Private health insurance prudential policy review

APRA has had responsibility for private health insurance prudential policy since 1 July 2015.

It has now published its roadmap to review the existing prudential framework of the PHI sector. The three-stage program will review selected standards over the next three years: the initial phase of this program of work will focus on risk management standards, and be followed by subsequent phases examining governance and capital standards.

Phase 1: Risk Management

Consultation on the development of a risk management prudential standard commenced in December 2016 with the release of a discussion paper setting out APRA’s proposed risk management requirements for the private health insurance industry.

During 2017, APRA also intends to consult the industry on prudential standards for outsourcing and business continuity management. As part of that consultation, APRA will consider whether it is appropriate to apply all or part of its existing prudential expectations for other industries to private health insurers.

Separately to this work, APRA is currently undertaking a holistic review of its expectations of the role of the appointed actuary and actuarial advice2 in the life and general insurance industries to ensure the existing prudential standards (GPS 320 Actuarial and Related Matters and LPS 320 Actuarial and Related Matters) remain fit for purpose.

Phase 2: Governance

When APRA’s consultations on risk management are further progressed, APRA intends to undertake a comprehensive review of HPS 510 Governance. As part of this review, APRA will consider whether the existing cross-industry prudential standard (CPS 510 Governance) should apply to the private health insurance industry. This will include consideration of issues such as the independence of directors, tenure, assessment and appointment processes, as well as board engagement with APRA.

APRA also plans to review the prudential functions of private health insurance auditors. Separate audit standards exist for all other industries regulated by APRA and provide for independent assurance of prudential matters by an appropriately qualified auditor. This contrasts with the private health insurance industry where prudential standard requirements are currently more limited.

APRA also intends to consult on establishing a fit and proper prudential standard for directors, senior managers, auditors and appointed actuaries of PHIs during 2017/18. APRA’s starting point is that this would be aligned with the provisions of APRA’s cross-industry prudential standard CPS 520 Fit and Proper, with the objective of ensuring that insurers undertake sufficient inquiry to determine that key persons have the appropriate skills, experience and knowledge, and act with honesty and integrity in performing their roles.

Phase 3: Capital

APRA does not propose to review prudential standards HPS 100 Solvency or HPS 110 Capital Adequacy in the short term, unless a prudential issue or other change arises which warrants an earlier review. APRA envisages a review of these standards in 2018/19, by which time both the industry and APRA will have had a more substantial period of experience with the current requirements.

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