This is a question often asked by clients, especially those with medical insurance.

Inflation loosely termed is the change in buying power $1 has today vs. a point in time in the past. The Reserve Bank is under instruction from the government to keep this in a band between 1% and 3% per annum.

The best lever for the Reserve Bank to use to manage this is the interest rate, which is why it gets a lot of focus.

Inflation rates help drive the decisions the Reserve Bank makes on interest rates. (In a very simplified way)

What does this really mean?

It is a measure of the change in spending power the money you have has.

Let us take $1 and an inflation rate of 3% per annum. What this means is what you could buy with that $1 12 months ago will now cost you $1.03 for the same thing. Now that is a bit arbitrary as inflation is measured as an average across quite a number of things, not just that item. Sure, from year to year some things will be the same price. The humble can of coke is a good example; I remember them being $1 per can at one point, now look where they are. This is inflation at work.

Can it be negative?

Yes it can, this is called a recession and if it continues for a number of quarters, 3 month financial measurement periods, it can be called a depression. Something most people have a recent memory of. A recession may have negative inflation, but does not necessarily mean cheaper prices. It is also not something the Government is usually happy about.

What does this have to do with medical inflation?

Ah yes the other side of the title. Well you understand inflation; medical inflation is inflation specific to the medical and the medical insurance industries. It is a loose term, not as formal as the Reserve Bank situation above, but applies to the costs of medical treatment. This is used by the insurance companies to help set your medical and health insurance premiums.

The experience has been medical inflation generally runs at twice the country inflation rate as a rough rule of thumb. What this means is medical treatment costs grow at double the normal inflation rate, this results in higher claim payments by the insurers. This translates directly to the base premium increases you are likely to get on your medical policy renewal.

In recent history we have had 2-5.5% inflation rates, depending on the pricing cycle of the medical insurer you will be looking in the region of 4% - 11% increases at the next renewal on top of the age related premium you get charged.

One provider has posted average increases of 4.4% for newer policies and 9.5% for older policies. Another has indicated 8%-11% increases this year.

With premium rates on the move, it is a good time to sit down with an adviser and discuss your options.

Cancelling cover you have had in place for a long time is not usually to your advantage, there are a number of options and ways to manage premiums without giving up your coverage.

Get in touch with us, we will be happy to help show you how you can ensure you have the cover you need into the future.

The information is only intended to be of a general nature and should not be relied upon in any part without obtaining full details of the products and services by contacting Willowgrove Consulting Limited. All product and service details, terms, conditions and other information are subject to change at anytime without notice. Terms, conditions and fees apply to the various products and services and are available on request. A disclosure document will be provided to you on request free of charge.