The Australian Prudential Regulation Authority (APRA) plays an advisory role in the annual private health insurance premium approval process but does not approve premium increases itself, according to a statement from the regulator.
Each year, private health insurers must apply for approval to change premiums charged to policyholders. Under the law, insurers cannot alter premiums without approval from the Minister for Health, Disability and Ageing.
APRA noted its primary responsibility is to advise the Department of Health, Disability and Ageing on whether proposed premium increases would result in an “adverse prudential outcome.” This includes assessing whether an insurer would be unable to pay claims, deliver member services, or sustain its business.
The private health insurance premium round typically occurs once a year, with insurers submitting applications to the department in November for changes to take effect from April 1 the following year.
The department publishes the application form in September. APRA works with the department to design the form and determine what information should be collected, including data on challenges facing the broader private health insurance industry, the statement said.
APRA conducts a comprehensive financial analysis of each insurer in early October, about six weeks before applications are submitted to the minister. This analysis includes a review of annual returns submitted to APRA, the Appointed Actuary’s assessment contained in the annual Financial Condition Report.
Once applications are received, APRA focuses on how each insurer plans to manage risk through premium changes. The regulator assesses insurers’ ability to maintain capital levels, meet claims costs, and manage uncertainty related to membership, claims expenses, premium revenue, capital and pricing adequacy, as well as broader sustainability risks.
These assessments inform APRA’s final advice to the department, which is then incorporated into the department’s advice to the minister, the statement said. After reviewing each application, the minister notifies insurers whether their requests to change premiums have been approved.
If the minister asks an insurer to reconsider its application or provide further information, APRA updates its advice to the department based on the revised details.
The approval process attracts significant public attention because of its impact on policyholders. While premium increases are rarely welcomed, APRA said insurers must retain the financial capacity to pay claims and meet other obligations.
Source: APRA
APRA currently supervises institutions holding $9.8 trillion in assets on behalf of Australian depositors, policyholders, and superannuation fund members.
