Health Insurance (prudential standard) determination No. 2 of 2018

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 PHIPS 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 14 September 2018, APRA made Health Insurance (prudential standard) determination No. 2 of 2018, which revokes Prudential Standard HPS 001 Definitions made under Health Insurance (prudential standard) determination No. 1 of 2017, and determines a new Prudential Standard HPS 001 Definitions (HPS 001).

The instrument commences on 1 July 2019.

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 include new terminology that can usefully be defined in this Legislative Instrument.

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, defining the terms associated with the new governance, fit and proper and audit requirements.

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 Standards CPS 510 Governance (CPS 510) and CPS 520 Fit and Proper (CPS 520) and a new Prudential Standard HPS 310 Audit and related matters (HPS 310), which will come into effect for private health insurers on 1 July 2019. These include references to the new Appointed Auditor position arising from HPS 310; the Board Risk and Remuneration Committees required by CPS 510 and the meaning of a responsible person for the purposes of CPS 520.

In February 2018 APRA released for public consultation a discussion paper proposing to apply CPS 510 and CPS 520, and introduce HPS 310, to the private health insurance industry. The consultation package included drafts of CPS 510 and CPS 520 and their associated prudential practice guides to facilitate private health insurers’ understanding of the prudential standard and a draft HPS 310 and an amended version of HPS 001 to facilitate the industry’s understanding of terminology used in these Prudential Standards.

Stakeholders were given three months to provide comment on the proposed amendments to HPS 001. Submissions were supportive of the proposed changes to 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

Health Insurance (prudential standard) determination No. 2 of 2018

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

The Legislative Instrument revokes Prudential Standard HPS 001 Definitions made under Health Insurance (prudential standard) determination No. 1 of 2017, and determines a new Prudential Standard HPS 001 Definitions (HPS 001) which includes additional definitions relating to the new governance, fit and proper and audit requirements.

HPS 001 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 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

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.