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Introduction nib is Australia s only listed health insurer Shares on issue 495,431,427, Share price (17 June 2010) - A$1.32 Market capitalisation ~ A$650m Australia s fifth largest health fund Approximately 400,000 policyholders, providing cover for almost 790,000 people (as at 31 March 2010) Primary distribution channels: Customer Care Centre Online Retail and Corporate Sales Net tangible assets (31 December 2009) A$371.5m or 74.99 cents per share Strategic capital war chest and no debt 3
Results so far have been impressive nib FY07 FY08 FY09 1H10 Premium revenue ($m) 666.0 758.2 829.5 446.1 Net policyholder growth (%) 8.8 11.1 5.2 2.4 Gross margin (%) 14.3 14.7 14.7 16.0 Management expenses (%) 10.7 10.3 9.9 9.1 Net margin (%) 3.6 4.4 4.8 6.8 Investment return (%) 8.8 1.6 (0.4) 15.9 NPAT ($m) 37.2 26.7 23.8 43.1 In the nine months to 31 March 2010, nib s policyholder growth rate was 4.0% or 15,392 net policies (industry average 1.9%), accounting for 15% of total industry policyholder growth In target 20-39 years of age segment, nib grew by 4.7% in nine months to 31 March 2010 (industry average 1.5%) and accounted for 31% of total industry growth in this segment 4
nib s management team and structure Managing Director / CEO Chief Operating & Technology Officer Chief Marketing & Business Development Officer Chief Financial Officer / Deputy CEO Claims Products and Market Intelligence Strategic Procurement Provider Relations Group Marketing Finance Human Resources New Business Development & Innovation Business Intelligence Information Technology Project Management Office Risk & Compliance IT Infrastructure Services & Operations Support Facilities Corporate Affairs & Investor Relations Group Channel Legal & Governance Direct Sales & Service (Customer Care Centre) Field Sales & Service (Retail & Corporate Sales) E- commerce & CRM (Online) Knowledge Management 5
Our vision nib is a leading financier of the nation s healthcare spending with a reputation for innovative products, value for money, outstanding customer service, corporate social responsibility and strong shareholder returns Our mission To help people pay for their healthcare when and where needed 6
Our business strategy Continue to grow organically through building national brand presence, targeting new to category under 40 demographic, enhancing distribution channels and higher h policyholder ld retention ti Mitigate claims inflation and continually improve operational efficiency in order to maintain price competiveness and protect underwriting margins Actively migrate policyholders in order to ensure products remain fit for purpose and grow revenue Leverage brand, distribution and organisational capability to offer adjacent PHI and complementary products. Accelerate efforts in respect of new product development and innovation in general Pursue merger and acquisition opportunities given the inevitability of industry consolidation where they are able to meet strategic and investment criteria Further develop a high performance organisational culture and inspire our people 7
New revenue and earnings Overseas workers Compulsory for temporary skilled workers (ie 457 visa holders) In FY10 estimated 310,000 visa holders in Australia (inc 457 110,000) Estimated industry total written premium in FY10 of $215m (inc 457 - $120m) Market leader (Medibank Private) has an estimated 40% market share Distribution o Employers o Migration agents o Retail (online, telephony) Overseas students Compulsory for all students Approximately 500,000 overseas students in Australia in FY10 Estimated industry written premium in FY10 of $120m Market leaders (Medibank Private and Worldcare) have a combined estimated 80% market share Distribution o o o Universities Education agents Retail (online, telephony) 8
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Organic growth Continue organic growth investment to achieve above system net policyholder growth Support net policyholder growth efforts with improved retention Increase premium revenue through selling higher value and more appropriate products (net buy up) to current policyholders 10
Industry growth has slowed 80,000 Industry's Contributor Growth by State 70,000 60,000 50,000000 40,000 30,000 20,000 WA VIC QLD NSW 10,000 0 During the GFC industry growth slowed from around 50,000 policies per quarter to around 30,000 policies per quarter However, results from the March 2010 quarter may signal the start of a recovery Source: PHIAC Quarterly Statistics 11
Our target segment has also slowed 160,000 Hospital persons Covered Growth 140,000 120,000 100,000 80,000 60,000 40,000 60 Plus 40 59 20 39 0 19 20,000 0 Growth in our target segment has slowed more than any other segment Despite this, our share of growth remains strong, although smaller funds are gaining market share at the expense of the bigger funds Source: PHIAC Quarterly Statistics 12
But we continue to grow well above system Policyholder ld growth FY06 FY07 FY08 FY09 FY10 to 31 March 2010 nib 11,359 26,485 36,605 18.899 15,392 Industry 98,334 201,575 211,238 171,172 102,663 nib (%) 3.9 8.8 11.1 5.2 4.0 Industry (%) 2.1 4.2 4.2 3.3 1.9 % of growth attributed to nib (%) 12 13 17 11 15 Industry growth has slowed from around 200,000 policies per year to around 150,000000 policies per year nib s above industry growth can be attributed to our organic growth strategy (investment in marketing and advertising, brand development, product design and distribution strategy) Significant room for continued growth given industry penetration levels Source: nib data and PHIAC Quarterly Statistics 13
We continue to punch above our weight 16,000 nib's Contributor Growth by State 35% nib's Share of Industry Growth by State 14,000 30% 12,000 25% 10,000 8,000 WA 6,000 4,000 VIC QLD 20% 15% NSW 10% NSW QLD VIC WA 2,000 0 5% 0% 2,000 5% Significant inroads have been made into Victoria and Queensland, with traction now starting to build in Western Australia Source: nib data and PHIAC Quarterly Statistics 14
Industry advertising spend has stabilised 120 100 80 60 40 20 0 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Industry Advertising Spend ($ millions) FY06 FY07 FY08 FY09 FY10(F) Share of Advertising Spend FY06 FY07 FY08 FY09 FY10(F) Other HBF HCF/MU Bupa/MBF p/ Medibank/ahm nib Estimated industry advertising spend grew from $43m in FY06 to $100m in FY08 The biggest growth has been in the mid-tier funds and iselect nib s share of voice has varied between 11% and 14% Other Although spending has HBF stabilised, our competitors HCF/MU Bupa/MBF (particularly Medibank Medibank/ahm Private) have focused on nib our segment Source: Nielsen Adquest Millenium and nib estimates. Adquest data includes free-to-air TV, metro radio, press, magazines, cinema and direct mail. It excludes online, subscription TV, digital TV (Go!, 7TWO, etc), regional radio and press inserts. nib have estimated the industry level of other advertising (e.g. online). 15
ROI on organic growth remains attractive Effective Commission Rolling 6 months 30% 25% 20% 15% 10% 5% 0% Dec c 05 Mar r 06 Jun n 06 Sep p 06 Dec c 06 Mar r 07 Jun n 07 Sep p 07 Dec c 07 Mar r 08 Jun n 08 Sep p 08 Dec c 08 Mar r 09 Jun n 09 Sep p 09 Dec c 09 Mar r 10 Our cost to acquire customers has been relatively stable since we stepped up our advertising in January 2007 The current average Effective Commission (EC) is well below breakeven We estimate the current marginal EC to also be well below breakeven levels Source: nib data 16
Sales mix has been impacted by GFC nib FY06 FY07 FY08 FY09 FY10 to 30 April 2010 Total sales 37,169 49,757 67,456 50,438 45,829 % of new sales under 40 target segment 73.6 78.5 79.2 78.77 77.2 % of new sales outside core state of NSW/ACT 23.4 32.3 44.0 42.6 42.5 % of new sales new to PHI 70.8 74.4 78.2 67.4 61.0 % of new sales online 13.6 32.6 38.8 36.2 32.1 Since FY06, the percentage of our sales that are under 40 has been stable between 77% and 79% Sales outside NSW remain stable just above 40% Percentage of nib sales new to PHI and via the web have both fallen as a result of GFC and increased competitor activity Source: nib data 17
Despite GFC and heightened competitor activity our lapse rate remains stable Lapse (nib) FY06 FY07 FY08 FY09 FY10 to 30 April 2010 Lapse rate (%) 8.9 7.7 9.4 8.6 8.7* Total lapse 25,810 23,272 30,851 31,539 27,788 Under 40s segment (%) 60.5 62.8 62.22 62.4 62.9 Outside NSW/ACT (%) 22.5 23.9 31.0 32.9 34.0 New to PHI (%) 58.9 58.4 57.9 60.5 58.6 Lapse dipped in FY07 as a result of favourable economic conditions and our demutualisation process All macro-level metrics (e.g. age, source and product mix) have remained relatively stable Improvements in lapse appear to be as a result of many small changes rather than any silver bullets Reducing lapse remains a key improvement opportunity * Annualised rate based on 10 months data Source: nib data 18
Forced migration has so far been the only meaningful migration tactic Forced Migrations Price Increases To date, we have achieved modest success with focused voluntary migration campaigns However, the only meaningful impacts have been due to forcibly migrating customers from old products to new products Source: nib data 19
Increasing the level of online engagement is a key element of our marketing strategy Video 1 Health insurance explained Video 2 Going to hospital PLANNED 20
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Agenda Customer insights growth of the nib brand Net Promoter Score listening to customers Recent product innovation continuous improvement and value creation Future innovation 222
Customer insights 72% of Australians are aware of the nib brand (in NSW 90%) This is ahead of HBA (37%), HCF (58%) and on par with MBF(80%) Of those considering taking out PHI in the next 12 months, 47% will consider joining nib, this is second only to Medibank (49%) We are the brand most likely to switch to if changing health funds The nib brand goes from strength th to strength: th 69% say nib is the brand leading the way 56% think nib is the brand becoming more popular 28% think nib is the brand most suited to younger people Source: nib brand tracking research conducted 2008, 2009 and 2010. Sample size 1,000 per research wave 23
nib ads are driving growth 46% Australians recalled the ad 90% of those recalling the ad nationally knew it was nib Advertising i health (%) HCF Medibank MBF iselect TV 32 22 14 20 Correct named brand (of those aware of ad) 68 74 25 76 Source: nib brand tracking research conducted 2008, 2009 and 2010. Sample size 1,000 per research wave 24
Building the brand in WA Awareness remains stable at 34% (as at August 2009) Brand that is leading the way has increased from 36% to 47% (as at August 2009) Brand becoming more popular up from 23% to 34% (as at August 2009) Source: nib brand tracking research conducted 2008, 2009 and 2010. Sample size 1,000 per research wave 25
Customer satisfaction 48% of customers are extremely satisfied with nib 65% are loyal to nib 90% agree that nib has a range of covers that suit their needs 82% believe they are getting the best deal in their health insurance by being with nib Source: nib customer satisfaction research conducted 2009. Sample size 1,000 customers 26
Net Promoter Score Net Promoter Score is a simple measure of customer advocacy obtained by asking customers two questions: (1) Would you recommend X to a friend or colleague?; (2) Why did you give that score? The percentage of detractors is subtracted from the percentage of promoters to generate a Net Promoter Score We are now surveying customers who interact with our Customer Call Centre, Retail Centres, and claim at any provider We expect the feedback from this survey to be a key tool in helping us to improve our own performance (in areas such as product design and customer service) 27
Net Promoter Score Net promoter score is positive and stable with overall satisfaction dipping in March 2010 primarily due to premium price adjustment notification and recovers quickly in April 28
Recent nib product developments Development Launch date Comments Nil Excess for Children April 2010 Introduction of nil excess for child dependants on nib family policies OSHC January 2010 Our entry into the overseas student market. Currently focussed on developing effective distribution channels nib Travel Insurance January 2010 Relaunch of nib travel insurance in partnership with Mondial Dental Plus August 2009 nib s budget extras product Removal of Loyalty June 2009 Removal of nib s Loyalty Bonus scheme and replacement with higher annual limits Young at Heart Top & Mid November 2008 nib s products designed to meet the needs to the over 55 market Just Extras April 2008 A premium extras only product that has seen minimal cannibalisation from the launch of Dental Plus nib Value Life March 2008 Launch of nib life insurance in partnership with TOWER 29
Travel insurance and life insurance sales Life insurance sales have seen a steady increase since June 2009 Travel insurance sales have been declining however new relationship with Mondial should see a recovery Life and travel insurance commissions for FY10 are forecast to be approximately $450,000 30
Future innovation provider portal The proposed provider portal web site will empower customers by containing information on providers such as cost and customer satisfaction As well as customer ratings and service charge comparisons the web site will also provide contact details, opening hours and other useful information We have written to providers to inform them we are surveying our customers 31
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nib s distribution strategy To ensure that the group channels of nib can support the: Net growth ambitions (including both sales & retention) ti Margin ambitions; and Product and brand aspirations of our business strategy through the appropriate mix of channels that deliver the right capability in the most cost effective way possible 33
Cross Channel Integration Channel sales mix (FY10 at 30 April 2010) Call Centre Customer Support Policy Administration 120 agents 18 Retail nib.com.au Centres Multiple sites Mobile Online Sales Network Online Service B2B Development CRM Mgt 2000 clients New Channels Integrated sales & retention activity 5% 31% 9% DS&S 40% Retail 15% Channel claim mix (FY10 at 30 April 2010) 2% 14% 15% 2% 67% Online Corp Other Hi Caps/IBA Teleclaims Mail Counter Online
Customer Care Centre Service Levels Circa 820,000 service calls per year answered within 50 secs Circa 88,000 sales calls per year Circa 104 104,000 000 Tele claims per year (3% of ancillary claims) Circa 15,000 outbound welcome calls per annum Average 92 sales per day (30% conversion rate) Average cost per call is approximately $10 000 life insurance referrals & 3 000 travel insurance up sells per year Circa 18 18,000 3,000 New Functionalities Call Recording (100,000 hrs of recording per annum) Soft phone and customer screen pop Click to Call (20 requests per day) Queue Call Back (100 requests per day) CRM homepage for consultants with enhanced front end system with customer smarts Targeted Functionalities Live Web Customer Support Service (click to call/chat/skype/online service advice) Enhanced outbound capability for targeted campaigns Tailored call steering to meet exact customer need (speech recognition) Full view of all customer transactions Flexible at home workforce to complement existing call centre and growing customer demand Automated lead management system
Retail & Corporate Sales Service Levels Customer transactions reduced by 48% in 3 years across network Circa 8,000 sales per annum, 1,500 life insurance referrals & 1,200 travel insurance sales Average cost per customer transaction is $32 Approximately 20,000 corporate customers across 2,000 clients in every state and territory 1000+ corporate presentations per year New Retail Models Kiosk style open plan operations in Brisbane, Chatswood and Greenhills Sales only centres (37% of employees) Cashless centres introduced with EFT payment facilities Mobile kiosk tested over 30 markets in FY10 (including various Perth locations) Web service stations in major centres j Targeted Functionalities Completely cashless network in 2-3 years Completely cashless network in 2 3 years Self Service /ATM style terminals to be rolled out in Sept 2010 with call centre support to complement additional markets (eg Universities) Continual innovation with centre design, customer offering & cross channel support B2B development into major markets (mining) with a focus on profitable direct subsidised business Targetted wellness and health offerings
Online Service Levels Approx1.5 million unique visitors to nib.com.au (50% increase on PY) Circa100,000 online quotes per annum (approx 18% conversion) Circa 18 18,000 000 join online per annum Average cost per customer transaction is <$1 Approx 57% of policy holders registered for online services (OS). 70,000 transactions (claims/change of details) per annum New Functionalities Click to Call development with call centre Multiple OS enhancements including Claim Receipt uploads (scan/fax) I h I-phone claim l i application li ti (20 (20-30 30 d downloads l d per d day)) nib video portal Integrated nib-third party integration (e.g. Tower Life Insurance) Multiple site development (shareholders, nib foundation) D l i /F b k and dy b presence Development off T Twitter/Facebook You T Tube Implementation of Google website optimiser, improving conversion rates across site g Targeted Functionalities A dominant source of all sales & service with voice support as and when required Development of OS enhancements to enable full customer self service capability (with a voice support C2C) Enhanced concierge (Find my Provider) online service Fully personalised OS pages with direct access to all policy information (eg benefit statements) (similar to net bank) Further development of mobile functionality
Emerging sales & service channels
Cross channel integration NPS * /Customer Solution/Retention initiatives PMOC # email collected across channels (6000 current) Single view of all customer transactions in CRM tool Voice support for all electronic customer transactions * NPS = Net Promoter Score # PMOC = Preferred method of correspondence
Claims Management Reducing Leakage Reducing Unwarranted Variation through analysis, profiling and education Systemic enhancement of adjudication rules Enhance product design and customer awareness to reduce preference sensitive care Improving Clinical Outcomes Continue to evolve disease management to lower future utilisation Case management to deliver improved outcomes at a lower cost Provider Contracting Take back control of the pricing of over $400m of claims costs Innovate and experiment with funding models Risk Equalisation Lobby for new risk equalisation system to deliver greater incentives for risk management at all age cohorts
Operating Efficiencies Automating Routine Transactions Healthstream inbound paperwork claims and policy docs 2500 to 4500 per day (700 STP and increasing), 30% saving on baseline cost Healthstream outbound routine outbound correspondence 2000 per day PMOC 25% email target (min $500,000 saving per annum) Claims Ca Automation ato 67% of claims electronic (up from 58% in FY09) Eclipse medical > 50% Eclipse hospital target 30% by mid 2011 Tele-claims increasing daily On line and i phone claiming and service including electronic upload Distribution Efficiencies Retail network reduced from 32 to 18 centres (FY07 - FY10) Contribution of 15% sales constant and sales per FTE up from 92 to 117 Call centre conversion rates increased from 24% to 30% (FY07 - FY10)
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nib reaffirms FY10 guidance FY10 will be a positive year Net policyholder growth in upper end of FY10 guidance range of 4-6% Increased spending on organic growth as well as other business improvement investments will see full year management expense ratio in the range of 9.5-10% Net underwriting result of $45-$50 million (net underwriting margin of 5-5.5%) Significantly improved investment returns compared with FY09 in light of market movements since 30 June 2009 will benefit FY10 consolidated profit Dividend policy will continue to reflect a payout ratio of fully franked dividends between 50-60% of earnings in addition to returning rning capital by way of dividends, idends subject to availability ailabilit of full franking credits. Franking credits will be a limiting factor for FY10 Capital in excess of prudential target currently continues to largely be preserved for strategic investments In the absence of M&A opportunities coming to fruition the Board will consider more significant capital management initiatives to optimise nib s capital structure in the 2011 calendar year As at 24 May 2010, 42,569 eligible ibl policyholders ld (representing 35.2m shares or 7.1% of issued capital) remained unverified. On expiry (October 2010), the remaining shares will be cancelled (subject to shareholder approval at October 2010 AGM) or sold, with the Board recommendation/decision likely to be influenced by capital management requirements at the time 43
Year to date gross margin results have nib on track to achieve FY10 guidance Results for the 10 months to 30 April 2010: Reflecting factors including: Net policyholder growth of 4.7% (FY10 Net policyholder growth guidance 4-6%) Product mix Gross margin of 15.2% Premium rate increase of 5.18% (1 April 2009) and 5.95% (1 April 2010) Claims inflation Risk equalisation 44
Year to date results have nib on track to achieve FY10 guidance Results for the 10 months to 30 April 2010 Management expense ratio of 9.7%, reflecting previously forecast increased spending on organic growth as well as other business initiatives. iti Increased spend levels l are in line with previous forecast of 2H10 operating expenses to be $5-8m higher than 1H10 (FY10 guidance net management expense ratio in the range of 9.5-10%) Net underwriting margin of 5.5% (FY10 guidance net underwriting margin of 5-5.5%) 55%) 45
Investments will contribute strongly to FY10 result Results for the 10 months to 30 April 2010 Investment return (net of fees) of 10.6% or $46.5m Defensive/growth split of 81%/19% at 30 April 2010 No additional exposure to growth assets in short/medium term other than as a result of market movements in existing investments (%) Investment Split FY09 FY10 to 30 April 2010 Cash 38.7 38.3 Australian fixed interest 21.9 20.4 O/s fixed interest 15.6 16.4 Direct property p 7.0 6.2 Australian shares 7.2 8.0 O/s shares 5.9 6.9 Listed infrastructure 3.1 3.3 Unlisted security 0.4 0.3 Property trusts 0.2 0.2 Total return 100 100 Total investment assets ($m) 427.2 485.9 46