Background: Australian private health insurance market has undergone a major overhaul in its market structure recently. The wave of demutualisations that transpired in the latter half of last decade significantly transformed the market traditionally dominated by the mutual organisations.
Aims: The main aim of this study is to examine the effect of these recent demutualisations on the Australian PHI market with emphasis on the market concentration, value transfers, and their welfare effects.
Methods: An overview of the drivers and the value transfers (static and dynamic) for these demutualisations are provided. The market concentration is evaluated using different concentration measures like the two Firm-four firm concentration ratios and the Herfindahl-Hirschman index. The estimates from these concentration metrics are used to evaluate the degree of market consolidation and its welfare implications. The data is obtained from appropriate Australian government agencies other relevant information sources. The effect of these demutualisation-mergers on market concentration is assessed based on the ACCC merger guidelines and their welfare effects will be graphically illustrated. All the above results will be drawn upon to summarise on the overall impact of these demutualisations on the Australian PHI industry and policy recommendations are provided.
Conclusion: The strict regulatory framework and the access to capital were identified as the major drivers for demutualisation in the Australian PHI industry. The ongoing market consolidation will have welfare implications for the policy holders due to the increasing market power of a few large funds. An appropriate regulatory framework and guidelines to govern the demutualisations to check wealth expropriation or dead weight losses is recommended.