APRA Urges Health Insurers to Develop Recovery Plans
APRA published a letter that provides observations from its review of the resilience of private health insurers and sets out its expectations for these insurers to improve resilience to the identified risks. The letter urges private health insurers to swiftly develop robust, actionable strategies to address rising challenges that threaten the financial sustainability of the industry. In the letter, APRA also urged private health insurers to develop a recovery plan that outlines how they will respond if their strategy is not successful or other material risks threaten their solvency.
APRA had reviewed 15 private health insurers and the review found many areas for improvement. The review found that private health insurers had a strong awareness of these sustainability challenges. However, the assessment found that many private health insurers lacked credible strategies to mitigate the risks. APRA observed a concerning assumption made by many private health insurers that government would provide solutions. APRA believes that the complacent approach observed in the review is out of step with the significance of these risks to the industry. APRA expects private health insurers to be doing more than simply identifying these risks. In the view of APRA, sustainability pressures will continue to intensify for private health insurers that do not take proactive steps to manage the impact of these risks. Consequently, APRA expects all private health insurers to rapidly develop robust and actionable strategies to build resilience to these risks and engage regularly with APRA on the effectiveness of those strategies.
The review also showed that, where private health insurers had a developed and documented strategy to address risks, these were generally at the early stage of implementation. The review found pilot programs are being trialed and monitoring metrics are still being built. For private health insurers that are further progressed, APRA observed that in a number of cases it has taken several years to develop and implement such programs. Better practice implementation was observed where private health insurers had assigned risk owners with responsibility for monitoring implementation progress and were monitoring performance against clear metrics for strategy effectiveness. These entities also demonstrated an iterative approach to implementation by assessing effectiveness and reviewing strategy accordingly.
The APRA letter states that inaction or inertia in the face of these challenges is likely to result in negative outcomes for private health insurers and policyholders. A private health insurer that continues to take a passive approach to these risks can expect a more assertive response from APRA via entity-specific supervisory action to protect policyholders and the stability of the industry as a whole. APRA supervisors will be working with private health insurers on these matters over the coming period and will be challenging private health insurers to make material improvements in their approach to managing these risks. APRA also stated that it has been raising concerns about the sustainability challenges facing private health insurers for several years and has focused on lifting industry resilience through its Private Health Insurers Roadmap. APRA is also reviewing capital requirements for private health insurers, after previously working to lift standards of risk management and governance.
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Keywords: Asia Pacific, Australia, Insurance, Private Health Insurers, Capital Requirements, Sustainability Risk, Recovery Plan, Governance, APRA
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