NIB says $5m JobKeeper cash still needed to keep 130 people employed across its travel business

NIB has tapped into $5m of JobKeeper money to keep its travel insurance business afloat.

Nib Managing Director Mark Fitzgibbon said premium revenue would have jumped 4.2 per cent if not for the delayed increase. Hollie Adams/The Australian

NIB chief executive Mark Fitzgibbon says the Newcastle-headquartered health insurer still needs to tap into the federal government’s JobKeeper wage subsidy, with its travel division on track to lose up to $20m this year.

NIB has received about $5m in JobKeeper payments to date to support its travel insurance business.

While a conga line of companies, including Cochlear, Nick Scali and Domino’s, have been writing cheques to the Morrison government to payback all or portions of JobKeeper money, NIB won’t be one of them, despite the group’s overall net profit increasing 16 per cent to $66.3m in the half year to December 31.

Mr Fitzgibbon said the JobKeeper money had prevented the company laying off about 130 people across its travel business and cross-subsidies from its core Australian resident health insurance (arhi) division which would have put pressure on premium costs.

“Businesses like Nick Scali thought they were going to do very badly and ended up doing well. Our travel business thought we were going to do badly and did worse,” Mr Fitzgibbon said.

“We regard travel as a separate entity, it’s very separate to NIB the health insurance business, so if it weren’t for JobKeeper we would have laid off 130 people. But we didn’t because the government said ‘keep them employed and we’ll fix you up for that’. And we did that.

“The business has continued to do very badly. It’s losing money. It lost $20m last financial year, and will lose $10-20m this financial year. We wouldn’t be able to keep those people employed if it weren’t for JobKeeper. And if we did keep it open, we would have to be drawing on the Arhi business, their money essentially. That’s not something anybody wants.”

International inbound health insurance’s premium revenue fell 5.2 per cent to $58.3m, while operating profit fell to $300,000 from $12.3m in the previous corresponding period.

Meanwhile, a six-month deferral of last year’s annual premium price hike across NIB’s Australian resident health insurance business put the brake on the company’s overall revenue.

Arhi Premium income rose 2.2 per cent to $1.1bn but Mr Fitzgibbon said it would have jumped 4.2 per cent had the NIB not delayed premium hikes.

“We added more than 16,000 arhi members representing a 2.7 per cent increase for the half year,” he said.

“Of our growth, about 52 per cent of policy sales were to members under the age of 40, with more than 45 per cent of all sales new to private health insurance. We’re also seeing welcomed improvement in member retention.”

Its Australian residents health insurance business delivered a 42.2 per cent bump in operating profit to $89m, but Mr Fitzgibbon said that figure needed to be “treated with some caution”.

“Arhi profitability has been slightly distorted by COVID-19 and consequential delays in treatment and claims which is still playing out. We’ve modelled that impact as best we can and continue to make allowance for a claims catch-up in our financial accounts,” Mr Fitzgibbon said.

“Yet it’s an inexact science and while ever the pandemic persists, underlying claims costs trends will continue to have some noise, as we’ve seen with events such as the Victorian lockdowns. I also suspect there may be for many, a natural aversion to going to hospital and other forms of treatment involving close contact as a result of COVID-19.”

Overall NIB’s total revenue fell 1.1 per cent to $1.3bn, while net profit jumped 16 per cent to $66.3m.

The result included $73.1m that NIB has set aside to fund treatments delayed during COVID-19 lockdowns. If the deferrals cost less than NIB has forecast, Mr Fitzgibbon said they would return money to members via its 2022 premium rise application.

But Mr Fitzgibbon said he expected the health system to start returning to normal by the end of this financial year — if not, he said, Australians will witness a new era.

“Whatever happens from there, you will start to regard it as the new normal.

“How much that new normal differs from the pre-COVID-19 normal, only time will tell. I do have a hunch that the new normal will be a little bit more efficient because doctors will be more inclined to go for more conservative options.”

In Australia, there are about 700,000 avoidable hospital admissions a year, mostly from revision and readmissions — or ‘Jack’ getting an infection after his knee replacement.

“One of the unfortunate consequences of COVID-19 is you have people not having care they should have because of the lockdown, but you also have a lot of people not having care they shouldn’t have had anyway that just wasn’t warranted,” Mr Fitzgibbon said.

“We’ve seen in the US and Europe, and I’m sure we’ll see here, is that the risk of unwarranted care has been reduced. That makes the system more efficient.”

NIB shares closed 6.5 per cent higher at $5.74 on Monday, compared with a 0.2 per cent slide across the broader share market.

Macquarie analysts said “initial impressions of the first-half result are mixed”.

“The headline result beat in the arhi division and investment income. However, there was a $25.6m provision release as COVID-19 claims catch-up came through slower than budget. Excluding this item, arhi’s Operating Margin missed consensus by about 30 basis points”.

Meanwhile, Ashley Dalziell and Gerardo Covarrubias, of Goldman Sachs, said while “improved earnings contribution from ancillary businesses and further corporate

white-label partners” are driving market share gains, potential negative government policy announcements clouded the sector.

The pair cited the federal opposition premium rate cap policy and the Australian Prudential Regulatory Authority’s revised capital standard leading to higher capital requirements, as well as “softer-than-expected travel insurance performance” as potential headwinds.

NIB will pay an interim dividend of 10c a share on April 6.