South African health insurer Discovery says it has adopted “rigorous” measures to reverse the losses by its United States operation Destiny Health and is “cautiously optimistic’ about a turnaround in the medium term.
Discovery CEO Adrian Gore said on Thursday that a “rigorous, disciplined approach” to the measurement and evaluation of Destiny’s progress was being applied on a quarterly basis. The immediate short-term target was to achieve a run-rate of 3 000 new members per month and consistently improve quarter-on-quarter financial results.
This is after the group reported that the US operation had increased its operational losses from R41-million to R80-million in the six months to the end of December.
Gore said that while new business growth had been strong in the Mid-Atlantic, Wisconsin and Massachusetts markets, the underlying market dynamics in Illinois had negatively impacted Destiny.
“The operating losses incurred are attributable to slower-than-anticipated expansion into new markets and an over-concentration in the Illinois market, where a significant pricing disadvantage exists relative to the dominant insurer in that market. This placed Destiny under increasing price pressure, resulting in increased lapses and underwriting losses during the period under review,” Gore said.
Destiny Health’s progress in the three other markets it competed in had demonstrated that Discovery’s focus must be on rapid expansion into new markets and on providing the technical sales infrastructure to support new business growth in these new markets, he added.
“The strategy which has exposed Destiny to a concentration of risk within the Illinois market has been addressed during the period under review with a view to rapidly reversing the negative financial trend in Destiny’s results. Premiums have been significantly increased at policy renewal dates and expansion plans have been accelerated to address the claims losses and market concentration in Illinois,” Gore stated, adding that initial results were promising.
“The rates adjustments are translating into lower loss ratios with target retention rates having been achieved and we have been operational in the Texas market since 31 January 2006, where we have received a positive response.”
Gore added that the category of consumer-driven health care was gaining increasing support in the US, especially at a national health policy level, creating favourable conditions for Destiny Health. This was especially true of the Texas market.
“Combined with the power of Discovery’s consumer-driven health care capability and our joint ventures with Guardian and Tufts Health Plan, we believe there are significant opportunities for Destiny Health in the year ahead.
“A rigorous, disciplined approach to the measurement and evaluation of Destiny’s progress is being applied on a quarterly basis. The immediate short-term target is to achieve a run-rate of 3 000 new members per month and consistently improve quarter-on-quarter financial results.
“We remain cautiously optimistic that the achievement of these goals will lead to a viable business and profitability in the medium term,” Gore stated. – AFP