Insurers Unfazed By Budget Changes As Merger Approved

Sydney Morning Herald

Tuesday May 13, 2008

Jacob Saulwick

MBF and BUPA Australia will sail together into the unknown after policyholders approved a merger, but the combined group's future will be increasingly clouded by changes to the regulation of health insurance.

MBF policyholders voted 98.3 per cent in favour of accepting BUPA's $2.41 billion offer yesterday. However, enthusiasm for the new entity was tempered by predictions of tough times ahead for the industry on a day that the share price of Australia's only listed health insurer, NIB, plunged by 16 per cent.

The managing director of BUPA Australia, Richard Bowden, said it was too early to measure the impact of the Government's impending changes to the private health insurance rebate.

"We are in this business for the longer term, and time will tell in terms of value," Mr Bowden said. "We will be working actively with government to make sure there's the right framework in place for our customers."

The combined business will provide health insurance for almost 3 million Australians and compete strongly with Medibank Private in most states.

MBF's managing director and chief executive, Eric Dodd, said the merger could mark a new era of consolidation in the health insurance sector.

However, there is widespread nervousness about the changes to be announced in tonight's budget that will lower the incentive for young people to take out private cover. "It could be a complete disaster," said Arjan van Veen, a director and research analyst at Credit Suisse.

About 2.5 million people would be affected by the changes, while the industry has predicted that 400,000 people could drop private cover.

Mr Dodd said the changes could be positive because more pressure on the public health system would encourage people to take out private insurance. "I certainly don't believe it's going to be anywhere near as drastic as commentators have led us to believe in the press," he said.

"If anything, I think the appeal of private health insurance may be even stronger as a result of some of these changes. If there is more pressure on the public system then, in my view, the attractiveness of the private system will become even more apparent."

BUPA is owned by the British BUPA group. The company will take between $500 million and $600 million in capital out of MBF to spread across the group.

MBF is concentrated in NSW, Queensland, the ACT, Northern Territory and Tasmania, while most of BUPA Australia's customers are in Victoria and South Australia.

The merger is subject to Federal Court approval, which is scheduled for a hearing tomorrow. It is likely to be implemented on June 16.

If the merger is successful, MBF members are due to receive their payouts on June 30.

© 2008 Sydney Morning Herald

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