APRA has put into motion the third and final phase of its Private Health Insurance (PHI) Policy Roadmap – a review of the PHI capital framework – and has delivered frank advice regarding the sustainability of the sector.

Late last year APRA released a discussion paper outlining its proposed structure for a future PHI capital framework. The discussion paper included changes to capital arising from the new AASB 17 Insurance Contract accounting standard, which is expected to come into effect after 1 January 2021, but may be subject to further deferral.

In short, PHI capital is being aligned with life and general insurers. The PHI capital framework would cover a health insurer’s entire business, rather than just an insurer’s health benefits fund.

APRA advised that these changes are aimed at improving resilience and addressing factors threatening the sustainability of PHIs – encouraging insurers to consider risks across the business, especially as they relate to “contagion risk”.