With the euphoria having now subsided after last year's largest initial public offer (IPO), which saw the share price of private health insurer Medibank Private Ltd (ASX: MPL) rally as high as $2.59, IPO investors are now faced with the prospect of being underwater on their holding.
By mid-afternoon Friday the stock was down close to 2% and trading at just $2.08 which puts it once again dangerously close to falling below the initial retail offer price of $2 a share.
Given the structural challenges which have become better understood since Medibank listed, now could be a good opportunity for shareholders to reconsider if they really want to be long-term shareholders in this company or not, particularly given there is still a chance to get out with a slim profit.
While concerns over the headwinds facing the sector from a rising claims environment and a powerful private hospital sector are better understood today; it's the heating up of competition that is perhaps lesser understood but also a major concern.
The increasing popularity of insurance comparison websites such as iSelect Ltd (ASX: ISU) and Rate Detective is leading to an increased churn of policy holders. This is benefiting smaller rivals such as NIB Holdings Limited (ASX: NHF) at the expense of the established majors such as Medibank and Bupa.
The opportunities for new competitors in the Australian private health insurance market have even attracted the attention of one of the world's greatest investors and chairman of one of the world's largest insurance companies Warren Buffett.
According to a report in the Fairfax media, the Australian subsidiary of the Buffett-led Berkshire Hathaway is expanding into the healthcare insurance sector in Australia and New Zealand. While this doesn't mean that Berkshire Hathaway will also enter the domestic private health insurance sector, it should highlight to investors that large multinational insurers are once again taking an interest in the Australian marketplace.
