Bupa UK profits fall by almost one-quarter

Bupa reported a group operating profit of £559.3m for 2012, up 4% on the previous year. But this result hides a poor performance by its UK operations, which posted segment operating profits of £107m for the year, down 23% on its 2011 figures.

Talking to Insurance Times, Bupa chief executive Stuart Fletcher said that the UK was a tough region to operate in, but that the next 12 months would see Bupa launch an offensive on the market.

“The decline in UK private medical insurance customer numbers due to the economic climate, and higher claims costs due to our ageing customer demographic, has had a significant impact on UK profits,” Fletcher said. “As we look ahead to the next 12 months we feel well placed to respond to market challenges, and we’ll be focusing on two areas: tackling rising costs, and launching new products and services.”

Fletcher said overcoming these issues would require a change to the way the industry operates in the UK. “While we feel there are some things in the UK market that need to change and difficult conditions are likely to persist, we remain focused on the long-term trends which we believe will continue to fuel demand for healthcare and drive our growth,” he said.

One of the changes Fletcher wants is increased competition between the healthcare providers, adding: “We’re supporting the Competition Commission’s investigation into the private hospital market in the UK, and we hope it will encourage consultants and private hospitals to compete based on quality and value.”

Problems with the UK health market

Bupa’s UK performance was largely hindered by the current economic scenario and rising costs of care, caused by a lack of government spending and an absence of competition between hospitals. Its insurance arm, Bupa Health and Wellbeing, saw customer numbers fall 6% to 2.69 million, while the average claims costs rose 6% in 2012. The insurer’s care service business was put under further pressure as costs rose, but fees from local authorities and Primary Care Trusts remained flat.

In its preliminary report, Bupa said it needed to “address excessive claims inflation driven by both private hospital and consultant practices, and fees”. The report also said it feared for the future of UK private health insurance if steps were not taken by competitors and the government to tackle the affordability of health insurance cover. Any collapse of the market could leave the NHS covering the cost of the £5bn private health sector.

But Fletcher remains confident that the outlook is good for the industry – if these issues can be overcome.

“We believe UK health insurance has a great future if we can make sure it remains affordable,” he said.

The UK-based operations was the only area of the group to report lower operating profits than the previous 12 months, with Bupa’s international personal medical insurance division seeing segment operating profits rise by 14%. Australia and New Zealand reported a rise of 12% to announce segment operating profits of £261.5m, largely helped by growth in corporate insurance and expansion of retail premises.

UK revenues were marginally up to £2.53bn, the second highest revenues in the group after Australia and New Zealand. Despite this small rise of less than 1%, operating profits fell by almost one-quarter, meaning they were only the third largest in the group, with Australia and New Zealand and Spain and Latin America domestic being the most profitable segments.