Medibank Private seeks to shed ‘expensive’ image

Medibank will move to reposition its brand after consumer research found it was seen by potential customers as expensive.

CEO and MD of Medibank George Savvides at their Docklands HQ.

Medibank Private will move to reposition its brand after consumer research found that while it was rated highly in terms of trust and recognition, prospective policy purchasers were ruling the provider out because it is perceived to be expensive.

“In the next couple of weeks you’ll see Medibank, as we go into our June intense media campaign, with a new message coming through in television and billboard advertising which is all about raising the awareness that we actually do drive into the sensitive price points,” Medibank Private chief executive George Savvides told the Macquarie Securities conference in Sydney yesterday.

The company’s share price has drifted toward the institutional float price of $2.15. Shares were trading at a high of $2.59 early this year, but closed the day down 3c to $2.15.

Retail investors paid $2 per share at the time of the November float, with UBS recently setting a “sell” recommendation on the stock with a price target of $2 a share.

Medibank Private faces challenges in “reversing the trend of policyholder shrinkage in its key Medibank brand, but the prospect of wider margins to narrow the gap relative to other large funds supports mid-single digit earnings growth,” the UBS analysts wrote.

Mr Savvides said the company’s strategy focused on reducing the policy lapse rate, with 300,000 new customers joining each year but a similar number lapsing. He said reducing the shrinkage by 50,000 policyholders would have a big impact on earnings.

Medibank Private, and its low-cost subsidiary AHM, are the biggest private health insurers in Australia, with 29 per cent of the market.

Mr Savvides said AHM was growing at 20 per cent a year, against an industry average of 4 per cent. AHM is highly dependent on insurance website aggregators such as iSelect, while Medibank Private does not participate in the third-party marketplaces.

He defended the company’s margins, which are below market leader Bupa, which has an operating profit margin of around 7.5 per cent. Medibank Private sits with NIB and Australian Unity with an operating profit margin of between 4 and 5 per cent.