As part of the initiatives announced by the Federal Government
in the 2014-15 Budget, it has been proposed that the Private Health
Insurance Administration Council (PHIAC) will
cease to exist as a statutory body and the prudential supervision
of the private health insurance industry that is currently managed
by PHIAC under the Private Health Insurance Act 2007
(PHI Act) will be transferred to the Australian
Prudential Regulation Authority (APRA).
On 12 January 2015, the Treasury commenced a consultation
process and has released an exposure draft of the proposed bill
– the Private Health Insurance (Prudential Supervision)
Bill 2015 (the Bill) as well as explanatory
material and a consultation paper on the changes that will be made
to the current PHI Act. The consultation period for these documents
is open until 31 January 2015.
If enacted, the Private Health Insurance (Prudential
Supervision) Act 2015 (the Act) will empower
APRA to administer the prudential regulation of the private health
insurance industry in Australia and the provisions of the PHI Act
relating to the establishment, functions and responsibilities of
PHIAC will be repealed.
Changes to the regulatory regime for private health
Based on the current version of the Bill, the Act will largely
mirror the regulatory regime set out in the PHI Act ie
with regards to registration of private health insurers,
requirements for health benefit funds and the regulations on the
restructure, merger and acquisitions of health benefit funds
While private health insurers should not expect too many
surprises from the Bill, one of the proposed changes is the
simplification of the existing prudential standards for private
health insurers by replacing the three standard-making powers
currently in the PHI Act with a single prudential standard making
power. This change of itself is not significant however, more
importantly perhaps, is that it potentially reflects the intentions
of APRA to have a set of uniform standards that are applicable
across the different financial institutions that it regulates
including ADI's, superannuation funds, general insurers, life
insurers and private health insurers.
Therefore, given that APRA will be empowered under the Act to
regulate the private health insurance industry, it is likely that
under APRA, private health insurers will need to meet the same
prudential standards for risk management, outsourcing and business
continuity as other APRA-regulated financial institutions. It
remains to be seen whether APRA also implements new prudential
standards for capital adequacy requirements of private health
insurers that are more in-line with existing APRA standards for
other regulated entities. These changes and the harmonisation of
prudential standards in particular any changes to capital adequacy
requirements for private health insurers, are likely to have a
greater impact than the Act itself.
We will keep you informed of any developments with respect to
the consultation process, the new Act and the implementation of
prudential standards by APRA with respect to private health
insurers. We note that the period of consultation for the Bill is
very short and therefore, if you are interested in making
submissions, we would suggest you do so with some urgency.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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