APRA sets the tone for private health insurance

In her address to the Members Health Directors’ Professional Development Program in February, APRA Executive Board Member Suzanne Smith outlined both the strengths and challenges facing the private health insurance (PHI) sector. While complimenting the industry’s resilience and financial stability to date, she cautioned against complacency, emphasising that multiple signals point to an increasingly uncertain and volatile future

A strong foundation

The PHI sector has seen a period of financial strength, underpinned by:

• Rising membership numbers, indicating continued consumer demand;
• Strong investment returns driven by higher interest rates and favourable conditions in global asset markets; and
• Subdued claims due to the lingering effects of COVID-19.

These factors have contributed to solid surpluses, leaving most insurers well-capitalised with sufficient financial buffers to meet claims, absorb unexpected shocks, and invest in their businesses. This financial resilience remains APRA’s primary focus as the sector’s prudential regulator.

Growing pressures on the horizon

Despite recent financial strength, the industry faces mounting pressures, including:

• Rising healthcare costs
  Hospital and medical expenses are increasing at a rate faster than headline inflation, straining affordability.
• Tensions between insurers and providers
  High-profile disputes, such as those involving Healthscope, highlight ongoing challenges in the insurer-hospital relationship.
• An ageing population
  The community-rated system will come under increasing strain as more Australians require care.
• Cost-of-living pressures
  Many consumers are struggling to maintain private cover, with some opting to self-insure instead.
• Evolving consumer expectations
  Policyholders now expect more personalised, digital-first experiences from their insurers.
• Business model innovation
  Insurers are expanding their role beyond funding care to actively supporting customers’ health journeys.
• Cybersecurity risks
  Rising cyber threats are forcing insurers to invest heavily in security and governance.
• Regulatory shifts
  Insurers are falling short on risk governance maturity compared to broader industry benchmarks, a growing concern as CPS 220 underpins the incoming CPS 230 requirements from 1 July 2025.

APRA’s stance on governance

While APRA acknowledged the achievements of member-owned and not-for-profit funds to-date, it also noted Boards must do more to ensure long-term sustainability of their organisations. CPS 190 serves as a push - towards the more ‘frightening’ end of the spectrum, requiring funds to map out potential exit strategies in greater detail.

Board capability was another pointed topic, with APRA stressing that directors must have not only the right skills to navigate -the challenges of today and tomorrow, but also the energy and commitment to provide effective oversight. The commencement of the Financial Accountability Regime (FAR) for insurers in March will further reinforce the personal responsibility of Directors and senior executives, leaving little room for ambiguity.

APRA’s recently released Governance Review discussion paper signals an even sharper focus on governance, making it clear that expectations are increasing.

Next steps 

To stay competitive, insurers must strengthen governance, align risk frameworks with CPS 230, and invest in digital innovation. Prioritising board capability and cybersecurity will be key to long-term resilience. Our specialists can help you navigate these changes and stay ahead. Please get in touch today to discuss your needs.

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