"Insurers that continue to take a passive approach can expect more assertive action"

"Insurers that continue to take a passive approach can expect more assertive action" | Insurance Business

"Insurers that continue to take a passive approach can expect more assertive action"

Private health insurers (PHIs) have been urged to swiftly develop robust, actionable strategies to address rising challenges that threaten the industry’s financial sustainability, as well as a “Plan B” should their primary strategy prove ineffective.

The Australian Prudential Regulatory Authority (APRA) released the directive after an APRA review of PHI resilience raised concerns about insurers’ lack of preparedness to deal with growing risks, as well as their heavy reliance on lobbying politicians and other industry stakeholders due to a concerning assumption that the government would provide solutions.

Geoff Summerhayes, APRA executive board member, said insurers need to be more proactive in developing plans to boost their resilience against such risks as declining affordability, a shrinking and ageing membership base, and changes in government policy.

“Despite APRA’s work with industry to improve governance and risk management capability over recent years, it is frustrating to see little evidence that insurers are taking actions that reflect their own assessment of the heightened risks in this challenging environment,” Summerhayes said. “APRA recognises the industry has been under duress for some time, and the main factors, such as rising demand for health services and the soaring cost of treatments, are beyond insurers’ direct control. But that’s not an excuse for doing nothing and hoping the government will fix everything.”

In a letter to the industry released this week, the prudential regulator also urged PHIs to come up with a recovery plan in case their strategy is not successful or other material risks threaten their solvency, including consideration of potential mergers or restructures.

“APRA has no immediate concerns for the financial viability of any PHI, but the coming challenges are likely to significantly threaten the business models of a number of insurers,” Summerhayes said. “On that basis, APRA expects every insurer to develop a recovery plan for how it would respond if its sustainability came under acute threat. Our message to private health insurers is simple: they must step-up and implement robust strategies to deal with these challenges. Insurers that continue to take a passive approach can expect more assertive action from APRA via entity-specific supervisory action.”