The review of the capital framework for private health insurance (PHI) is the final phase of APRA’s PHI Roadmap, launched in 2016 shortly after APRA took over regulatory responsibility for the sector from the Private Health Insurance Administration Council (PHIAC). Phase One, focused on risk management, took effect from April this year, while Phase Two, aimed at lifting standards of governance and decision-making, was finalised in September and comes into force from 1 July next year.
APRA will now turn its attention the capital framework it inherited from PHIAC to ensure it remains fit for purpose. Aside from examining whether the minimum capital requirements sufficiently support PHI resilience, APRA will consider more closely aligning the framework to the capital framework used by life and general insurers.
Executive Board Member Geoff Summerhayes said APRA was responsible for keeping the industry on a sustainable footing so policyholders remained confident that valid claims would be paid.
“Private health insurers have been under duress for several years as declining affordability pushes younger, healthier policyholders out of the system, putting further upward pressure on premiums. In times of stress, holding healthy levels of capital enables insurers to continue honouring their commitments to policyholders. This review will determine whether the existing framework still adequately supports that objective,” he said.
APRA will shortly commence consulting with industry and other stakeholders ahead of releasing a discussion paper on potential revisions to the capital framework towards the middle of 2019.
Mr Summerhayes said capital levels in PHI were broadly appropriate, and did not need to be reduced.
“The review may conclude that minimum regulatory capital requirements should be lifted to better reflect the risks faced by the industry. Even then, many insurers already have sufficient holdings to absorb an increase without the need to raise additional capital.
“Any changes to the capital framework are unlikely to materially affect premiums; claims costs, rather than capital levels, have been the primary driver of health insurance premium rises over recent years,” he said.
Phase Three of the PHI Roadmap is expected to be finalised before the end of 2020, with transition arrangements put in place to help insurers adjust to the new framework.