Australian Prudential Regulation Authority explains how it assesses private health insurers’ premium change applications for prudential impact

The Australian Prudential Regulation Authority (APRA) published an overview of the annual private health insurance (PHI) premium round, setting out how it supports the approval process by advising the Department of Health, Disability and Ageing on the prudential implications of insurers’ proposed premium changes. APRA stressed that premiums cannot change without approval from the Minister for Health, Disability and Ageing and that APRA’s role is advisory rather than approving. APRA’s advice focuses on whether a proposed premium increase could lead to an “adverse prudential outcome”, including an insurer being unable to pay claims or deliver member services or being unable to sustain its business. The PHI premium round typically involves insurers submitting applications in November for premium changes to apply from 1 April, following publication of an application form in September that APRA helps design with the Department. Around early October, APRA undertakes a financial analysis of each insurer, drawing on annual returns and the Appointed Actuary’s annual Financial Condition Report, then assesses insurers’ premium proposals against factors including capital maintenance, ability to cover claims costs, uncertainty around membership and revenues, pricing adequacy, and sustainability. Following APRA’s assessment, its advice is incorporated into the Department’s advice to the Minister, who decides whether to approve each insurer’s application. If an insurer is asked to reconsider or provide further information, APRA updates its advice based on the revised submission.