Southern Cross, New Zealand's largest health insurer, reflects a challenging year in its 2024 Annual Report, detailing key factors that impacted its financial performance and operations. These insights highlight both the pressures of the current healthcare environment and the organisation's ongoing commitment to providing value for its members. Here’s a breakdown of the most significant takeaways:
1. Record Claims and a Deficit-Driven Year
Southern Cross saw a surge in claims, with $1.498 billion paid out from $1.605 billion in premiums. This resulted in a 93.4% claims ratio, significantly higher than the industry average of 73%. However, the rise in claims, combined with the high inflation environment, led the organisation to report an $88.2 million deficit, its largest in years. A portion of this deficit ($43 million) was attributed to new international financial reporting standards (IFRS 17), while the remaining $45 million reflected increased healthcare demand and inflation.
2. Growing Membership in a Tough Climate
Despite financial challenges, Southern Cross grew its membership base for the eighth consecutive year, with 15,196 new members, bringing total membership to 955,301 – its highest level since 1992. The organisation now holds 60% of New Zealand’s health insurance market, handling 71% of the country’s health insurance claims.
3. The Impact of High Inflation and Healthcare Costs
A key contributor to Southern Cross's deficit was the 15% increase in claims costs compared to the previous year. Medical inflation, driven by labour shortages and supply costs, continued to outpace premium increases, creating a gap that Southern Cross struggled to bridge. This environment prompted the organisation to keep premium increases as low as possible, prioritising affordability for members amidst rising living costs.
4. Investments in Digital Health and Member Services
Digital services like CareHQ, Southern Cross's virtual GP service, saw growing adoption, with 39,326 virtual consultations over the year, a 78% increase. Southern Cross has also enhanced member options by improving access to mental health services and annual health checks, underscoring its commitment to keeping members healthy and reducing the burden on public health services.
5. Adaptations and Long-Term Strategy
Southern Cross has continued to focus on cost control measures, including a 4% rise in operating costs—below inflation—while evolving its Affiliated Provider (AP) programme to ensure more affordable healthcare options for members. Despite the deficit, the organisation remains committed to ensuring long-term sustainability, relying on its strong capital reserves and a diversified portfolio, including profitable investments in pet and travel insurance.
6. Regulatory and Environmental Responsiveness
Southern Cross is also positioning itself for future regulatory changes, such as the upcoming CoFI (Financial Markets Conduct of Institutions) regime, which will demand higher levels of customer fairness and transparency. Additionally, the organisation is preparing its first climate-related disclosures, acknowledging the role climate change may play in future operations.
Southern Cross's performance in 2024 provides a valuable lens for understanding how external pressures—such as high healthcare costs and economic volatility—affect the private insurance sector. With the healthcare landscape in New Zealand undergoing significant changes, Southern Cross’s member-first approach remains crucial. In such times, reviewing your own insurance options and understanding your coverage can be more important than ever.
For those keen to evaluate their personal insurance needs, it’s always a good idea to explore insurance options or conduct further personal insurance research to ensure that you're getting the best value and coverage.
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The information in this article is general information only and is not intended as financial, medical, health, nutritional, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist, or medical or health practitioner, in relation to your own circumstances and before acting on this information.
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