APRA to hold health insurers to a higher remuneration standard

APRA has proposed replacing the private health insurance industry’s HPS 510 Governance with the cross-industry standard CPS 510 Governance.

The latter standard has been amended in draft to cover Private Health Insurance companies registered under the PHIPS Act. Until now, it only covered APRA-regulated institutions in the deposit-taking, general insurance and life insurance industries.

The standard states governance requirements for APRA-regulated institutions in areas such as:

  • Board committee structure and duties
  • Board composition
  • Management country of residence
  • Company audit and actuaries
  • Remuneration policy.

The private health industry’s induction into CPS 510 means health insurers will now reference PPG 511 Remuneration. This sets a high bar.

For several health insurers this will require adjustments to current remuneration practices in various areas.

For example, the practice guide recommends a long-term focus in incentives so that they are aligned with the “long-term, successful stewardship of the institution” and that negative financial performance should lead to a reduction in variable compensation through contraction of current and past remuneration via malus or clawback arrangements. Publicly listed health insurers would be right to read into the guidelines that APRA are not so keen on relative TSR measures (also obliquely referenced by APRA in their recent reviews of 12 regulated entities (see HERE) and the CBA review.

CPS 510 Fit and Proper is also proposed to extend to Private Health Insurers to ensure the competency of integrity of employees exercising “material influence” over a private health insurer.

“As the affordability of private health insurance declines and younger, healthier policyholders leave the system, effective decision-making is vital to keep funds sustainable and able to pay their members’ claims into the future,” APRA Executive Board Member Geoff Summerhayes said.

“These reforms will strengthen resilience by increasing the likelihood that boards, senior managers, auditors and actuaries will identify and take decisive action on emerging issues. We also expect policyholders to benefit through a reduction in the risk of failure arising from fraud, mismanagement, or other undesirable practices.”

The extensions follow the private health industry’s adoption from 1 April of CPS 220, the cross-industry risk management standard.

The updated CPS can be found HERE and APRA’s communique on the consultation HERE.


© Guerdon Associates 2024
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