The Australian Prudential Regulation Authority (APRA) is an independent statutory authority established for the purposes of prudential supervision of financial institutions and for promoting financial system stability in Australia. The long-term stability of the financial system requires the community to have a high degree of trust and confidence that APRA regulated institutions do not just meet their financial requirements, but are also well governed, prudently managed, and resilient to emerging risks. The requirements in APRA’s prudential standards on governance, fit and proper, audit and disclosure are designed to facilitate effective decision making in the long term interests of regulated institutions and ensure that the right people are in place to support those governance arrangements.
APRA has undertaken a review of the prudential framework for private health insurers to ensure it is fit for purpose and aligns with APRA’s mandate as outlined in the August 2016 letter to industry: Private health insurance: prudential policy outlook . Consistent with the approach described in that letter, this paper proposes amendments to the prudential framework applying to private health insurers as it relates to governance, fit and proper, audit and disclosure. Specifically, the paper proposes to:
· replace the current Prudential Standard HPS 510 Governance (HPS 510) with the cross industry Prudential Standard CPS 510 Governance (CPS 510) to ensure that it is effective in driving sound governance practices;
· extend the cross industry Prudential Standard CPS 520 Fit and Proper (CPS 520) to private health insurers, to ensure that responsible persons in those organisations have the technical competence and integrity necessary to perform their key roles;
· introduce a new Prudential Standard HPS 310 Audit and Related Matters (HPS 310), aligned to the audit prudential standards applying to other APRA-regulated institutions, in recognition of the important role auditors play in supporting prudential soundness;
· revoke Prudential Standard HPS 350 Disclosure to APRA (HPS 350), to streamline reporting and remove obsolete requirements; and
· update Prudential Standard HPS 001 Definitions (HPS 001) to include terminology referenced in CPS 510, CPS 520 and HPS 310.
The refreshed prudential framework is expected to improve resilience by increasing the likelihood that Boards, senior management, auditors and actuaries will identify and take proactive action on emerging issues. Policyholders are expected to benefit from a strengthening of the overall quality of governance of private health insurers through a reduction in the risk of failure arising from fraud, mismanagement, or other undesirable practices.