Southern Cross loses operations head in midst of payment crisis

By Deborah Hill Cone

Friday 18th January 2002

RESHUFFLE: George Jepson (left) and Roger Bowie

The Southern Cross Healthcare senior executive overseeing the rocky transition to its new computer system has left the company, the health insurer said yesterday.

Chief operations officer George Jepson, who joined from acquisition Aetna last year on a short-term contract, left in December in the midst of the claim-paying crisis.

The arrangement for Mr Jepson to leave at that time had been made when he joined the company, so was not related to the company's problems, but it nevertheless leaves the insurer changing its management team in the midst of a major crisis.

As The National Business Review revealed last year, Southern Cross, the country's biggest health insurer, was up to three months behind in December in paying out members' claims.

It said the backlog had built up as a result of introducing its new Diamond computer system, the specialist technology it bought from rival Aetna.

In December Southern Cross said it would clear the backlog by the end of January but this week chief executive Roger Bowie said it was reviewing whether it would meet that deadline.

"We are making progress. The productivity has increased dramatically in terms of numbers of claims being processed," Mr Bowie said.

There were 40% more staff processing claims and they were working longer hours, he said.

But Mr Bowie said Southern Cross had not yet seen the slowdown in claims that naturally occurs in the Christmas break - which would give staff some breathing space to clear earlier claims.

He emphasised Southern Cross has a sound credit rating and the failure to pay its claims on time was solely due to the computer problem and did not reflect on its financial position.

Standard & Poor's rates Southern Cross AA-, saying it has a strong market position, an excellent brand profile and excellent capitalisation.

Meanwhile, an IT source has defended the computer system itself, which was adapted for Aetna several years ago by Auckland-based firm RHE & Associates.

"I cannot see how there can be any system issue if it did not exist with Aetna," the source said.

Southern Cross handles larger volumes of claims but that was not likely to be a problem.

A former employee of Southern Cross, who asked not to be named, said the new computer system was long overdue as the company in earlier days had thousands of unprocessed claims sitting in cardboard boxes.

"The whole culture of being not for profit means they think it's okay not to make money - they couldn't run a bath," the former staff member said.

Although Southern Cross does have a sound financial position with $220 million in reserves it is still continuing to pay out more in claims than it brings in through premiums and is losing members, a situation nicknamed the "death spiral" by some in the industry.

Standard & Poor's describes Southern Cross' outlook as negative, saying the market is undergoing significant change.

Even Mr Bowie has admitted the company is struggling, as a reason that it needed competition regulators to clear it to buy rival Aetna.

The handling of the payout crisis by Southern Cross could be used as a case study in bad public relations.

When asked by NBR in December about the payment delays, the insurer said outside PR consultant Catherine Peters, not even an employee of the firm, was the only person to make comment.

And it was almost impossible to reach any Southern Cross management as its phone system was so overloaded with angry policyholders ringing to ask where their payments were.

That approach flies in the face of accepted damage control wisdom, which encourages businesspeople to "front up" to the public during crises rather than fobbing queries off to outside consultants.

Michael Ashby, an independent consultant with Southern Cross, has been appointed chief operations officer to replace Mr Jepson and was brought in as a spokesman after last month's NBR story.

Comments from our readers

No comments yet