Ross Greenwood speaks to HBF CEO, John Van Der Wielen, about why one of Australia’s largest private health insurance companies has decided to strip its information off comparison websites.
Introduction: Insurance giant removes itself from comparison websites
Ross Greenwood: Let’s start and tell you about private health insurance because that’s something again that continues to rise and rise and rise. What you do in response is you try and get a cheaper and cheaper deal. Remember, private health insurance, like all forms of insurance, you don’t get rewarded for loyalty. You got to keep shopping around to get a better deal each and every time because, if you stick with your existing provider, they will just check up the price. You won’t necessarily know whether there’s a better deal out there. To do that, you generally go to comparisons apps, websites out there that just put in your details, spits it out, and says, “Right here is the prices for a variety of different companies.”
But then the comparison sites themselves, are they are helping or are they actually, shall I say, doing the wrong thing in regards to the price you pay? One of Australia’s largest private health insurance companies today, that’s HBF, has decided to quit putting its information on those comparison websites. John Van Der Wielen and as the chief executive of HBF is with me now. Hello, John.
Interview with: John Van Der Wielen, CEO, HBF
John Van Der Wielen: Afternoon.
Ross Greenwood: Have you gone mad? If you don’t put your stuff on the private health insurance comparison websites, nobody will know you’re around, you might be able to get any customers. Am I thinking about this incorrectly, what’s it about?
John Van Der Wielien: Look, it’s about valuing existing customers more than you necessarily value new customers. Whilst new customers are important to HBF, our internal analysis is showing that the payment, and sometimes over 30% commission, on a new policy via an aggregator site or any form of brokerage or intermediary is not worth the money.
Ross Greenwood: Hang on, say that again. Are you saying the commission that you would pay to one of these comparison websites, an aggregator website, could be as much as 30% for a new policy?
John Van Der Wielien: That’s correct.
Ross Greenwood: Wow, that’s a good business, isn’t it?
John Van Der Wielien: I think the point about this is, and I think let’s be very mindful of what we’ve seen in the Royal Commission and what incentives laid to and making sure those consumers are looked after the right way. I would like for us to acknowledge the first thing in private health insurance, I think we are confusing and there’s responsibility on the providers which the government I think are taking the right actions in this gold, silver, bronzes type approach. We are difficult to understand and that’s led to people doing more comparisons. But comparison by price alone is not necessarily the right advice.
Ross Greenwood: Okay, because what you want to make certain is you have got the cover, and it’s appropriate cover for your stage of life or that type of thing. How does you pulling out of the comparison websites which allow me to make those comparisons, how does that actually aid your existing customers? Because you might not be paying the 30% commission but you’re also not going to be able to prove your customers that you’ve got a value deal and a deal that’s is good value.
John Van Der Wielien: A current example and I’ve done nearly nine years in the UK running labs life fact companies and been here in Australian in financial services for a long time. One of the issues that hit the life industry in the UK when it wasn’t growing was that there was a very famous article called Polly Put the Kettle On. Which was the proof that the customers were swapping from one life company to the other via getting advice in high commissions but in fact the market wasn’t growing. The same applies to Australia today, private health insurance is actually shrinking slightly, we’re competing harder for new customers. We estimate that the amount of commission paid last financial year could be as high as $150 million.
Ross Greenwood: That’s a fairly decent wages that comes out. What you are pointing out is if that $150 million was not paid to the comparison websites, that $150 million could be put in to try and keep the premiums lower for all customers.
John Van Der Wielien: That’s correct. What I’m not saying is that HBF is easy enough yet to understand. I think it’s difficult for customers to compare. Therefore, as an industry, we need better based websites, more transparent information to assist people. The answer is not to change your policy every two or three years, where we repay a broker commission to win a customer and then lose a customer again and win a customer. You know this in financial services and financial planning but a great example could be that if someone swaps their policy say four times in a 10 year period, that means that 120% of the premium could have gone out over that 10 years.
Ross Greenwood: Therefore, what will you do for existing customers if you pull out of these websites? If I’m an HBF customer, will you say to me, “Ross, we know you’ve been with us for 20 years, as a result of that, you’ve had a pretty easy claims experience during that period of time. We reckon you’re good for a 25% discount on your policy or a 30% discount on your policy.”? Is it something along those lines that you could talk about?
John Van Der Wielien: Yes. The one thing HBF is not for profit, we are very big on the West Coast. In fact, we are 54% market share of Western Australia, it might not be big on the East Coast. Let me give you an example, about 92% of their revenue from all that market share comes in Western Australia. I’m the new CEO of HBF, about 12 months in. What I’ve guaranteed our existing member is, we will be more competitive and we’ll look after them first. What I’ve noticed is, the amount of commission we are paying to grow into the Sidney Melbourne market is costing my existing customer base and it’s not profitable.
We are estimating it’s taking us between seven and eight years on a very low profit margin to get back the money from one year of commission. So just not worth it for us. What others wish to do of course is up to them. I think 30% commission of premiums as high as $5,000 is something the industry needs to address.
Ross Greenwood: I’ll tell you what, it’s a really interesting subject is because it also goes this whole point that we’ve seen and spoken about on this program so many times. That is, these days, people are not rewarded for loyalty. In fact, in many ways, if you are loyal to your bank, to your insurance company, to whomever it might be, you are a bit of a mug because you are not constantly out there trying to hustle for the latest and the best deal. Maybe loyalty in the future could and should be rewarded. The chief executive of HBF is John Van Der Wielen. John, I appreciate your time in the program today.
John Van Der Wielien: Great, thank you.
Ross Greenwood: There you go, John Van Der Wielen there. I’ll take your calls at 131-873. Maybe even some examples where loyalty is rewarded. I can’t think of too many these days. I noticed it in mobile phones, you’re crazy if you don’t shop around for mobile phone deals. Okay because they are changing all the time and there’s always a cheaper one out there. Certainly, your car insurance. Car insurance, 100%, you change it pretty much every year. Oh, your electricity providers. Again, same thing, you have to change them the whole time every time you come up. In fact, I’ve even got little notes in my electronic diaries as to when those dates arrive so know I’ve got to go and look for a better deal.
What else is there? Loyalty, where is it that you get a bonus for loyalty these days? 131-873, I’m trying to think of one. Look, and I’m not counting supermarkets. I know maybe they say yes but I want one we get a loyalty bonus, a good one.
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