New Zealand's health insurance sector is under pressure from both ends. Insurers are paying out record claims, and the clients who fund those claims are dropping cover.
That is the picture from data published by the Financial Services Council (FSC) at its annual conference. A supporting report from consultancy MartinJenkins, commissioned by the FSC, sets the numbers against a wider healthcare system that is also under strain.
For advisers, the story is less about policy debate and more about a market in which retention is getting harder, the economics of group schemes rest on a contested tax question, and the public system is not positioned to absorb further erosion of private cover.
FSC member data shows the average health insurance claim paid per member reached $1,921 in 2025, a 75% increase from $1,097 in 2021. The share of policyholders cancelling cover climbed from 7% in 2022 to 9% in 2025, with 80,771 major medical policy terminations last year alone.
"Health insurance is being used more, claims are rising, treatment costs are rising, and households are feeling it," FSC chief executive Kirk Hope said.
The FSC notes that the more common pattern has been customers downgrading rather than leaving altogether, by raising excesses, stripping back benefit options or switching to lower-premium plans to keep some cover.
Insurer results reflect the same pressure. Southern Cross Health Society paid out $1.706 billion in claims for the year to June 2025, up 14% on the prior year, and posted a deficit of $51.8 million. It processed a record 3.8 million claims, and 17,772 members increased their policy excesses during the year to keep costs manageable.
nib New Zealand closed FY25 with a full-year underlying operating loss of $2.9 million, against a $19.3 million profit the year before, as insurance revenue grew 8.1% to $401.4 million and the insurer applied product and pricing changes across the book.
Partners Life raised Private Medical Cover premiums three times in 2025, by 18% in April, 20% in July and 23% in October, citing rising medical costs and higher claims volumes each time.
Coverage has barely moved in a decade. The 2024/25 New Zealand Health Survey found 35% of adults held private health insurance, with 29% of children covered. New Zealand's adult coverage sits below the OECD average.
The MartinJenkins report notes that adults in the least deprived neighbourhoods are nearly three times as likely to hold cover as those in the most deprived, at 49.1% against 18.1%. Coverage among Māori adults stands at 21.4% and among Pacific adults at 17.5%. As premiums rise, the people most likely to lapse are already underrepresented in the insured pool, which concentrates risk and pushes pricing further.
Employer-sponsored schemes account for 43% of all health insurance policies. Whether that share grows or contracts depends partly on a tax setting that the industry wants changed and the government has so far declined to change.
Under current rules, employer-paid health and life insurance premiums are subject to fringe benefit tax (FBT). The single rate is 63.93%, which is the simplest calculation method but not necessarily the lowest-cost one available to employers. Inland Revenue's April 2025 FBT issues paper consulted on motor vehicles and other simplification measures but did not propose an exemption for health or life insurance. Budget 2026 followed the same scope.
The government's position is documented. A Ministry of Health aide-mémoire prepared ahead of a July 2025 meeting between Health Minister Simeon Brown and Southern Cross records that both Treasury and Inland Revenue do not support FBT changes for private health insurance.
Inland Revenue advised that an exemption would materially erode the integrity of the broad personal income tax base, and would raise equity concerns for individuals who pay for health insurance outside employer schemes.
Revenue Minister Simon Watts, when launching the 2025 FBT consultation, said the proposals were designed to be broadly fiscally neutral. An exemption estimated to cost between $210.7 million and $234.5 million a year does not fit that framing.
NZIER modelling commissioned by the FSC, published in August 2026, argues that removing FBT from group life and health insurance would deliver up to $198 million in net economic benefits and bring approximately 201,408 additional policyholders into employer-sponsored cover.
"Our argument is – remove fringe benefit tax for employer group schemes, because what we know is that more employers would offer them. That would actually reduce the price of premiums, because you're expanding the market," Hope said.
For advisers with SME and corporate clients, the practical implication applies now, however the policy debate resolves. FBT at 63.93% is a real cost that affects whether employer-funded cover is viable to offer, and employers may not realise that lower-cost attribution methods can apply.
Health New Zealand entered 2025/26 forecasting a deficit of $300 million for the year, $100 million above budget, according to the Ministry of Health's Q2 monitoring report.
The New Zealand Treasury projects government health expenditure could rise from 7.1% of GDP to around 10% by 2065 under current settings, with per-person costs potentially more than doubling in inflation-adjusted terms.
FSC polling found 55% of New Zealanders want the government to prioritise greater integration of public and private healthcare as demand grows.
"The question isn't whether public or private healthcare should do everything, but how we build a system where Kiwis can get the care they need sooner, bring public waiting lists down, and protect more households for when something goes wrong," Hope said.
The MartinJenkins report does not recommend a specific policy direction, but concludes that the case for exploring a greater role for private insurance warrants serious consideration. The downstream stakes are concrete. The Accident Compensation Corporation (ACC) spent $8.1 billion on rehabilitation, treatment and compensation in 2024/25, up $4.9 billion over a decade, and could face a funding gap of $26.3 billion by 2030 under current trends. Further erosion of private cover would land on a public system already short of capacity on several fronts.
