The Medibank (ASX: MPL) share price will be on watch this morning after giving a FY20 profit warning.
Medibank is the largest listed private health insurer in Australia with its Medibank and AHM brands. It has been operating for over 40 years and has around 1.8 million policyholders & 3.7 million customers. The company is headquartered in Melbourne.
Medibank’s FY20 Update
The large private health insurer is updating the FY20 outlook it gave to investors at its FY19 result.
Since August, Medibank has been experiencing higher than expected claims which has resulted in a $21 million under provision from the 30 June 2019 claims reserve.
Medibank disclosed that this now indicates that the underlying claims growth per policy unit was 2.4% in FY19, not the 2% which was reported at the full year. This increase is now expected to continue throughout FY20.
The higher claims have been driven higher by a number of factors, particularly because of higher private hospital payments due to an increase of the average benefit size with elevated prosthesis costs.
Medibank said the industry claims environment remains challenging, which is why the company is focused on growing policyholder numbers. For the first quarter net resident policyholder growth was around 0.6%, or 10,000 policyholders. This is almost double the growth rate a year ago in the first quarter of FY19.
Management are confident that the company is on track to stabilise its policyholder numbers by the end of FY20 and grow in FY21.
Costs is another area that Medibank can give attention, which is why management expenses are expected to be around $545 million this year compared to $560.1 million in FY19, which would represent an improvement of 2.7%, or $15.1 million in dollar terms.
Medibank used the opportunity to call for further government reform because private health insurers are having to juggle premiums being affordable while costs keep rising within the health system.
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