Santa has come early for Medibank Private Ltd (ASX: MPL) customers with the business deferring its premium increase for five months.
The increase is the lowest average premium rise in 21 years.
The Medibank share price is largely unmoved on the news, up just 0.3% to $3.39.
Merry Christmas!
Medibank will return approximately $135 million in COVID-19 net claims savings back to customers, by deferring next year’s premium increases.
The slated 3.10% increase, the lowest average premium rise in 21 years, will be postponed from April 1 to September 1.
It will apply to around 2 million Medibank and AHM policies that hold an active hospital or extras policy at any time over the five-month period.
“Customers will save on average around $93 for hospital and extra policies and around $8 on extra policies”
Building goodwill
Today’s announcement brings the total pandemic support package to $435 million. This is no insubstantial sum, equating to about 6.5% of the company’s revenue in FY21.
Management noted the give back will not impact operating earnings for the first half.
Medibank is also targeting $15 million in cost savings in addition to the $20 million it achieved in FY21.
Since the onset of the pandemic, private health insurers have typically incurred lower than expected claims as elective surgeries were delayed and incidents reduced.
Instead of retaining those savings, the company is choosing to pass that onto customers by pushing out the standard annual fee rise.
Medibank could have cashed the savings, however, has chosen to build goodwill with its existing customer base.
My take
It’s somewhat fitting for Medibank to announce the premium delay two days out from Christmas given its red and white colour scheme.
Today’s announcement is undoubtedly a positive for customers, but what about shareholders? Wouldn’t it be better to retain the net claim savings?
That’s definitely an option. But I think passing on the savings to customers when it doesn’t affect the bottom line is actually a positive for Medibank shareholders.
It’ll likely increase customer retention and goodwill with members.
Conversely, competitor NIB Holdings Limited (ASX: NHF) announced it will increase premiums by 2.66% today with the potential of just a three-month deferral.
If you’re looking for share ideas, don’t miss Owen and Anirban chat about 4 rapidly growing ASX and global stocks for 2022.
