Are you still confused about the application of the capital framework for COVID-19-related disruptions in the private health insurance industry? Don't worry, because the Australian Prudential Regulation Authority (APRA) has published updated frequently asked questions (FAQs) about it.
In June 2020, APRA introduced guidance for private health insurers on treating the liability arising from claims deferred due to the COVID-19 pandemic. It provided a prescriptive definition for APRA reporting regarding how private health insurers should calculate and report the deferred claims liability (DCL).
The guidance aims to protect policyholders by ensuring that insurers have adequate capital to meet all current and future policyholder claims. In response to circumstances as they unfolded, APRA issued FAQs relating to the guidance.
The key changes in the FAQs include:
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This month, the APRA has seen significant uncertainty in the ultimate amount of the DCL, especially given the Public Health Orders in New South Wales, Victoria, and the Australian Capital Territory.
Expecting that the uncertainty will continue for some time, APRA expects insurers to “have a robust and prudent valuation approach (as detailed in the FAQs) to manage their DCL.” It also expects that prudent management of the DCL includes regular revaluation as greater confidence builds in the value of deferred claims that may arise.
“APRA recognises that some insurers have made public commitments not to profit from the impacts of COVID-19 and expects insurers to honour these commitments, including providing policyholder relief if it is prudent to do so,” APRA said in a statement. “The method and timing of the return of any COVID-19 related profits is a matter for the insurer's board and senior management.”
The updated FAQs are available on the APRA website.
