APRA’s review of Financial Sustainability Challenges In Private Health Insurance

In the context of rising health costs (with growth rates of 5-6% per annum), APRA has reviewed 15 Private Health Insurers (PHI) on their resilience to Sustainability Challenges and found room for improvement.

The letter Financial Sustainability Challenges In Private Health Insurance, published 3 June 2019, notes that APRA’s assessment found ‘many PHIs lacked credible strategies to mitigate the risks’ of managing affordability and government policy change. The challenges raised by the regulator echo many themes from the Actuaries Institute Green Paper How to make private health insurance healthier.

Context for review

The heightened risk is due to many changing factors including:

  • Higher demand for medical services by policyholders
  • Rising out of pocket costs
  • Changes in consumer demand
  • Perceived low value of Private Health Insurance


In addition to these shifts, we are also facing an ageing population.

“The proportion of the privately insured population over the age of 65 is now nearly double the rate ten years ago.”

Scope of the review

APRA structured the review to look at four areas which are set out in the table below:


Affordability risk

Government policy change risk

Awareness of the sustainability risks

PHIs are aware that affordability and government policy changes are key risks.

Depth of assessment

Given the potential scope of government policy changes and the significant impact they may have on the sector, assessments undertaken have been fairly narrow.

PHIs generally only quantified the specific 2% premium cap policy change.

Affordability risks have primarily only been considered in qualitative terms and only one PHI had prepared an adverse affordability scenario.

Strategy to manage the risks

Better strategies were to ‘reduce, rather than absorb the impact of affordability risk’.  These strategies focus on providing ‘more cost-effective measures for delivery of medical services’ and ‘services of value to all policy holders, especially to those who are younger and healthier and may not require hospital treatment.’

Some of the better strategies include ‘developing specific insurance offerings that provide value to policy holders while meeting the objectives of government’ and ‘using their expertise and data to conduct scenario analysis’ that ‘could also be used to inform policy solutions that can be proposed to Government’. 

Actions taken

There is some evidence that cost savings and additional value has materialised from actions taken. In general, the best performing entities ‘demonstrated an iterative approach to implementation by assessing effectiveness and reviewing strategy accordingly’.


Findings from the review

The letter and its attachment provide guidance for improving responses to these emerging risks.

  • PHIs should always put the member’s interests first when considering recovery actions.
  • ‘Early preparation of recovery plans, including consideration of potential merger partners, will give PHIs more discretion when under pressure.’
  • While acknowledging the major risks are outside of the PHIs control, the regulator does expect insurers to go beyond risk identification to develop ‘robust and actionable strategies to build resilience to these risks’, supported by engagement with APRA on the effectiveness of the strategies.


Many PHIs, according to the letter, are operating under an assumption ‘that Government would provide solutions.’

Actuarial implications

This review may be indicating a shift in APRA’s focus from short-term financial outlook to longer-term financial stability. This shift will require PHIs to have viable strategies for dealing with emerging risks.  There are many opportunities for actuaries in this environment, which may include:

  • Actuaries can support PHIs perform more robust stress testing to explore and develop strategies. Insurers with more robust stress testing were found to have better strategies.
  • Actuaries will have a role in recovery planning, especially around developing scenarios, triggers, and incorporating appropriate timing into the recovery plan (e.g. how long can the PHI operate if risks materialise)
  • Other thought questions include
    • How should an Appointed Actuary interact with the risk management framework?
    • Would an Appointed Actuary comment if risks aren’t being addressed?
    • What role can actuaries play in identifying how PHIs can best put members interest first?

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