APRA has recently released the final versions of three Prudential Standards which will apply to private health insurers (PHIs) from 1 July 2019.  New versions of the following prudential standards have been released:

  1. Prudential Standard CPS 510 – Governance;
  2. Prudential Standard CPS 520 – Fit and Proper;  and
  3. Prudential Standard HPS 310 – Audit and Related Matters.

APRA has also released two Prudential Practice Guides, CPG 510 and CPG 520, to help private health insurers to meet the requirements of the revised standards.  Prudential Standard HPS 350 will be revoked.

What are the new Prudential Standards that apply to PHIs?

1. CPS 510 – Governance

Currently CPS 510 does not apply to PHIs, but it does apply to general and life insurers.  The equivalent prudential standard for private health insurers is HPS 510. However, from 1 July 2019, a revised CPS 510 will replace the current HPS 510, aligning the governance requirements of private health insurers with general and life insurers.

The purpose of CPS 510 is to ensure that all APRA regulated institutions have good governance practices. It is APRA’s view that ultimate responsibility lies with the board of directors. In relation to a group, the ultimate responsibility lies with the board of the head of the group.

The revised CPS 510 specifies requirements in relation to board size and composition, board procedures, and establishment of various committees including remuneration, audit and risk committees. The requirements differ from those in the existing HPS 510 so PHIs should review the new prudential standard closely.

2. CPS 520 – Fit and Proper

From 1 July 2019, CPS 520 will also apply to PHIs. The purpose of CPS 520 is to ensure an APRA regulated institution prudently manages the risk that responsible persons are not fit and proper. A responsible person is someone who is likely to have a significant impact on the sound and prudent management of the regulated institution.  For private health insurers, this includes directors, officers, the Appointed Auditor, and the Appointed Actuary.

CPS 520 will require PHIs to adopt certain criteria in assessing the fitness and propriety of responsible persons.  The criteria and procedures need to be documented in a Fit and Proper Policy, which is to also include adequate provisions for whistleblowing if a person has information that a responsible person does not meet the fit and proper criteria.

3. HPS 310 – Audit and related matters

HPS 310 is a new prudential standard commencing on 1 July 2019 that is similar to the audit prudential standards that apply to general insurers. It requires PHIs to appoint an auditor, submit reports prepared by the auditor to APRA, and will ensure the auditor is able to undertake audits of financial statements and information required by APRA.

The prudential standard sets out the standards required of the Appointed Auditor and the nature of the reports that the Appointed Auditor is required to prepare.  These include an annual report relating to the PHI’s financials, compliance with prudential requirements, the PHI’s systems, procedures and controls, and ‘special purpose engagement’ reports where requested by APRA. The ‘special purpose engagement’ reports may relate to the PHI’s operations, risk management or financial affairs.

What should PHIs do?

In light of these new prudential standards and the current Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which has scrutinised corporate governance and culture, PHIs should arrange a review of their current governance policies and prepare for implementation of the revised prudential standards in the context of a broader risk management framework.  It is important that PHIs not only ensure that their internal policies will comply with the revised prudential standards, but that they are also practical and effective.