Medical costs for health insurers WellPoint and Humana have risen more than expected this year. The news sent up a warning flare concerning the industry’s worst fear – unanticipated cost acceleration – and burned share prices to a crisp. Rival Aetna reaffirmed its profit forecast, but WellPoint’s warning has nonetheless triggered a sell-off in the sector that wiped out gains posted last year, when investors had viewed it as a haven. That defensive lustre has justifiably worn off. The recent market share wars that prompted insurers to cut their premiums are starting to look ill-timed.

WellPoint, an industry bellwether with 35m medical members, priced its premiums on the assumption that medical costs would rise by less than 8 per cent this year. But the volume of high-expense claims steepened across many of its markets, as did doctor and hospital costs. WellPoint overshot cost estimates in its Medicare business, and the subsequent profit warning from Medicare-heavy Humana suggests WellPoint’s Medicare troubles may not be isolated.