Medibank annual net profit surges 46pc

Medibank’s boss warns the insurer has a “lot of work” to do to lift its performance, as it posted a 46pc rise in profit.

Craig Drummond is the new CEO of Medibank Private. Picture: Aaron Francis/The Australian.

Medibank’s new boss, Craig Drummond, has warned that the health insurer has a “lot of work” to do to lift its performance as he links executives’ financial rewards to customer satisfaction.

The chief executive of Australia’s largest health insurer, who in his first results delivered a 46 per cent jump in profit to $417 million, said after seven weeks in the top job it was clear to him a strategy refocus, which put customers first, was needed.

“It is clear we must make the whole organisation aligned around customers and from 2017 the net promoter score will be added as a key metric in the determination of short-term incentives for all senior executives to reinforce this focus on our customers,” Mr Dummond said, referring to a tool that can be used to gauge the loyalty of a business’s customer relationships.

“I’m under no illusions there is a lot of work to be done to lift our performance up to, and beyond, the levels rightly expected of this company.

“What we have been doing in and around the customer has been unacceptable. We need to be clear on what our priorities are and make sure we have the right level of investment and hold people to account.”

The company, which was privatised by the federal government almost two years ago, has been the target of increased complaints, fuelled recently by its failure to distribute tax statements on time because of a new technology system.

“It is now clear that the impact of the early teething problems (of the IT system) have been greater than anticipated and are taking time to address,” Mr Drummond said.

“The delays in sending out tax statements are unacceptable and I am initiating a review to ensure lessons are learnt.”

The company has given a small number of customers who still don’t have their tax statements a month’s break from paying their premium.

“We had an expectation this would get resolved earlier than it did and we made a decision at the executive level, which was validated by board, that it was not unreasonable to make an offer to those members given we had caused significant inconvenience to them,” Mr Drummond said.

In his first results in the top job Mr Dummond warned the health insurance giant would continue to lose market share after a weak second half.

Shares in the company were down almost 5 per cent at $2.84 on the news.

The private health insurer earlier reported a jump in profit after increasing its premiums and reducing cover, following negotiations with hospitals as it transitions to life as a public company.

Net profit attributable to shareholders surged 46.4 per cent to $417.6 million in the year to June 30, compared to $285.3m in the prior year.

Medibank (MPL) said premium revenue lifted 4 per cent in the year, after the federal government approved average premium rate rises of 6.59 per cent from April 2015 and 5.64 per cent from April 2016.

Although the number of members fell, Medibank also managed to increase average revenue per policy by 5.1 per cent, which it attributed to cover reductions and sales mix changes towards lower value products.

Claims expenses rose by just 1 per cent over the year, while margins got a boost from slowing growth in hospital utilisation rates across the industry.

Medibank also noted that its own initiatives had improved health claims management, including a program to reduce “improper” claims, and “improved hospital contracting” that focused on the quality of health outcomes.

Since its public float less than two years ago, the insurer has embarked on a drive to cut costs by negotiating with hospitals to avoid paying for their mistakes.

The insurer has also warned of rising surgery costs and invested $150m in upgrading its technology system — a project that caused delays to the distribution of members’ tax statements.

Revenue from continuing operations rose 1.9 per cent to $6.81 billion in the year, compared with $6.68bn in the previous year.

Medibank will pay a dividend of 6c per share, fully franked, on September 28 to shareholders on the register on September 7.

Medibank increased its overall fees for board members by 9.9 per cent from July 1, adding that total fees remain within its annual cap of $2m.

The insurer also increased the base fee for chairwoman Elizabeth Alexander to $425,000 from July 1, from $400,000 in the prior year.

Former chief executive George Savvides’ actual total remuneration in 2016 — including cash payments and deferred short-term incentives that vested in 2016 — was $2.4m. Mr Savvides left Medibank in March this year.

Mr Drummond, who started in July, is on a package that includes $1.5m in fixed remuneration, a short-term incentive of $1.5m and a long-term incentive of $2.25m.