Private Health Insurance (Insurer Obligations) Amendment Rules 2010 (No. 1)

EXPLANATORY STATEMENT

Issued by the Authority of the Private Health Insurance Administration Council

Private Health Insurance Act 2007

Private Health Insurance (Insurer Obligations) Amendment Rules 2010 (No 1.)

Authority for the Rules

The Private Health Insurance (Insurer Obligations) Amendment Rules 2010 (the Rules) are established under section 163-1 of the Private Health Insurance Act 2007 (the Act) and are made by the Private Health Insurance Administration Council (the Council) under item 2 of the table in section 333-25 of the Act. The Rules amend the Private Health Insurance (Insurer Obligations) Rules 2009 by attaching a third schedule, dealing with disclosure requirements for private health insurers.

Section 163-1 of the Act provides that:

(1)  The Private Health Insurance (Insurer Obligations) Rules may establish prudential standards relating to *prudential matters for private health insurers.

(2)  Prudential matters are matters relating to:

(a)  the conduct by private health insurers of any of their affairs in such a way as:

(i)  to keep themselves in a sound financial position; or

(ii)  not to cause or promote instability in the Australian private health insurance system; or

(b)  the conduct by private health insurers of any of their affairs with integrity, prudence and professional skill; but does not include matters relating to the solvency or capital adequacy of *health benefits funds.

(3)  A *prudential standard may impose different requirements to be complied with:

(a)  by different classes of private health insurers; or

(b)  in different situations; or

(c)  in respect of different activities.

(4)  A *prudential standard may provide for the Council to exercise powers and discretions under the standard, including but not limited to discretions to approve, impose, adjust or exclude specific prudential requirements in relation to a particular private health insurer or a particular class of private health insurers.

(5)  A *prudential standard takes effect on the day on which it is established in the Private Health Insurance (Insurer Obligations) Rules, or on such later day as is specified in the Private Health Insurance (Insurer Obligations) Rules.

The Rules are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

All legal and other requirements for making the Rules have been met.

Purpose of the Rules

The purpose of these Rules is to establish (pursuant to section 163-1 of the Act) prudential standards for private health insurers that detail disclosure, reporting and notification requirements for private health insurers.

In relation to the Disclosure Standard the Rules require private health insurers to provide information relating to interactions with contributors, members and other regulators, and exception reporting where an insurer is required to report on unusual events. This will allow the Council to be better placed to intervene earlier on issues of prudential risk and enhance its capacity to be a proactive and lawful regulator of the industry.

An explanation of each of the rules is set out in the Attachment.

Summary of impact of the Rules

Following a preliminary assessment, these Rules were exempt from preparing a regulatory impact statement by the Office of Best Practice Regulation on 19 February 2010 (OBPR reference number 11115).

The Disclosure Standard will have a neglible impact on private health insurers as the majority of the information required in the standard is either a duplicate of information that is already being provided to other regulators, the company’s members or, in the case of unusual governance events, the board of the insurer.

Consultation

The Disclosure Standard also underwent two rounds on industry and other major stakeholder consultations, with a draft framework promulgated on 17 May 2010 and the draft Disclosure Standard circulated on 27 August 2010. The industry and other relevant stakeholders were invited to provide feedback.

Responses were received from five key stakeholders and private health insurers representing more than 85% of policyholders. The comments received as a result of the consultation process were taken into account by the Council in finalising these Rules.

ATTACHMENT

DETAILS OF THE PRIVATE HEALTH INSURANCE (INSURER OBLIGATIONS) AMENDMENT RULES 2010 (No. 1)

PART 1 PRELIMINARY

1. Name of Rules

Rule 1 provides that the title of the Rules is the Private Health Insurance (Insurer Obligations) Amendment Rules 2010 (No. 1).

2.      Commencement

The Rules commence on 1 January 2011.

The Rules do not have retrospective application.

3.      Amendment of the Private Health Insurance (Insurer Obligations) Rules 2009

The Private Health Insurance (Insurer Obligations) Rules 2009 are amended as detailed in Schedule 1.

SCHEDULE 1 – AMENDMENTS (RULE 3)

[1] Rule 4, after definition of Appointed Actuaries Standard

Insert

ASIC means the Australian Securities and Investments Commission.

[2] Rule 4, after definition of corporate group

Insert

Corporations legislation has the meaning given by section 9 of the Corporations Act 2001.

Insert

Disclosure Standard means the standard set out in Schedule 3.

[3] Rule 4, note, at the foot

After

• health benefits fund

Insert

• officer

[4] After rule 11

insert

12 Disclosure Standard

 Schedule 3 sets out the Disclosure Standard.

[5] Schedule 1, sections 12 and 13

omit

[6] After Schedule 2

insert

SCHEDULE 3 – DISCLOSURE STANDARD (RULE 12)

1. Insurers must give copies of certain forms lodged with ASIC to Council

Section 1 requires private health insurers to provide the Council with a copy of the forms set out in (a) through (e) at the same time as lodging with ASIC. For this purpose the private health insurer may achieve compliance by mailing a copy of the form to PHIAC at PO Box 4549, Kingston ACT 2604, or emailing a copy of the form to phiac@phiac.gov.au marked “Disclosure Standard compliance” as soon as practicable after lodging the form.

Subsection (1) sets out the prescribed forms, namely:

(a) Form 205 — Notification of resolution;

(b) Form 315 — Notification of resignation, removal or cessation of auditor;

(c) Form 388 — Copy of financial statements and reports;

(d) Form 484 — Change to company details;

(e) Form 2501 — Application for extension of time to hold Annual General Meeting.

Subsection (2) requires the private health insurer to also provide the Council with copies of ancillary documents to the forms in subsection (1) as required by the Corporations legislation.

Subsection (3) provides that if a form number is prescribed in the Corporations Regulations that is the correct reference to the form. However, if the form is not prescribed in those Regulations the reference shall be the number that if the approved by ASIC.

2.      Insurers to give copies of notice of meetings of members to Council

Section 2 requires private health insurers to notify the Council of meetings of members.

Subsection (1) (a) requires the private health insurer to give the Council a written notice of meetings in accordance with the provisions of section 249J of the Corporations Act 2001. For this purpose the Council may be notified by mail to PHIAC at PO Box 4549, Kingston ACT 2604, or email to phiac@phiac.gov.au marked “Disclosure Standard compliance”.

Subsection (1) (b) requires the private health insurer to give the Council copies of any other communications that a member of the insurer is entitled to receive under the

Corporations Act 2001.

Subsection (2) (a) provides that if the private health insurer is a listed company they must give the Council 28 days notice of the meeting.

Subsection (2) (b) provides that if the private health insurer is not a listed company they must give the Council 21 days notice of the meeting, or the period specified in the private health insurer’s constitution, whichever is the longer. If the meeting is called on shorter notice then the provisions in section 249H (2), (3) and (4) of the Corporations Act 2001 apply.

For the purpose of this section a notice sent by post is taken to be given 3 days after it is posted and a notice sent by email is taken to be given on the day after it is sent.

3.      Insurers to notify Council of resolution to remove director

Section 3 requires private health insurer to notify the Council of a resolution to remove a director. This will allow the Council to consider if the board composition still meets the Governance Standard in Schedule 1 and it may be indicative of instability at board level.

Subsection (1) (a) requires a private health insurer to notify the Council in writing, if the insurer by resolution removes a director from office.

Subsection (1) (b) requires a private health insurer, which is not a public company, to notify the Council in writing if the directors of the insurer by resolution remove a director from office.

Subsection (2) provides that the insurer must notify the Council within 14 days after the day the resolution is passed.

4.      Insurers to notify Council of termination of person’s complying private health insurance policy

Subsection 4(1) requires a private health insurer to notify the Council, in writing, of the termination of a person’s complying health insurance policy. The purpose is to allow a better understanding of the numbers and reasons that lead to a termination from a fund and the appropriateness of such termination. A notice is not required where the termination relates to the payment of premiums or as a result of a request to terminate the policy.

Subsection (2) provides that a notification must be provided within 14 days after the end of each month. The notification only has to include the number of terminations within the month and the reasons for each termination.

5.      Insurers to notify Council of investigation of insurer or officer of insurer

Section 5 requires a private health insurer to notify the Council of an investigation into an insurer or an officer of an insurer in specific circumstances. This information reflects the disqualified person criteria in section 166-15 of the Act and amongst other things will assist the Council in ensuring disqualified persons do not act as a director or a senior manager of an insurer.

Subsection (1) (a) defines the scope of the investigation to criminal or civil proceedings in relation to alleged or suspected contraventions of:

• the Act;
• the Corporations Act 2001;
• the Trade Practices Act 1974; or
• a law in force in Australia, or of a foreign country, if the offence concerns dishonest conduct or conduct relating to a financial sector company within the meaning of the Financial Sector Shareholding Act 1998.

Subsection (1) (b) requires the Council to be notified of an investigation of an insurer or an officer of an insurer by another regulatory authority that is reasonably likely to affect the operations of the insurer. It does not encapsulate investigations of a personal nature which are not considered by the insurer to impact on the affairs of an insurer, such as personal family law matters or traffic violations.

Subsection (1) (c) requires an insurer to notify the Council if it gives a written undertaking to the Australian Competition and Consumer Commission under section 87B of the Trade Practices Act 1974.

Subsection (2) provides that the insurer must give to the Council details of a matter mentioned in subsection (1) within 14 days of the insurer becoming aware of the matter.

Subsection (3) requires the insurer to report the outcome of the matter referred to in subsection (1) to the Council within 14 days after the day the insurer is notified of the outcome. The insurer will not be at fault if they are not notified of the outcome of the matter.

Subsection (4) (a) clarifies what is not intended to constitute an investigation and as such is not required to be notified to Council. In particular, an insurer is not required to notify the Council of a preliminary inquiry for the purpose of deciding how to deal with a complaint or whether to conduct an investigation in relation to the insurer or an officer of an insurer.

Subsections (4) (b) through to (e) excludes specific investigations conducted under the Act by the Minister or the Department of Health and Ageing and the Private Health Insurance Ombudsman, namely:

• a request under section 96-15 of the Act for a private health insurer to give specified information about a complying health insurance product or products, or a complying health insurance policy of the insurer
• a request by the Minister to explain operations under section 191-1 of the Act
• an investigation of the operations of a private health insurer under Division 194 of the Act
• the exercise of search powers by an authorised officer in accordance with Division 313 of the Act.

Subsection (4) (f) excludes investigations conducted by the Private Health Insurance Ombudsman as these investigations fall outside of the legislative responsibilities of the Council.

6.      Insurer must notify Council of unusual incidents or circumstances

Subsection 6 (1) provides that a private health insurer must notify the Council as soon as practicable after an unusual incident or circumstance occurs that affects prudential matters relating to the insurer. This may be done by telephoning (02-62157909), writing to PHIAC at

PO Box 4549, Kingston ACT 2604, or emailing phiac@phiac.gov.au.

Subsection (2) provides clarification as to the types of unusual events that may be considered to affect prudential matters relating to the insurer. The provision sets out a non-exhaustive list of examples which set the threshold for what is a notifiable incident. These include

• fire, flood or other damage to infrastructure resulting in a substantial loss of operational capacity of the insurer for more than 72 hours;
• total or partial loss of information and communications technology infrastructure for more than 72 hours;
• an accident that causes the death of, or serious personal injury to, a substantial proportion of the officers of the insurer; or causes a substantial proportion of the officers of the insurer to be incapacitated from performing work;
• biohazard, bomb threat, lockdown or other event that results in a substantial loss of operational capacity of the insurer for more than 24 hours.

7.      Exemptions and modifications by Council

Section 7 provides the Council with the power to grant exemptions or modify the disclosure requirements of the standard in its application to a particular insurer. The Council may do this on a written application by the insurer.

8.      Transitional arrangements

Section 8 provides some flexibility where a private health insurer is not able to comply with some or all of the provisions set out in the disclosure standard at the commencement date.

Subsection (1) provides that if a private health insurer is not able to comply with this Standard on the commencement date it must write to the Council and identify a date by which time it can comply with all of the provisions.

Subsection (2) provides that the Council must approve a date for compliance by the private health insurer with the identified provisions and tell the insurer, in writing, of the approved date, which need not be the same as the date requested.

Subsection (3) requires the private health insurer to comply with the identified provisions by the date approved by the Council.