Medibank Pty Ltd Business Report

This report provides a detailed analysis of Medibank Pty Ltd, Australia's largest private health insurer. It covers various aspects of the company, including its operations, investment strategies, financial reporting practices, and industry analysis. The report delves into the competitive landscape, regulatory environment, and external factors influencing Medibank's performance. A SWOT analysis, PEST analysis, and Porter's Five Forces analysis are conducted to assess the company's strengths, weaknesses, opportunities, and threats. The report also examines Medibank's risk management strategies, particularly focusing on challenges related to customer service and IT system upgrades. A performance analysis is presented, evaluating key metrics such as premium growth, management expense ratio, and net margin ratio. Finally, the report explores Medibank's governance and management structure, highlighting its ethical values, competency development, and board composition.

Medibank pty ltd
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Executive summery
Medibank pty ltd is the largest private health insurance (PHI) organisation. It commands
around 29% of the market share. The organisation provides integrated healthcare service
where apart from health insurance the organisation provides complementary services which
account 10% of its volume. The main investment strategy that the organisation as a private
health insurance company applies is the low risk low return investments. Previously it used to
be fully govt owned. The population of Australia is aging and in 2055 the ‘average life
expectancy’ is expected to be 96.6 and 95.1 year for women and men respectively. The
introduction of the technology based services like the tele-health is changing the service
delivery. Considering this long term and innovative approach is needs in the business. Along
with these general risks Medibank pty ltd faces two specific risk factors. One is the loss of
customer because of the affordability matter. To counter this business developed two
different brands. Brand Medibank is a premium service based private health insurance and
brand ahm uses affordability as its position statements. Addressing two different type of
customer based with two different brands helps the business to retain customer. on the other
hand the recent technology up gradation at Medibank's botched is a transition process from
40 year old mainframe system to recent technology. This process has disrupted the customer
service and number of complaints has gone up by 60% on year on year basis. This is a major
risk factor which was considered earlier and may impact the future operation until the work
ends. Considering this Medibank increased customer service spending by $6 m and
introduced 60 more customer service officer to provide better service. The social media
platform is also used to provide service 24*7. A proper governance structure and
management process is there in the organisation and that is helping the organisation to
minimise the risk of the business.
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Table of Contents
Executive summery....................................................................................................................2
Introduction................................................................................................................................6
Part-1 Developing understanding about the nature of Medibank pty ltd...................................6
Operations of the business.....................................................................................................6
Investments and the activity done in this regard....................................................................7
Financing and the activity done in this regard.......................................................................9
Practices of the financial reporting process...........................................................................9
Part -2 Developing understanding for the nature of industry Medibank pty ltd belongs to.......9
Size of the industry.................................................................................................................9
Growth of the industry...........................................................................................................9
Supply chain structure of the industry.................................................................................10
Market share distribution and significant players in the market..........................................11
Success factor which are critical for the businesses.............................................................12
Part-3 Developing understanding for the legal requirements..................................................13
Regulatory environments and factors...................................................................................13
Format of financial reporting...............................................................................................14
Political and legal environment............................................................................................14
Part- 4 Developing understanding for the business external type environmental factors........15
SWOT analysis.....................................................................................................................15
PEST analysis.......................................................................................................................16
Porter’s five forces...............................................................................................................17
Part-5 Analysing the business risk along with the strategy and objective of the business......18
Expansion and maintaining customer base..........................................................................19
Bad service and use of IT.....................................................................................................19
Part- 6 Performance analysis through the analytical procedure for Medibank pty ltd.............20
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Premium growth...................................................................................................................20
Management expense ratio...................................................................................................21
Net margin ratio...................................................................................................................21
Part-7 Medibank pty ltd’s governance and management structure..........................................22
Ethics, integrity and communication....................................................................................22
Competency..........................................................................................................................23
Attributes of the people responsible for governance............................................................23
Operating style and the philosophy of the management......................................................26
Conclusion................................................................................................................................26
Reference..................................................................................................................................27
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Introduction
The businesses are in the dynamic environment and not in any static environment.
Considering these changes in situation, decision taken in this regard may cost the business
with less profit or complete loss. This probabilistic factor is risk for the business (Vose,
2008). In this report Medibank pty ltd is the chosen organisation for development of
understanding of the possible angles of risk identification and evaluation.
Part-1 Developing understanding about the nature of Medibank pty ltd
Operations of business
In current setting the business is providing solution in the field of integrated healthcare. In
one segment the business provides health related insurance and on the other hand it provides
services in the field of health care solutions through the Medibank health (Bloomberg, 2017).
There are health insurance related services like hospital cover, health cover for services of
optical, dental or physiotherapy and others. The organisation also provides insurance for
students and visitors who come from overseas (Bloomberg, 2017). Some tele-services and
health management services are provided to corporate or govt clients through Medibank
health. The services are in rehabilitation field, health and injury management of face to face
nature, management of chronic disease, wellness and web platform based advices, providing
software for the clinical decisions and so on. In Australia Medibank pty ltd have 29% share
and Other than Australian market the organisation has small presence in the Singapore and
New Zealand.
[Source: medibank.com.au, 2014]
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[Source: medibank.com.au, 2016]
These are subsidiary of the business which is owned by the company 100%.
Investments and activity done in this regard
Major investment in management category of business is for capability increment. The
organisation was preparing for Medibank bank re-launch. Investment activity is done in the
business after getting necessary approval from board of directors about ‘Capital management
policy’. Investment activity is evaluated based on factors like risk to return understanding for
different class of asset, appetite for risk, regulatory requirements of APRA, analysis of
liquidity and stability of base of capital (medibank.com.au, 2016). Main approach of
investment activity is low risk and low return approach. It abstains itself from high growth
oriented risk activity in its investment decisions. The property section consists of investment
in building and land worth $24.4 m. Cash and cash equivalent consist of $ 438.7 m
(medibank.com.au, 2016).
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[Source: medibank.com.au, 2016]
[Source: medibank.com.au, 2016]
The levels are
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1- Quoted price.
2- Inputs which are not quoted price.
3- Non market data based observation input of the liability and asset.
Financing and activity done in this regard
One of the major financing decisions that company took in 2014 is the issuance of initial
public offering. In 2014 govt of Australia decided to issue IPO through Australia security
exchange. Before this the major financing route used to be the government funds. The
business had $417.6 m profit which was kept in retained earnings (medibank.com.au, 2016).
Practices of financial reporting process
The ‘Australian Accounting Standards’ is the main statutory processes that were used in
financial reporting. Support of the ‘Australian Accounting Interpretations’ were also been
taken for preparation of financial statement (medibank.com.au, 2014). These processes are in
line with interpretation and reporting of the financial information of the international
standard.
Part -2 Developing understanding for the nature of industry Medibank pty
ltd belongs to
Size of industry
In terms of AUD value the size of market is $20 bn. There are 13.2 m citizen in the country
that are covered by a health insurance (apra.gov.au, 2015). There are around 46.5k types of
services or products in the market; some of which are open and some are close ended.
Growth of industry
From 2012 to 2017 the industry was expected to grow around 6.4% to around $23.8 bn
(Ibisworld.com.au, 2016). The table given below is showing actual growth figure in the
industry of five years. All of figures show that the growth of the industry is faster than GDP
growth of the country and that was 2.4% in 2015 and 2.8% in 2016 (Tradingeconomics,
2017).
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[Source: Ellis et al., 2014]
Supply chain structure of industry
Medical specialist and hospitals are some of the main components of supply chain structure
in the market of private health insurance. Cost of business is high where around 85% of the
premium revenue is accounted for payments of benefits (apra.gov.au, 2015). Uneven
distribution of the hospitals in country with respect to demand is also a factor of difficulty in
supply chain (Christopher, 2016). Concentration of psychiatric and acute hospitals around
capital city area is 77% whereas only 67% of the population is there in the country. This
causes inefficiency in supply chain (apra.gov.au, 2015).
[Source: apra.gov.au, 2015]
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[Source: apra.gov.au, 2015]
Market share distribution and significant players in market
Distribution of market share and other parameters like premium revenue, net margin and
company type is given in below figures. This shows that Medibank pty ltd is market leader in
term of market share but other players have better margin. Nearest competitor is BUPA.
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[Source: Ellis et al., 2014]
Success factor which are critical for businesses
Cost of service is rising in the industry and that is impacting affordability of consumer as
premium is also rising. Considering this, businesses needs to ensure good margin without
losing customers. Considering this an effective negotiation with suppliers would be important
to increase efficiency (Trkman, 2010). Another thing would be to reduce complexity of
product which would help consumers in purchase decision making process. Vertical
integration with supplier would increase efficiency in the business (Trkman, 2010). In recent
time Medibank pty ltd has encounter massive complaint level which is reducing their market
share. An effective service after sales process is one of the important things for success.
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Part-3 Developing understanding for legal requirements
Regulatory environments and factors
Before 2007, ‘National Health Act’ of 1953 was main guiding law for private health
insurance sector. But in 2007, ‘The Private Health Insurance Act’ came into force as first
independent parliamentary Act, dedicated to private health insurance industry (Ginnane,
2007). Regulatory framework was appropriate for development of innovate services and
products in the industry and it also helped the industry to keep them in line with clinical
practices of recent times. Legislation changed the environment of the sector by focusing on
products and service information standard, health related boarder cover, equalisation of risk,
lifetime health cover, re-registration, pricing, and standard for prudential. PHIAC which were
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