The Australian Prudential Regulation Authority (APRA) has commenced a consultation exercise aimed at updating and strengthening the capital framework for private health insurance (PHI).
APRA’s review of the PHI capital framework represents the third and final phase of the PHI Policy Roadmap that APRA released in 2016, after assuming regulatory responsibility for the industry, to outline its approach to a comprehensive review of PHI prudential standards. Phase 1 (risk management) and Phase 2 (governance) of the Roadmap are now complete.

In a discussion paper released yesterday, APRA set out its proposed structure for the future PHI capital framework including:



aligning the PHI capital framework with the framework applying to life and general insurers, unless characteristics of the industry warrant a different approach;


integrating changes stemming from the Australian Accounting Standards Board’s new standard AASB 17 Insurance Contracts (AASB 17); and 


applying the capital framework to the insurer’s entire business, rather than just the health benefits fund.

The changes are aimed at improving the sensitivity of prudential capital requirements to the risks private health insurers face, and improving the comparability of performance between insurers.

Impact on insurers

APRA executive board member Geoff Summerhayes said, “While it’s possible the revised framework may increase some insurers’ minimum capital requirements, we don’t expect this to be significant. Importantly, APRA’s capital requirements do not have a material impact on premiums so they will not contribute to the affordability problem that has pushed many policyholders to cancel or downgrade their cover.”

He added, “While some insurers are evolving their business, innovating and looking at new models to provide services to their members, this is not the case with many. APRA has expressed concerns about the resilience of the sector and this has informed our approach to a comprehensive review of risk management, governance and now capital standards for PHIs.”

The consultation will close on 27 March 2020, with APRA expected to release draft updated prudential standards in the second half of next year for further consultation.

APRA’s intent is to implement the finalised PHI capital framework from 1 July 2023 to align with its proposed adoption of AASB 17 for prudential purposes.


 


 

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