There has been much wringing of hands and gnashing of teeth at the impending “death of PHI”…however, much as Mark Twain apparently retorted on news of his own demise whilst simply away from the US, “reports of my death are greatly exaggerated”…or are they?
There are more than a few similarities here. Not that PHI businesses are great writers and adventurers, but that a number of them do appear to be absent. A number of people therefore feel as though perhaps those PHI businesses have already died, or are in “a death spiral”.
Even before the virus changed the world, the reports that life was getting harder for PHI businesses was undoubtedly true. The market environment for a number of older businesses is getting tougher than it has ever been. For many years PHI has been assisted by a generous succession of governments who do not want to over-burden the public system with a great number of elective surgeries. Governments then end up needing vast administrations to control public health. The cost of PHI premiums relative to other costs of living were relatively under control, and well subsidised for consumers who had grown up simply accepting PHI as “what you did”. Wages growth was also helping maintain a healthy insured population.
Move forward to today and the costs of PHI premiums have been spiralling at a rate that the government can no longer afford to subsidise so readily. Alongside that wage growth has stalled, whilst other more essential costs of living have also increased enormously in recent years. It would appear to be the perfect storm, even before one starts to look into the future with increases in “lifestyle” diseases, alongside expensive treatments for more and more conditions. Somehow we are all going to have to work out how they can be afforded - whether in a public or a private system.
A number of PHI businesses have simply continued to sail directly into this storm in the most unseaworthy vessels, often seemingly unaware of the signs warning them of the need to invest in a major refit.
The market has been populated for years by a number of smaller mutual health funds, promoting their mutual status (and local or industry links) as a great reason for why people should entrust their health insurance to them. One of the greatest challenges for these funds has been to develop internal capabilities in sales, marketing and IT. Their inability to do so, leaves them seriously exposed to the changes in today’s consumer desires and behaviours. This is especially true when a number of the industries that they once relied upon for members have been shrinking for the last few decades.
In the last few years even this landscape has changed with the entrance of larger for-profit players. In a totally unreasonable way, these “for-profit” funds have a nasty habit of re-investing a proportion of their profits into delivering better sales and marketing programmes to drive acquisition and retention. Sadly a number of the incumbents have seemingly not had a plan for spending money on anything other than simply managing and paying claims. Similarly, the growth of comparison sites and online brokers has begun to dominate how consumers interact with health funds, utilising smart digital marketing technologies and highly focussed sales teams to acquire customers’ loyalty from the smaller (and even some larger) health funds.
One can see that huge competitive advantage could be gained by these funds making similar improvements. Taking as an example, the IT systems that a number of PHI businesses run today, they are mostly aged and really should be “self-isolating” now. They were designed before the internet age to do what computers did back then - compute a bit of data quicker than a team of people with calculators could. They were never designed with modern marketing techniques in mind such as product development even, let alone web integration, customer communications and value delivery.
This is just the beginning of the problem, which of course then makes it ridiculously difficult to move these businesses into the modern age, let alone the digital one. There are fantastic CRM systems around that could help move some of these businesses forward, but try connecting them to the current operating systems and just see whether you are really going to get value for money out of your significant investment in a new CRM system, or whether it is worth the hours of work-arounds your teams have to endure to get data in and out of the CRM system.
All of this is still going on behind the scenes from a customer perspective. And the customer’s perspective is changing rapidly. They are questioning the value of PHI in the first place, and on top of that being forced to work through difficult systems to get things done. Once they realise that there is so little being done to introduce efficient systems behind the scenes, they will baulk even further at premium hikes…no matter how often PHI Funds point out the rapid increases in claims costs for a host of other genuine reasons. The cohort of people PHI desperately need to attract have never experienced a world without Medicare. Older generations recall that world of long waiting lists, or an inability to receive much treatment unless they were a government health care cardholder. So the older people are desperately clinging to PHI policies out of experience and a knowledge that they will need it soon, whereas the younger, healthier group are often unaware of the consequences of not having PHI, both for them personally, and the finely balanced Australian healthcare system as a whole.
10-15 years ago, consumers who were happy paying their premiums were satisfied if the claims were settled in a relatively straightforward manner. In today’s world there are general insurers who are paying out claims instantly from an app. There have been years of advertising from PHI’s that you are going to get a lot back, and that has then been followed by price increases alongside wage stagnation. Consumers are then driven to seek out this better value that everyone assures them should be available. This desire from customers to be able to seamlessly and efficiently interact with businesses online is now growing by the day in a (nearly) post-pandemic world. There are no longer any excuses for businesses to delay implementing real digital platforms for their customers.
So, what can be done?? It seems the standard answer from a lot of PHI funds is to simply keep pointing to rising costs and ask for more government assistance, as though there was nothing anyone could do about it.
There are, however, simple strategies that could be implemented to connect more with what consumers are actually experiencing. Clearly the government is not rushing to address the ever-increasing claims bubble that is lifestyle related (diabetes, joint replacements etc etc), so what can PHI’s do to simply reduce the future claims impact? Most funds already have the data they need to deliver great results in these areas, and there are companies clamouring to work with them. To gain a competitive advantage from this data, there needs to be a mind shift that APRA has been pushing for a couple of years now…that PHI funds need to get in touch with consumers and actually start thinking about how to deliver value. They must stop expecting that a government will wave a magic wand again and get the participation rate increased through further subsidies.
Some funds are even starting to change operating systems, with varying degrees of success. There are a number of significant international technology players now circling Australia, as they have also seen the market opportunity presented by ageing and under-supported systems trying to deliver true customer value in the modern world. There has probably never been a better time to get someone in to start reviewing the digital infrastructure of your PHI fund and start to recommend the pathway to sustainable success. Everyone knows that the data for delivering great value is in these funds, they just need some help to unlock it and deliver it in a way that connects with modern consumers.
Last time we identified the 3 phases of this viral economic crisis:
Whilst unfortunately a number of businesses have already gone under, it feels as though most people are through the first phase of pure panic and are trying to work out how far into phase 2 we are. It seems likely that Australia is heading out of the virus black hole at the moment, but clearly there are large parts of Europe and North America in particular with a significant amount of work to do yet. It is also unclear as to whether the virus is really on a proper retreat yet, or merely waiting for everything to open back up again, before striking hard again.
Some things are becoming abundantly clear. The economic impacts of this pandemic are likely to bite extremely hard, and continue for years rather than months, and to think that all businesses will be able to simply “return to normal” any time soon is pretty unlikely.
I have recently read others describing this next 3-4 months in Australia as a “False Economy”, given the number of businesses being propped up by various government incentives. There is no doubt that this makes the end of September another massively important date in this crisis period. There are large numbers of businesses surviving purely on the generosity of government subsidies, rather than under their own steam.
In some cases these business were probably struggling to thrive even before the virus hit, but are now being made to feel the inadequacies of their positioning or strategic decisions over the last few years in a much shorter time frame than would normally be the case. Others have had perfectly good businesses stripped away from in front of them, now desperately flailing around trying to work out how to get going again. It has however given every one of these businesses an opportunity to review their activities, without necessarily having to resort to immediately slashing wages in order to survive.
At the very least it is enabling businesses to avoid the cash flow nightmares of multiple redundancies at a time when they can least afford it. More helpfully than that, this is a fantastic opportunity which needs to be well planned and taken advantage of wherever possible. If you are in this cohort of being able to avoid redundancies right now, then this means you have got “extra” people available, and at the very least are getting a good subsidy of your wage bill to free up cash flow for continuing operations. What the government would dearly love is for businesses to use, as far as is practicable, this extra time and money to set your business up to survive past September in the first instance, but ideally well into many more Septembers.
There is no text book answer on how to trade a business of any kind through a global pandemic. Everyone is learning, and the real survivors out of this will be those that invest in their business by trying new ideas, failing, learning and getting going again quicker than their competitors. The key to this is going to be building resilience into your business. Resilience is not just holding more cash than the next guy; it is also knowing what to do with it, and when; and also making sure you have the right people on your team. There are numerous examples of businesses “pivoting” rapidly at the moment and enjoying astonishing success. It doesn’t really need to be so dramatic, although if you can, maybe you should try! Simply reviewing how you do business, challenging the assumptions you have worked on for years may well give you a good enough opportunity to delight your customers and return more quickly to profitability.
It is also crucial to realise that everyone is learning at the moment, and most customers are likely to be going through exactly the same process…so maybe team up with some of them to try some new ideas, at least perhaps warn them you are trying new ways to make life better for everyone in your value chain, and beg some patience whilst everyone tries to find this elusive “new normal”. Customers are almost certainly keen to find new ways to do business with you - equally in B2B or B2C, so it is probably time to finally implement a proper investment in digital improvements, new products, or develop new channels to market to fit with these shifts in customer desires.
So to sit back and wait for September to roll around and horde as much cash as possible in the vain hope that all will magically be well, is the worst kind of False Economy one could contemplate…at least the False Economy created by all of this government support has a clear and valuable goal of trying to get as many of our businesses as possible through this economic crisis and trading profitably into the future with all of the resulting job opportunities and tax revenues that delivers. Make sure your business is not making its own False Economy, but is investing in how to adapt and thrive in an extremely challenging environment.