Case study

HBF Health Fund Inc.

The Hospital Benefits Fund of Western Australia Inc. was incorporated in 1941 to provide private health insurance services to the people of Western Australia. Since then, HBF (as it has become known) has grown to be the largest private health insurance organization in Western Australia, with a 65 per cent share of the private health insurance market. Incorporated as a mutual organization, HBF has nearly a million members – which is almost half the total population of the state of Western Australia. The HBF brand is instantly recognized by over 99 per cent of the population, and the organization is renowned for its service to members, high ethical standards and sound financial management.
In the late 1980s and early 1990s the emerging global economy, where competitive advantages lie in ever-increasing scale, presented HBF with the challenge of continuing to service the needs of its members whilst competing with national (and even international) competitors with, in some cases, operations many times the size of its own.
Without a member-base or any brand awareness in other parts of Australia, it was soon realized that attempting to replicate the scale-based strategies of the major competitors by expanding HBF’s operations nationally would expose the organization to an unacceptably high level of risk whilst simultaneously diverting attention away from servicing the needs of its members, all of whom lived in WA. Rather, a decision was taken to expand the organization’s operations to cover complementary services for members, focusing on the key strategic advantages available to HBF, particularly the relationship it had with its members.
The first products identified were domestic general insurance products for home, contents and motor vehicle. However, the general insurance market in WA was already mature and dominated by a small number of well-established players. Also, with a history deeply rooted in private health insurance, the HBF brand had become synonymous with this in WA. Stretching the brand to cover domestic insurance products was therefore a significant challenge.
The approach taken by HBF was to differentiate its general insurance products from those already in the market by emphasizing the attributes that had developed around the HBF brand as a provider of private health insurance. HBF focused on its organizational strengths of service to members, mutuality and high ethical standards. Whilst the established players in the domestic insurance market clearly held a competitive advantage in the ‘manufacture’ of general insurance products, they were unable to match the depth of the relationship HBF had with its members.
Although growth in the general insurance portfolio was slow initially, HBF members who purchased domestic insurance products from the organization soon discovered that the qualities attributed to the health insurance service were also present in the general insurance service.
Despite slow growth initially, HBF was able to persevere with its product development initiative because, as a mutual organization, it is accountable to its members (customers) and not the capital market. Where the traditional capital markets would have demanded a financial return from the investment in a new line of business, HBF was able to take into account the strategic value being generated, represented by a growing acceptance of the new line of business by members.
By 2005, HBF’s general insurance business had gained a 12 per cent share of the market in Western Australia. It is generating annual returns on capital of approximately 25 per cent and is growing policy numbers by 15 per cent per annum. The investment in the general insurance business has produced an average annual return of over 20 per cent after tax.
HBF followed a similar strategy with the launch of a Retirement and Investment Advisory business in 2003. After only two years of operation, HBF Financial Services reached an operating break-even. It is projected to generate positive cash flows by the end of 2006.
As in the launch of general insurance 15 years ago, HBF emphasized the organization’s strengths, applying them in an industry that had experienced a series of scandals arising from inappropriate behaviour by existing players. Despite a complete lack of scale in the financial advisory industry, HBF has been successful in capturing a segment of the market that is seeking the trust and security offered by a reputable organization.

Case study

China and the WTO

The World Trade Organization produced the following statement in response to the conclusions of negotiations on China’s accession.
Banking
Upon accession, foreign financial institutions will be permitted to provide services in China without client restrictions for foreign currency business. For local currency business, within two years of accession, foreign financial institutions will be permitted to provide services to Chinese enterprises. Within five years of accession, foreign financial institutions will be permitted to provide services to all Chinese clients.
Insurance
Foreign non-life insurers will be permitted to establish as a branch or as a joint venture with 51 per cent foreign ownership. Within two years of China’s accession, foreign non-life insurers will be permitted to establish as a whollyowned subsidiary. Upon accession, foreign life insurers will be permitted 50 per cent foreign ownership in a joint venture with the partner of their choice. For large-scale commercial risks, reinsurance and international marine, aviation and transport insurance and reinsurance, upon accession, joint ventures with foreign equity of no more than 50 per cent will be permitted; within three years of China’s accession, foreign equity share shall be increased to 51 per cent; within five years of China’s accession, wholly foreign-owned subsidiaries will be permitted.