The Australian Prudential Regulation Authority (APRA) has released a package of prudential standards and guides aimed at improving governance and decision-making in the private health insurance (PHI) industry.
Following an extensive period of industry consultation, APRA confirmed last week it had finalised three new prudential standards, along with two prudential guides designed to assist insurers fulfil the requirements of the standards.
The measures, outlined in a consultation package released in February this year, introduce stronger prudential standards that have successfully lifted capabilities across other APRA-regulated industries.
The new prudential standards for PHI:
- comprise a stronger cross-industry standard on board governance and renewal;
- require boards to establish and apply a written policy to ensure the competence and integrity of anyone exercising material influence over the company; and
- require PHIs to appoint an auditor to provide independent advice on their operations, financial position and risk controls.
APRA has also released two Prudential Practice Guides to help PHIs meet the requirements of the new standards.
APRA Executive Board Member Geoff Summerhayes said the new measures would bolster insurers’ resilience as the industry confronted mounting sustainability challenges.
“As affordability declines and the proportion of Australians covered by private health insurance falls, especially among the young, it’s vital that boards and management can swiftly identify emerging issues and respond decisively.
“These new measures are designed to encourage timely and effective decision-making, helping insurers remain sustainable, and minimising the risk of failures that could threaten policyholders’ cover,” said Mr Summerhayes.
The revised prudential standards will come into effect from 1 July 2019.
The announcement is the culmination of Phase Two of APRA’s roadmap for reviewing the PHI prudential framework. Phase One, focused on risk, resulted in April’s adoption of a cross-industry risk management prudential standard. Phase Three – capital – will commence later this year.
APRA is the prudential regulator of the financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurers, friendly societies, and most members of the superannuation industry.