Southern Cross CEO says 70% of New Zealand’s health insurance premium rises over 20 years stem from increased service use, not cost hikes. The society returns 93% of premiums to care, uses age-based pricing, offers excesses to reduce costs, and holds 70% market share.
Southern Cross Medical Care Society CEO Nick Astwick attributes 70% of the health insurance premium increases in New Zealand over the past 20 years to members using more healthcare services, rather than rising treatment costs. In a recent interview, Astwick clarified that only 20% to 30% of premium hikes are due to inflation in medical procedure costs. He explained that unlike the consumer price index (CPI), which measures a fixed basket of goods, the health insurance sector is confronted with an ever-expanding range of available treatments due to technological advances, which contribute to premium changes.
Southern Cross returns 93 cents of every premium dollar to healthcare services, while around 10 cents cover operating costs. This compares favorably to the broader health insurance industry, where typically 73 cents per dollar goes to healthcare and about 30% is allocated to administrative costs and shareholder returns. As a friendly society, Southern Cross operates on a money-go-round model where sustainability depends on balancing the risk pool of members who require significant care with those who are healthy.
The organisation maintains a balanced average member age of 40, with equal numbers of members above and below this age, which supports the sustainability of its age-based premium pricing. Premiums are calculated by grouping members of the same age and predicting the healthcare claims they are likely to make in the coming year, ensuring premiums reflect actuarial risk.
To help members manage costs, Southern Cross offers excesses and co-pays, which can significantly reduce premiums, especially for older members facing economic pressures. Around 25,000 members adopted excesses last year. These excesses apply only to major procedures, not smaller medical services or diagnostic imaging, which is kept outside excess arrangements to ensure timely diagnosis.
Southern Cross is New Zealand’s largest health insurer by value (70% market share) and membership (60%), processing 4.1 million claims annually through a $2 billion operation. It operates as a friendly society, which means it cannot raise capital like commercial insurers and must generate profits for sustainability while serving its members rather than shareholders. The organisation contracts with approximately 2,500 healthcare providers nationwide and actively works to keep price increases close to inflation levels over the past one to two decades, contributing to overall affordability in New Zealand’s health insurance market.
