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Coronavirus: Nib postpones insurance premium increases

NIB Holdings Limited (ASX: NHF) this morning announced it was postponing health insurance premium increases. Premium increases will be postponed on Australian resident health insurance policies until at least 1 October 2020. 

Nib shares are down 0.60% on the news at the time of writing.

Premium increases postponed

Nib says the decision to postpone the premium increases (which average 2.9%) was taken to support members throughout the COVID-19 crisis. This complements other measures recently announced by Nib, including providing direct premium relief for members experiencing financial hardship and full coverage of COVID-19-related treatment across all products, even if currently excluded. 

Nib Managing Director Mark Fitzgibbon said the decision to postpone the planned increase was the responsible thing to do given deteriorating economic conditions and extreme financial pressure on many members. “It is a very significant measure,” he said. 

Fitzgibbon added:

The reality is we aren’t yet seeing any material savings as a consequence of the Government order to temporarily suspend non urgent elective surgery. But we are confident we can accommodate postponing premium increases and it’s consistent with all the other initiatives we’re undertaking to support our members through this crisis.

Guidance withdrawn

Last week, Nib withdrew its financial year 2020 guidance as a result of the ‘profound uncertainty’ created by COVID-19. “Our only certainty is that COVID-19 will, at least for the near term, have a significant impact upon the private health insurance industry and our business,” Nib told shareholders. 

Insurance sales 

Heightened concern about COVID-19 appear to be assisting health insurance sales and retention to Australian and New Zealand permanent residents. Net growth in the year to date is ahead of budget. Nonetheless there is a high risk that economic recession and increased numbers of unemployed in both Australia and New Zealand could weaken demand. Nib believes it is reasonable to target a growth rate of 1% to 2% in its markets. 

Net membership numbers in Nib’s international inbound health insurance are ahead of budget. The company has not yet observed large scale cancellations as many international students expect to eventually be able to take up their courses. Sales are expected, however, to be negatively impacted by restrictions on foreign entry across Australia and New Zealand for the time being. 

Nib travel insurance sales are below budget for the year to date and are expected to be severely impacted by short term extreme travel restrictions. This sector may face an extended period of recovery post COVID-19. 

Some short term benefit 

In the near-term, the most likely impact of COVID-19 will be to discourage discretionary treatment in private hospitals. Private hospitals account for about 66% of elective surgery in Australia. Private health insurance claims in Australia are heavily skewed towards funding healthcare treatment that tends to be more discretionary (or elective) than that undertaken by public systems. 

Nib calculates that for every 1% drop in hospitalisation for the remainder of calendar year 2020, claims expense could drop by $8.8 million. A 1% drop in dental treatment would reduce claims expense by $3.5 million. 

As hospital admissions increase for COVID-19 related illness Nib faces some additional claims exposure. This, however, is expected to be relatively minor compared to what it anticipates occurring with the diminution of elective treatment. Of course, any fall in hospitalisation and other treatment would be temporary pending COVID-19 passing. When this occurs, Nib expects claims to resume usual patterns of development. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.