EXPLANATORY STATEMENT
Issued by the Authority of the Private Health Insurance Administration Council
Private Health Insurance Act 2007
Private Health Insurance (Insurer Obligations) Rules 2007
Authority for the Rules
The Private Health Insurance (Insurer Obligations) Rules 2007 (the Rules) are made by the Private Health Insurance Administration Council (the Council) under item 2 of the table in section 333-25, for the purposes of Part 4-5 of the Private Health Insurance Act 2007 (the Act).
Section 333-25 of the Act provides that the Council may make rules providing for:
(a) matters required or permitted by the corresponding Chapter, Part or section of the Act to be provided; or
(b) necessary or convenient to be provided in order to carry out or give effect to that Chapter, Part or section.
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 provide for matters for the implementation of prudential standards for private health insurers, requirements for appointed actuaries of private health insurers and reporting and notification requirements for private health insurers.
They largely replace processes and requirements that were in place under the regulatory regime created by the National Health Act (the National Health Act).
If these Rules were not made, the new regulatory regime created by the Act would be ineffective. Various matters that were dealt with in the National Health Act or by conditions of registration imposed under that Act, are to be dealt with in rules made under the Act , under the new legislative framework. Further, various matters that previously were dealt with in Council determinations and circulars are now to be legislated in rules made under the Act.
The Rules:
- establish a prudential standard that requires a private health insurer to notify its appointed actuary of certain matters and to prepare a financial condition report to be produced to the Council (section 163-1 of the Act);
- specify eligibility requirements for appointment of a person as an insurer's appointed actuary (subsection 160-50 of the Act);
- specify the basis and process for the Council to make a declaration that a person is ineligible to be appointed as an insurer's appointed actuary (section 160-5(2) of the Act);
- specify requirements for notification of the appointment of actuary (section 160-10 of the Act);
- specify the circumstances in which a person ceases to hold an appointment as an insurer's appointed actuary (section 160-15 of the Act);
- specify duties and standards of skill and diligence to be observed by the appointed actuary (section 160-20 of the Act);
- require the appointed actuary to notify the insurer of certain matters (section 160-20 of the Act);
- require the actuary to prepare a financial condition report on request of the insurer (section 160-20 of the Act);
- specify certain matters for reporting and notification requirements for insurers, including additional information to be included in annual reporting to the Council (sections 169-1 and 169-5 of the Act).
An explanation of each of the rules is set out in the Attachment.
Summary of impact of the Rules
These Rules were prepared under RIS ID 8072.
The likely impact of the Rules is very small as they largely replace requirements and processes that were in place under the National Health Act.
The reporting and notification requirements replace requirements previously imposed under the National Health Act.
The Council has required for the past three years private health insurers to appoint an actuary, who was required to provide a financial condition report to the insurer.
Consultation
A draft of the Rules was issued publicly on 7 February 2007. There were also public consultation forums on 19 February and 23 February 2007, where input on these rules was sought.
Comments received as a result of the consultation process were taken into account by the Council in finalising these rules.
Consultation comments were concerned primarily with the requirements applicable to appointed actuaries of private health insurers.
Documents incorporated by reference
Rule 14 of these Rules requires that a financial condition report on the private health insurer be prepared in accordance with the Institute of Actuaries of Australia’s Guidance Note 670 Financial Condition Reports for Health Insurers, but as if that document was amended so that reference to provisions of the National Health Act are to the equivalent provisions in the new Act).
This Guidance Note is available from the Institute of Actuaries of Australia online at www.actuaries.asn.au, or by contacting the Institute at the following address:
The Institute of Actuaries of Australia
Level 7 Challis House
4 Martin Place
SYDNEY NSW 2000
Tel: +61 (2) 9233 3466
Fax: +61 (2) 9233 3446
Email: actuaries@actuaries.asn.au
The document can also be obtained by contacting the Council on (02) 6215 7900.
ATTACHMENT
DETAILS OF THE PRIVATE HEALTH INSURANCE (INSURER OBLIGATIONS) RULES 2007
- Name of Rules
Rule 1 provides that the title of the Rules is the Private Health Insurance (Insurer Obligations) Rules 2007.
2. Commencement
The Rules commence on the following date:
- if the Rules are registered before the Act commences―at the same time as the Act commences; or
- if the Rules are registered after the Act commences―on the date on which the Rules are registered,
whichever of those dates occurs first.
The Rules do not have retrospective application.
3. Definitions
Rule 3 defines terms used in the Rules.
4. Establishment of Prudential Standard
Rule 4 provides that Part 2 of the Rules establishes a prudential standard for private health insurers under section 163-1 of the Act.
5. Insurers to Notify Actuaries of Certain Circumstances
Rule 5 is a new prudential standard to ensure that insurers notify actuaries about notifiable circumstances.
Subrule (1) requires a private health insurer to inform its appointed actuary about any notifiable circumstances and provide to the actuary all relevant information and documents about that notifiable circumstance.
Subrule (2) requires the private health insurance insurer to provide information as soon as practicable after becoming aware of a notifiable circumstance.
Subrule (3) provides a list of notifiable circumstances.
Rule 13 deals with the appointed actuaries' obligations when informed of a notifiable circumstance.
6. Insurers to prepare financial condition report
Rule 6 requires a private health insurer to request after the end of each financial year that its appointed actuary prepare a financial condition report and provide a copy of that report to the Council within three months after the end of the financial year, which is by 30th of September each year.
7. Eligibility for Appointment
Rule 7 defines the criteria for appointment of a person as a private health insurer’s appointed actuary. An appointed actuary must be ordinarily resident in Australia, be a Fellow of the Institute of Actuaries of Australia and have been a Fellow for at least 5 years. In addition, the appointed actuary must not be the insurer's chief executive officer or a director, or member of the committee of management or other governing body, of the insurer.
If a person does not meet the eligibility criteria, the Council may approve the appointment of the person as an appointed actuary. A decision to give such an approval is a reviewable decision under item 20 of the table in section 328-5 of the Act.
8. Declaration by the Council
Rule 8 sets out the process by which the Council may make a declaration that a person is not eligible for appointment as an appointed actuary to a private health insurer.
Subrule (1) requires that any declaration by the Council under subsection 160-5 (2) of the Act is to be made in accordance with this rule.
Subrule (2) permits the Council to make a written declaration if it is satisfied that the person has previously failed to adequately or properly perform the duties, or exercise the powers of an appointed actuary under the Act , or does not possess the competence, character, diligence, honesty, integrity or judgment to adequately or properly perform the duties of an appointed actuary.
Subrule (3) requires that before making a declaration the Council must give written notice to the person of the matters that it is considering and providing an opportunity for the person to show cause why such a declaration should not be made.
Subrule (4) requires that the Council give the declaration in writing to the person affected.
Subrule (5) states that the declaration takes effect from the date specified in writing and remains in effect until revoked by the Council.
9. Notification of Appointment etc
Rule 9 sets out the requirements for notification of the appointment of a person as an insurer's appointed actuary.
Subrule (1) requires written notification of the appointment of a person as an insurer's appointed actuary to be provided to the Council within 28 days of the appointment being made.
Subrule (2) details the information that must be provided in the written notice to the Council.
Subrule (3) details the requirement that the private health insurer must notify the Council in writing of the cessation of the appointment of person as an insurer's appointed actuary within 28 days of the cessation of the appointment.
Subrule (4) details the information that the notification of cessation of appointment must include, including the date of the cessation and the reason or reasons for the cessation of the appointment.
10. Cessation of Appointment
Rule 10 sets out the circumstances in which a person may cease to hold an appointment as an appointed actuary.
Subrule (1) lists the reason why a person may cease to hold an appointment as an appointed actuary.
Subrule (2) provides that if a person resigns, or is terminated from being an appointed actuary, the person ceases to be an appointed actuary for the purposes of the Act on and from the date that the resignation or termination takes effect.
11. Performance of duties and exercise of powers by appointed actuary
Rule 11 sets out duties of appointed actuaries.
Subrule (1) requires that an appointed actuary complies with this rule.
Subrule (2) requires that the appointed actuary performs the duties mentioned in subrule (3) or if the insurer has undertaken this work, the actuary reviews the insurer’s material and advises the insurer on the matter
Subrule (3) sets out the duties that the appointed actuary must perform.
12. Application of skill and diligence
Rule 12 requires that an appointed actuary must comply with professional requirements and apply skill and diligence in carrying out the duties and exercising their powers.
13. Notifiable circumstances
Rule 13 requires the appointed actuary to provide advice to the private health insurer as to whether actuarial advice is warranted on notifiable circumstances.
Subrule (1) requires that the appointed actuary must advise the private health insurer whether actuarial advice is necessary in relation to a notifiable circumstance.
Subrule (2) requires that if a private health insurer requests advice from the appointed actuary in relation to a notifiable circumstance, then the actuary must provide a report to the insurer in relation to that circumstance.
Subrule (3) requires that where a notifiable circumstance exists, and the fund has not sought advice and the appointed actuary has notified the insurer that advice is warranted in relation to that circumstance, then the actuary must inform the Council if the insurer does not seek such advice within 21 days.
Subrule (4) requires that the report referred to in subrule (2) includes information of the appointed actuary's assessment of the actual and potential impact of the notifiable circumstance on health insurance business of the insurer.
Subrule (5) requires that the appointed actuary must notify the private health insurer of any event known to the actuary which the actuary reasonably expects to have a material impact on the health insurance business of the insurer.
Subrule (6) provides that subrule (5) does not apply if the disclosure would breach a duty of confidentiality owed by the appointed actuary to any other party.
14. Financial condition report
Rule 14 requires the appointed actuary to prepare a financial condition report in respect of each financial year at the request of the insurer.
The report must be prepared in accordance with the Institute of Actuaries of Australia’s Guidance Note 670 Financial Condition Reports for Health Insurers (as if it were amended to reflect differences in terminology between the National Health Act and the Act).
The appointed actuary must submit the financial condition report to the insurer.
15. Copies of reports to Council
Rule 15 details the requirement for copies of any reports made by the private health insurer to all or any of the policyholders of health benefits fund to be provided to the Council as well.
16. Information to be given to the Council annually
Rule 16 details the information that a private health insurer must give to Council for the purposes of paragraph 169-5 (1) (b) of the Act.
Subsections 169-5 (3) and (4) of the Rules create an offence of strict liability for a failure to comply with section 169-5. Rule 16 provides details as to what must be provided in order to comply with section 169-5.
This information must be provided within three months at the end of each financial year, that it is by 30 September, as required by subsection 169-5 (1) of the Act.
17. Certification requirements
Rule 17 establishes the certification requirements for the report required to be given to Council under subsection 169-5 (1) of the Act.
Subsections 169-5 (3) and (4) of the Rules create an offence of strict liability for a failure to comply with section 169-5. Rule 17 provides details as to what must be provided in order to comply with section 169-5.
Subrule (1) states that the report given to Council under section 169-5 (1) of the Act, which contains the financial accounts and statements that Council requires and the statements specified in Rule 16, must be certified by two officers of the private health insurer to be true and correct.
Subrule (2) provides the form for the certification.