Southern Cross computer disaster costs $17m

By DITA DE BONI

Health insurer Southern Cross lost more than $41 million in the year to June 30, nearly half of it the result of its computer debacle.

The non-profit organisation yesterday announced the $41.2 million financial year loss, saying that premium rises last month and more increases early next year would help turn around the disappointing result and offset a rise in claims and operations.

The loss covers the parent organisation and its subsidiary, Aetna Health.

The company's computer problems started in April last year with the transition from Aetna's computer system, which Southern Cross tried to modify to include a combined 909,000 member database.

The problems developed into a processing fiasco as claims fell behind and operational problems mounted. The $17 million was lost over three months.

At one stage in January the company had a backlog of about 50,000 claims.

Chairman Bryan Kensington said: "In hindsight we recognise that in customising the system to cope with our volumes and products, we attempted too much too soon and made some fundamental errors along the way in implementation.

"We stumbled during the year but now we are back on track. Hopefully, our members got our message that we have rebalanced our books.

"Although the premium increases have been higher than we would have wanted this year, people must realise that costs are rising for all healthcare insurers as the population ages and more private surgery is performed."

The overall loss was blamed on several factors, including a one-off writedown of $19.1 million in the value of its investment in Atone, bought in July 2000 but unable to be integrated until the end of last year because of legal wrangles.

Depreciation of the goodwill on the Atone purchase cost the company a further $4.5 million.

Although Southern Cross expected to post a surplus at the end of this financial year, Mr Kensington would not say what he thought it might be.

But it would stem from the insurer managing claims better and talks with private healthcare providers to try to control rising costs.

Mr Kensington said the organisation remained financially strong.

"Investment in bank deposits and other readily realisable Government stocks and bonds for the group remains strong at $199 million (up from $193 million last year). We have an A+ rating from international credit agency Standard & Poor's."

The company has also revamped its premium payment schedule. Previously, 0 to 19-year-olds paid the same, as did 19 to 45-year-olds, 45 to 64-year-olds and over 64-year-olds.

Now, 20 to 64-year-olds pay incrementally more each year they belong. The company believes the new scheme is fairer on younger people without being unnecessarily harsh on those older.