APRA risk management for private health insurers

The Australian Prudential Regulation Authority (APRA) has released revised final versions of Prudential Standard CPS 220 Risk Management (CPS 220) and the accompanying prudential practice guide, which from 1 April 2018 will apply to private health insurers as well as authorised deposit-taking institutions, general insurers and life insurers.

A revised version of Prudential Standard HPS 001 Definitions (HPS 001), has also been updated and released to include key terms contained in CPS 220.

APRA says that consultation on CPS220 found general agreement within the private health insurance (PHI) industry that adoption of the risk management standard would strengthen risk management practices and the capacity of private health insurers to identify and mitigate key risks.

In a speech “Review of the private health insurance prudential framework – Building resilient insurers” APRA’s Senior Manager, Policy Development explained that the standards are Phase 1 of its policy changes for private health insurers:

APRA’s Roadmap consists of three phases: risk, governance and capital.  Fundamentally, the proposals in the Roadmap are about building resilient insurers. 

So it was natural that our first priority would be risk and risk management, because a resilient insurer has robust processes for identifying and managing current and emerging risks to its operations and financial soundness. 

Phase two is concerned with improving governance, because a resilient insurer has robust governance arrangements designed to facilitate effective decision making in the long term interests of the insurer.  And processes to make sure that the right people are in place to support those governance arrangements, people who are have the right skills, people who are competent and people who can be trusted to behave appropriately with other people’s money.

And the final, third phase will review capital and solvency requirements.  A resilient insurer has adequate amounts of capital.  Because despite our best efforts at managing risk, risks can and do still emerge and can threaten financial strength.  Holding adequate capital allows time for insurers to weather losses and emerge still able to meet their promises to beneficiaries.

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