Craig Drummond has problems to fix at Medibank Private

Craig Drummond faces a monumental task to get Medibank Private into shape amid falling market share.

ALP national secretary George Wright. Artwork: Sturt Krygsman.

Craig Drummond faces a monumental task to get Medibank Private into shape amid falling market share and what promises to be a regulatory overhaul no matter which team takes government.

The private health insurance sector is over-capitalised and in the process of being hit with a digital revolution, which should remove the fundamental im­balances that limit consumer choice and inhibit competition.

Drummond started his new job on Monday, replacing 14-year veteran George Savvides, who left earlier than the market was expecting, less than two years into life as a listed company.

The government, it seems, kept Savvides in the chair for the float and as soon as that was conveniently completed, the board looked for a replacement outside the company.

The Drummond mantra this week was, logically enough, all about customer service. That’s long overdue, given the continued loss of market share.

This is shown in customer retention numbers placing Medibank at 78.5 per cent against industry leader HBF at 90.1 per cent, Bupa at 87.3 per cent and HCF at 86.6 per cent, but is also only one of the issues he confronts.

Drummond has the benefit of a strong balance sheet but the trick is to get some growth back into the company.

Field Research’s Stewart Oldfield says while the insurer maintains a marginal positive net promoter score, it ranks at the bottom of the list for its peers.

Yet despite largely dismal feedback from clients and continued market share losses from the main Medibank brand, net margins are staying over 8 per cent and the stock has performed outstandingly, up 41 per cent from the late 2014 float.

Medibank is quick to say its low-margin AHM brand is growing well.

In a major industry report out yesterday, CLSA’s Jan van der Schalk has a buy on the stock with a price target of $3.39 a share and a forecast profit this year of $454 million, compared to the expected $428m return last financial year.

UBS’s James Coghill has recently upgraded the stock to neutral with a $3 share target and basically flat earnings per share forecasts.

Medibank has done better than the market expected at managing costs by dragging concessions out of the private hospitals and other suppliers, and there is more of this to come, which explains the angst.

Just to compound the matter, as noted by CLSA, Medibank, as a former government body, is held to higher standard or “societal role”.

A systems overhaul caused major outages last week, even before the latest Telstra snafu.

Medibank faces a court battle with the ACCC for allegedly unconscionable conduct in misleading members over what pathology and radiology claims it would pay in hospital.

Clients who declined to be named describe the private health insurer as devoid of a clear strategy and “dysfunctional”, saying below the top line, executive turnover has been massive, leaving them wondering what is going on.

The top rank is unchanged, including chief operating officer David Koczkar, healthcare boss Andrew Wilson and CFO Paul Koppelman, but given Drummond came from the outside as a change agent it would not be surprising to see at least one of the above names disappearing in the next few months.

The change agent role is a new one for Drummond, a former investment banking boss, in an industry in which he is also a newbie, and while investor support remains strong, the jury is still out on how he will perform.

Get the message

As vote counting continues, ALP National Secretary George Wright can be forgiven for reflecting on orchestrating another successful grassroots campaign to at least change the way people look at issues.

Just what Wright does next is not yet known. He may well stay in his present job thinking there will another campaign sometime soon, given the fragility of any majority that may emerge.

The Medicare campaign helped garner support for the ALP in the same way the 2011 NAB ‘‘breakup’’ campaign helped change the image of the bank and the 2007 WorkChoices campaign contributed to the defeat of the Howard government.

All three worked by directing the message directly to the masses, with a simple line that helped change people’s thoughts about the issues.

That is precisely what big business needs to do now if it wants to get its message through as well as it did in the campaign against the Rudd mining tax, for instance.

Wright worked on all three campaigns, the first when he was at the ACTU working for Greg Combet, the second in 2011 as a PR operative for NAB and the most recent in the last election.

None of the campaigns were revolutionary; remember the 2004 campaign with Prime Minister John Howard opening the election campaign saying that it was all about trust: “You can trust us not to raise interest rates.”

It was the ALP that was going to cause interest rates to rise and, no matter what the veracity of Howard’s claims, it was a stunningly successful political message, just as Medicare was in this campaign.

The thing which some business leaders don’t understand is that everyone gets a chance to vote in the election, not just the other people sitting around the board table. The 2007 WorkChoices advertisements started with a woman scared to say “no” to her boss, who wanted her to work on her day off when she was meant to be looking after her children.

The Business Council advertisements in support of WorkChoices featured union thugs who may exist but are not prevalent at every work site.

The NAB campaign helped halt a slide at NAB’s retail arm but it required further action from the bank. What it did do is change the morale within NAB, which helped get it back on track.

The campaign used various forms of the media, starting with a tweet, then a news story in the tabloid press, then street campaigns with helicopters circling the ANZ headquarters with a sign saying “you’re dumped” and truck-top singers doing cover versions of Meatloaf tunes.

The idea was to present NAB as different when, of course, it is and always has been one of the big four, but the message was clear.

The campaign used all available media and presented a simple message that targeted punters and particularly younger people in a way which, while not restoring NAB to its premier position, at least stopped the rot.

Mitre 10 ruling

The ACCC only releases undertakings if it thinks they are enforceable, which is not to say they will be approved; that’s how the Mitre 10 undertakings should be read. They have promised not to discriminate in favour of their own stores and to let outsiders source their products from outside the system.

This is almost a direct copy of the undertaking Woolies made when it acquired Danks seven years ago, which preceded a rush of Danks franchisees to Mitre 10.

Now the two are being put together which explains the concern. The key decision is whether the independents will think the motherhood promises are enough and the decision is due by July 21.