • 370,000 specialist consultations
  • 784,000 GP visits
  • 680,000 prescription medicines

Delivering this level of value has resulted in a year-end deficit of $1.1 million. This was due to higher than expected claims costs for the year, predominantly driven by orthopaedic procedures and specialist consultations.

“As a not-for-profit insurer with reserves of $394 million, and an A+ financial strength rating from Standard and Poor’s, small deficits such as these can be absorbed in order to mitigate members’ premiums”, says Tynan.

“However, the Society must continue to aim for a small annual surplus in order to maintain reserves for times of unexpected and severe claims spikes.”

Tynan says the continuing rise in claims costs is of concern, because it will directly impact premiums.

“We want our members to make the best use of their policies and encourage them to claim – that’s clear from our rate of return to members. Our focus is on managing the cost of these claims on behalf of our members, particularly health service cost increases that are unjustifiable or out of line with market rates.”

Central to this strategy is the Society’s Affiliated Provider programme. Affiliated Providers are doctors, specialists and facilities contracted to provide Southern Cross members with certain healthcare services at agreed prices.

There are currently Affiliated Providers agreements in place throughout New Zealand covering over 1,000 providers across 20 specialities such as eye surgery, knee and hip joint replacement, skin lesion removal and varicose veins.

We have excellent provider coverage nationally for those procedures that are only available through an Affiliated Provider. For example of 105 ophthalmologists performing cataract surgery in New Zealand, we have contracts with 96% of them – this means members requiring cataract surgery can choose from over 100 providers.

Typically, the procedures we make Affiliated Provider-only in policies, are commonly claimed for and in which we see a high variability in pricing, yet little clinical variability. Skin surgery is a good example. Some specialists are charging 150% to 400% above the market average or up to $8,000 an hour for surgeries. We’ve chosen to tackle these excessive charges on behalf of members.

  • Financial overview
    Started in 1997, currently over 34% of all Southern Cross claims costs are paid to Affiliated Providers, the aim is to grow this to 60% by 2016.
  • Over the past year the health insurance sector as a whole saw a small decline of 0.4% in the number of New Zealanders with health insurance. The Society fared slightly better than other insurers, with a membership decrease of 0.3%. This saw the Society end the financial year with 815,447 members and maintain a market share of 61.1%.
  • The Society’s reserves - $394 million – are equivalent to approximately seven months’ worth of claims and is within the target solvency range established by the Board.
  • Reserves have helped the Society maintain its A+ financial strength rating from Standard and Poor’s, for the twelfth consecutive year