Health.com.au’s Andy Sheats eyes health insurance shake-up

Health.com.au’s Andy Sheats eyes health insurance shake-up

PUBLISHED: 03 SEP 2013 00:05:00 | UPDATED: 03 SEP 2013 12:39:45

‘Health insurance is a massive industry and there is plenty of room for everybody,’ says Andy Sheats. Photo: Michel O’Sullivan

MERCEDES RUEHL

Former REA Group executive Andy Sheats wants to shake up the $16 billion private health insurance sector, the way realestate.com.au transformed buying and selling houses. The last new substantial health insurance company to open its doors was Medibank Private in 1997, according Mr Sheats. Even though the industry has moved online, he feels there is room for a new, more modern player. Launched in April 2012, his online health insurance company, health.com.au already generates sales of $45 million and employs 23 people. It has grown to cover 40,000 Australians. “Health insurance is a massive industry and there is plenty of room for everybody,” Mr Sheats said. “We are only doing $45 million out of a possible $16 billion so we are not really concerned about new entrants.”Private health insurance contributed 11 per cent of Australia’s total health expenditure over the most recent fiscal year. Insurance giant BUPA, MediBank Private, Australian Health Management and NIB control most of the market.

It is a growing industry, with the number of people covered broadly rising year on year. Australia’s ageing population, as well as population growth, ensures this will continue.

But there are big barriers to enter the industry, including licenses, building the balance sheet and raising equity.

BOOST FROM ISELECT

Mr Sheats pulled together a total funding package worth over $100 million for health.com.au. Roughly a third of this, $34 million, was private equity. Mr Sheats approached doctors, lawyers, judges and superannuation funds to invest in the start-up, rather than going to institutional investors.

Mr Sheats, who quit as REA Group head of strategy and corporate strategy in 2011, built the business around the assumption there was enough market share and business for an online player.

He also bet that insurance comparison site and broker iSelect would help market and grow the business.

“The commercial viability of new insurance businesses is greatly enhanced by iSelect. It would have been almost impossible to without them,” Mr Sheats said. “It is a channel that presents our [product] to people that we would have had to put up ­billboards to reach.”

ISelect sells on behalf on about 15 health companies and allows consumers to compare the price of different insurance products. It had one of the most heavily hyped floats this year but has faced ongoing questions about the longevity of its business model.

He said many of the investors in health.com.au also seed-funded iSelect and NIB. The Fraid family, for example, was a big seed investor in his company after also investing in SEEK and iSelect.

DIGITAL ADVANTAGE

Mr Sheats said there would be an initial public offering, likely in the 2015 financial year, to fund the company’s next period of growth.

Health.com.au’s selling point on top of other providers, according to Mr Sheats, is that all the paperwork is online and digital. Instead of taking receipts, the insurer has a trust policy but has some fraud software operating.

“Think of your own health insurance; you drive down, get the receipt, get your money and you get these big legalistic documents,” he said. “You really start to question what you are paying for.”

The company targets people who prefer to be in control and are happier online. It tends to be a younger demographic, he said.