(Bloomberg) — Chile’s private health insurers have a peculiar problem. Every time they try to raise their premiums, thousands of their clients take them to court to stop the increase — and win. Their inability to raise fees is denting earnings, pushing one of Chile’s most profitable industries five years ago to the brink of collapse.
Clients filed more than 130,000 injunctions against the companies last year, with judges not only ruling in their favor 100 percent of the time, but also making the insurers pay the legal fees. It cost the companies, known as Isapres, $34 million in 2015, double the amount of a year earlier.
Stranger still, the government is doing little to help an industry that supplies health coverage to almost a fifth of the population, leaving the insurers in limbo as they await a broader set of reforms that are unlikely to come any time soon. The shares of companies that own Isapres such as Inversiones La Construccion SA and Empresas Banmedica SA have underperformed amid a rally in Latin American markets.
“There are serious doubts that the industry will be able to recover,” said Andres Cereceda, a health industry equity analyst at Credicorp Capital. “Costs are rising and the next five years will be very complicated.”
The system of Isapres was created during the dictatorship of Augusto Pinochet as the state privatized social programs, including much of health care, education and pensions. Those industries are now under strain as resentment mounts over companies making money from essential services. The government has already banned profits in much of the education sector and announced a series of reforms to the private pension system on Tuesday following a protest by tens of thousands in Santiago last month.
Yet, with its popularity at a record low, a growing fiscal deficit and other reforms mired in bitter debates in Congress, the government is unlikely to do anything soon to change the situation for the Isapres, said Victoria Beaumont, chief executive officer of Altura Management, a Santiago-based consultancy that advises the insurers.
In the meantime, the health regulator has warned that two providers, Isapre Masvida SA and Isapre Consalud SA, are barely meeting some of its solvency requirements. The regulator’s office didn’t answer phone calls and e-mails seeking comment. Consalud has said in the past that the worsening indicators are due to faster growth in legal costs due to the injunctions, while Masvida has stressed that it meets the requirements and that indicators should improve once its controlling shareholder, Empresas Masvida SA, incorporates a new strategic partner to its ownership. Neither company answered e-mails seeking comment for this story.
Paying the price
The shares of Inversiones La Construccion have underperformed the IPSA benchmark equity index in the past 12 months, gaining 2.7 percent versus a 6.9 percent advance for the stock gauge. Empresas Banmedica has risen 0.6 percent over the same period.