The Australian Prudential Regulation Authority (APRA) has announced a package of proposed measures designed to improving governance and decision-making in the private health insurance sector.
APRA will consult industry on the package, titled Governance, fit and proper, audit and disclosure requirements for private health insurers, which aims to introduce stronger prudential standards that have successfully lifted capabilities across other APRA-regulated industries.
As part of the package APRA is seeking to:
- replace prudential standard HPS 510 Governance with the more forceful cross-industry equivalent standard, CPS 510, to strengthen governance practices;
- extend cross-industry prudential standard CPS 520 Fit and Proper to the industry to ensure the competency and integrity of anyone exercising material influence over a private health insurer;
- introduce HPS 310 Audit and Related Matters in recognition of the important role auditors can play in supporting prudential soundness; and
- revoke prudential standard HPS 350 Disclosure to APRA to streamline reporting and remove obsolete requirements.
APRA Executive Board Member Geoff Summerhayes said the measures would bolster the industry’s resilience at a time when private health insurers faced significant challenges.
“As the affordability of private health insurance declines and younger, healthier policyholders leave the system, effective decision-making is vital to keep funds sustainable and able to pay their members’ claims into the future,” Mr Summerhayes said.
“These reforms will strengthen resilience by increasing the likelihood that boards, senior managers, auditors and actuaries will identify and take decisive action on emerging issues. We also expect policyholders to benefit through a reduction in the risk of failure arising from fraud, mismanagement, or other undesirable practices.”
Today’s package commences Phase Two of APRA’s roadmap for comprehensively reviewing the prudential framework for private health insurance, launched in August 2016.
Phase One, which focuses on risk, has resulted in the adoption from 1 April this year of CPS 220, APRA’s cross-industry risk management prudential standard. Other aspects of Phase One, including operational risk and the role of the actuary, remain ongoing.
The third phase of the private health insurance roadmap, examining the industry’s capital standards, is likely to commence later this year.
Stakeholders have until 2 May to review today’s consultation package on governance, with APRA aiming to finalise the standards later this year. The new measures are expected to come into force from 1 July 2019.
Copies of the consultation package are available on APRA’s website.