Peter Kohlhagen on Capital Framework for Private Health Insurers

Mr. Kohlhagen highlighted that APRA had, in November 2018, outlined its planned approach to reviewing the capital framework for private health insurers. The current capital framework has been in place since 2014 and this review provides an opportunity to ensure that capital standards in the industry provide for an appropriate level of resilience to protect policyholders. APRA intends to consult on proposals that adapt the capital framework that is already in place for the life and general insurance sectors for the private health insurance industry. However, this does not mean that APRA will apply the framework as it is. Instead, APRA is identifying areas where sector-specific adjustments are warranted to recognize the differing risk profile and business models in the private health insurance industry. 

APRA is considering adjustments that reflect the characteristics of insurance risk in the industry to take account of factors like the short-tail nature of claims, risk equalization, health-related business, and the constraints on premium setting and product design in a Gold/Silver/Bronze/Basic world. APRA is considering how to think about potential insurance concentration risks and how the capital framework should recognize the legislative requirements for community rating that underpin the industry. In addition, APRA is considering how to address policy change risk in the capital framework, given that such changes have been a source of insurer stress in the past. The Actuaries Institute is assisting APRA in this by providing some early advice on these matters. The Institute has also established a technical working group to identify issues and suggest approaches that APRA could take to address them in the capital framework. 

Finally, he mentioned the APRA intent to release an initial discussion paper in the coming months, outlining the proposed new capital framework for private health insurers. The release of this paper is expected to kick off an extended formal consultation period. APRA is looking forward to continuing to work with the industry to develop a capital framework that supports insurer resilience for the protection of policyholders, reiterated Mr. Kohlhagen. 

Related Link: Speech

Keywords: Asia Pacific, Insurance, Private Health Insurers, Capital Framework, Capital Requirements, APRA