NIB downgrades full-year profit forecasts as claims mount

Health insurer NIB has pared its annual profit outlook after reporting an increase in claims.

NIB boss Mark Fitzgibbon. Picture: Hollie Adams

Higher-than-expected claims have forced NIB to slash its annual profit outlook, as the company and other health insurers brace themselves for another rise stemming from the bushfires raging across the country.

NIB managing director Mark Fitzgibbon said he is now expecting full-year underlying operating profit to fall at least 15 per cent to $170m, down from his previous forecast of a minimum of $200m.

“We’ve definitely seen a tick up in claims and while we did anticipate some level of claims inflation across the group in the 2020 financial year, recent experience is that it’s been more widespread across a number of business lines than we previously anticipated,” Mr Fitzgibbon said.

The downgrade sent NIB shares plummeting 12.7 per cent to $5.71 on Monday afternoon.

Mr Fitzgibbon said NIB expects a net margin within its Australian residents health insurance business -- or ARHI -- of around 6.2 per cent this financial year, down from the 6.5 per cent forecast from NIB’s annual result in August.

“Our adjacent businesses are also experiencing claims headwinds as well as a tougher operating environment,” he said.

“This has seen some resetting of claims experience in our adjacent underwriting segments such as international students and workers as well as our New Zealand operations, following several years of benign claims.

“And while these businesses account for a relatively minor proportion of our group earnings, it’s very likely to result in a drag on our FY20 earnings.”

nib Holdings closed down 83 cents at $5.71

It comes after Health Minister Greg Hunt approved a 2.92 per cent premium rise for health insurers last month -- the lowest premium increase in 19 years. The private health sector has been battling intense pressure on profit margins, given surging healthcare costs in the face of political pressure to keep premium increases capped.

Rachel David, the chief executive of health insurer industry group, Private Healthcare Australia, said at the time insurers had generated efficiencies and drawing on retained capital to keep premium rises to a minimum but costs were rising across the industry.

“Affordability is an issue across the health system. Public hospitals were guaranteed a 6.5 per cent funding increase until 2025 through the COAG process, in contrast the average increase for PHI is 2.92 per cent,” Dr David said.

Last week, The Australian revealed health insurers were bracing for another rise in claims as a result of the nation’s bushfire crisis and hazardous levels of smoke, which has blanketed major capital cities for weeks.

NIB is waiving health premiums for three months for its bushfire-affected members or giving them the option to suspend their policies for up to six months.

“The premium waiver allows eligible nib members to effectively be given free health insurance for them and their family members for three months. This will hopefully relieve some of the financial pressures our members may be facing so they can focus on rebuilding their lives,” NIB Group Executive Australian Residents Health Insurance, Ed Close said when announcing the relief package earlier this month.

“Our thoughts are with everyone across Australia who have been impacted by the bushfires. We also send a heartfelt thanks to those protecting our people and country, particularly the volunteer firefighters.”