Health Insurance (prudential standards) determination

 No. 1 of 2017

EXPLANATORY STATEMENT

Prepared by the Australian Prudential Regulation Authority (APRA)

Private Health Insurance (Prudential Supervision) Act 2015, section 92

Under subsection 92(1) of the Private Health Insurance (Prudential Supervision) Act 2015 (the Act), APRA has the power to determine standards (prudential standards), in writing, in relation to prudential matters to be complied with by private health insurers.  Under subsection 92(5) of the Act, APRA may, in writing, vary or revoke a prudential standard.

On 26 July 2017, APRA made Health Insurance (prudential standard) determination No. 1 of 2017, which revokes Prudential Standard HPS 001 Definitions made under Health Insurance (prudential standard) determination No. 1 of 2015, and replaces it with Prudential Standard HPS 001 Definitions (HPS 001).

The instrument commences on 1 April 2018.  

1. Background

APRA’s mandate is to ensure the safety and soundness of prudentially regulated financial institutions so that they can meet their financial promises to depositors, policyholders and fund members within a stable, efficient and competitive financial system.

APRA carries out this mandate through a multi-layered prudential framework that encompasses licensing and supervision of institutions. In the case of the private health insurance industry, APRA is empowered under the Act to issue legally binding prudential standards that set out specific prudential requirements with which private health insurers must comply. These standards are supported by prudential practice guides, which clarify APRA’s expectations with regard to prudential requirements.

APRA regularly reviews its regulatory regime and amends its prudential requirements as a result of a number of factors including:

• international developments;
• changes in financial market conditions or changes in risk management practices, in response to identified weaknesses in the prudential framework; and
• to reduce potential negative impacts of emerging industry issues.

2.      Purpose of the instrument

The purpose of the instrument is to revoke HPS 001 and to replace it with a new version of HPS 001.

HPS 001 incorporates common definitions used in private health insurance prudential standards in a single standard. Generally, only definitions that are unique to a particular prudential standard will be retained in that prudential standard, otherwise, definitions common to two or more prudential standards are consolidated in HPS 001.

3.      Operation of the instrument

The instrument makes changes to HPS 001 to insert a number of definitions from cross-industry Prudential Standard CPS 220 Risk Management (CPS 220), which will come into effect for private health insurers on 1 April 2018. A number of minor amendments were also made to existing definitions to harmonise language and to resolve minor typographical errors in the prudential standard.

In December 2016 APRA released for public consultation a discussion paper proposing to apply CPS 220 to the private health insurance industry. The consultation package included a draft of CPS 220, a prudential practice guide to facilitate private health insurers’ understanding of the prudential standard and an amended version of HPS 001 to facilitate the industry’s understanding of terminology used in CPS 220.

Stakeholders were given four months to provide comment on the proposed amendments to HPS 001. 

APRA also consulted the Department of Health.

Submissions were supportive of the proposed changes to HPS 001 subject to a number of minor changes which have been incorporated into the new version of HPS 001.

5.      Regulation Impact Statement

The Office of Best Practice Regulation advised that a Regulation Impact Statement was not required for this determination.

A Statement of compatibility prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 is provided at Attachment A to this Explanatory Statement.

ATTACHMENT A

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Prudential Standard HPS 001 Definitions (HPS 001)

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (HRPS Act).

Overview of the Legislative Instrument

Prudential Standard HPS 001 Definitions sets out key definitions used in other prudential standards made by the Australian Prudential Regulation Authority (APRA) to which private health insurers must comply. The purpose of the instrument, is to improve private health insurers’ understanding of prudential requirements contained in prudential standards made by APRA under section 92(1) of the Private Health Insurance (Prudential Supervision) Act 2015.

The legislative instrument revokes HPS 001 determined by APRA in 2015 and replaces it with a new HPS 001 which includes additional definitions relating to risk management.

The instrument does not impose new prudential requirements on the industry.

Human rights implications

APRA has assessed this Legislative Instrument and is of the view that it does not engage any of the applicable rights or freedoms recognised or declared in the international instruments listed in section 3 of the HRPS Act. Accordingly, in APRA’s assessment, the instrument is compatible with human rights.

Conclusion

Prudential Standard HPS 001 Definitions is compatible with human rights as it does not raise any human rights issues.