Lockdowns lifts Australian health insurer profits

And lowered claims costs for health insurers.

Extended lockdowns across the east coast of Australia is giving health insurers a profit bump, according to S&P Global.

According to the ratings agency, the temporary profit bump, which is likely to continue through fiscal 2022, stems from a combination of rising awareness of health-related insurance, the geographic scope of the lockdowns impacting access to services, and the high likelihood that a portion of deferred claims will be permanently lost. Additionally, the stronger profits will likely forestall industry consolidation.

“Widespread lockdowns have lowered claims costs for health insurers. The restrictions, predominantly across the states of New South Wales and Victoria to control the COVID-19 delta variant, affect about 60% of the country's population. Restricted trading for health care providers including dental, physiotherapy, chiropractic, and optical services has lasted several weeks and will likely continue through calendar 2021. Similarly, hospitals and patients have deferred noncritical elective surgeries to minimize the virus spread and prepare for an increase in COVID patients,” S&P said.

Based on statistics by the Australian Prudential Regulation Authority, the private health insurance industry’s net profits after tax increased by 93.7% in the financial year ended 30 June 2021 from the prior year.

The stronger profits were on the back of 3.2% premium revenue growth that was well above claims growth of only 0.3%. S&P anticipates that insurers will pass on some of the lower claim benefits to members--either in the form of premium rebates or reduced premium increases—and forecasts industry returns on equity to be higher than the five-year average of 16%.

“We believe that a portion of deferred claims will be permanently lost, which will temporarily bump industry profitability. In fiscal 2020, health insurers held additional reserves for deferred claims, which were viewed as short term and to be released within fiscal 2021. Similarly, insurers are likely to set aside additional reserves for deferred claims from the recent series of lockdowns. However, a portion of the deferred claims will likely be permanently lost due to the ongoing lockdowns and limitations on service providers to provide extra services to catch up on claims. We believe that as lockdowns are extended, the percentage of deferred claims that will be permanently lost will increase,” S&P added.