Southern Cross records annual deficit with claims up 15% and premiums up 9%

The cost of health insurance claims have risen 15% in the last year for Southern Cross and the health insurer says pressure on the country’s public health system has driven up demand in the private healthcare sector.

Southern Cross is the largest private health insurer in the country and says premiums rose 9% in the June-2024 financial year, compared to the 15% jump in claims costs.

The “surge” in claims costs drove a deficit of $88 million for the 2024 financial year, which Chief Executive Nick Astwick says the insurer had expected.

“The cost of claims in 2024 was steep and rapid, driven by a combination of price, volume, and the mix of claims. The growth in the volume of claims results from an increase in the number of members claiming, the frequency, and claims being made for more expensive procedures,” he says.

Southern Cross reported a deficit of $16.5 million in the 2023 financial year and a surplus of $90 million in the 2022 financial year.

Astwick says the health insurer needs to generate a “small surplus” in most years in order to have sufficient capital reserves. Over the past five years Southern Cross has reported an average surplus of $13 million per year.

“Over our 63 years we have built a strong capital position to navigate times like this where
we generate a deficit,” he says.

Southern Cross has group reserves of $470.7 million.

The insurer paid out insurance claims at a rate of $6 million per business day, up from $5.2 million in the prior financial year. 

It paid out $1.49 billion in claims from $1.6 billion received in premiums during the June-2024 year.  In the June-2023 year, the health insurer paid out $1.3 billion in claims out of $1.46 billion received in premiums.

During the 2024 financial period, out of every dollar received in premiums, 93.4 cents were paid in claims. Southern Cross says this is compared to an industry average – that excludes Southern Cross – of 73 cents.

This means more than 93% of premiums were returned to members of Southern Cross in the June-2024 financial year. Astwick describes this as the highest return in more than 10 years.

The 3.2 million claims in the June-2024 year included 809,969 GP visits, 609,523 specialist consultations, 316,700 surgical procedures and 213,248 prescriptions. 

The number of specialist consultations, surgical procedures and GP visits all rose between 7.2% and 12.4%, while prescriptions claims were down over 65.6%.

When it came to “high value” procedures, Southern Cross paid out the most for knee replacements at $70.7 million – up 17.1% from a year earlier.

But the health insurer also paid out a lot in colonoscopies ($70.2 million) and hip replacements ($65.8 million).

Southern Cross says it has a “significant” cost control programme underway and is also launching a major product review in October.

“Our operating costs grew by 4% in this financial year, slightly below the average inflation rate and we are planning to reduce our operating cost base in the next financial year,” Astwick says.

“Alongside this is our more than 2,400 healthcare partners are keeping their cost increases as low as they practicably can, to support a united goal of keeping premium increases as low as possible for our members,” he says.

As part of its product review, Southern Cross is increasing benefits to most of its policies and Astwick says the insurer is “very mindful” of the costs.

He says the insurer now also has its highest membership since 1992 as its membership grew 15,196 in the 2024 financial year. Southern Cross is inching towards the one million customer mark with over 955,301 customers. 

“We have never been in more demand by our members as they prioritise their health needs, largely in the private system,” Astwick says.

Southern Cross now has 60% of the NZ health insurance market by customer numbers, but 71% of the value of all health insurance claims paid in the country. 

The health insurer says that 60% figure is based on data from the Financial Services Council and a market share estimate of rival health insurer nib.