Shaun Gath

151 views
138 views

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
151
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
12
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Shaun Gath

  1. 1. 12th Annual Health Insurance Summit Current Regulatory Issues of Private Health Insurance Shaun Gath CEO, PHIAC Sydney, 23 July 2012
  2. 2. Agenda • State of the PHI industry • New Capital Adequacy/Solvency Standards • Competition Review and forthcoming PACU work • Other work
  3. 3. PHI Membership – Mar Q 13 • Hospital coverage increased to 46.9% – Up from 46.8 Dec Q (adjusted) – 52,863 new members during Mar Q – Total insured 10.76 million • General treatment up to 54.7% – Up from 54.6 Dec Q – 86,974 new members during Mar Q – Total insured 12.56 million
  4. 4. Prudential Snapshot – Mar 13 • Industry remains in very sound financial condition with little change in key measures – Gross margins: 13.92% (down from 14.34% in year to Mar 12) – MER: 8.93% (slightly down from 9.36%) – Net margins: 4.99% (up from 4.98%) – Profit before tax: $1.46 bill (up from $1.32 bill) – HRB/Investment income: improved in the quarter to go from $524mill to $602mill for the year to Mar 11.
  5. 5. Capital Position Total Industry Assets: $10.7 billion (↑ from $9.8 billion last Mar quarter – June Quarter’s unusual $1.2 billion contributions in advance has begun to return to more normal levels) $4.0 billion in excess of cap ad requirement.
  6. 6. CAPITAL ADEQUACY AND SOLVENCY
  7. 7. Capital Adequacy and Solvency • One of PHIAC’s Core functions • Current standards were made in 2000 • They have done their central job (protecting consumers) well, but: – Difficult to understand – Inconsistent in their final application – “template approach” not sufficiently related to actual risk – disconnection from the board
  8. 8. So, what is our aim again? • The fundamental question posed by the Capital Adequacy Standard would ask: ‘Are the health fund’s assets large enough to ensure that it can survive a very bad year with its balance sheet intact?’ • The fundamental question posed by the Solvency Standard would ask: ‘Are the health fund’s highly liquid assets large enough to meet three months of stressed cash outflows?’
  9. 9. Key features • Principles based approach: – Avoidance of excessive prescription. – Let the insurer figure it out. • Increased insurer engagement with business risk and information supporting assessment of that risk • Resulting in, we think: – Less prudential capital needed for most insurers • Small insurers will have to adequately cover volatility risks – Some provision for future claims risk on unearned premium and “other liabilities” – not in current standard • No transition period required (except for limited instances of approved subordinated debt)
  10. 10. Key Change: Quantum of Assets • Insurers will be responsible for determining their own provision through a stress test amount • 98% level of sufficiency • 12 month rolling test • Operational risk added (0.5% of premium) • Possibility of a “supervisory adjustment” where PHIAC disagrees
  11. 11. Consultation Period • Please examine the standards closely and see how they apply to your business • We have been meeting directly with most of you the funds • Feedback due by 31 July 2013 • Standards will be made at September meeting of Council, start 31 March 2014
  12. 12. COMPETITION REVIEW
  13. 13. In a Senate Committee Room… An intriguing exchange Senator Cormann (Lib, WA) Mr Savvides, just going back to some more serious matters: what is your assessment of the impact on Medibank Private of PHIAC—the regulator—seeking to extend its supervisory jurisdiction, especially into competition? Mr George Savvides (MD, Medibank Private) […] They have an extended role—I think it is PACU, the unit that they have developed. It does provide a market assessment and commentary. It is still young in its phasing and we have not been disappointed about what we have seen. We have a positive and constructive relationship with the regulator. […]
  14. 14. PHI Act 2007, Section 264-5 Objectives of the Council In performing its functions and exercising its powers, the Council must take all reasonable steps to achieve an appropriate balance between the following objectives: (a) fostering an efficient and competitive health insurance industry; (b) protecting the interests of consumers; (c) ensuring the prudential safety of individual private health insurers.
  15. 15. So, just to be clear... • PHIAC’s interest in fostering competition and promoting efficiency in the PHI industry is not a “new” role • It has been a part of our statutory mandate since 2007 • We undertake this role, because parliament has instructed us to do so
  16. 16. “Competition in the Australian PHI Market” • PHIAC published its paper on 3 June 2013 – Followed a discussion paper published in November 2012 which prompted 27 submissions – 6 submissions confidential, one partially – The rest are available on the PHIAC website • Discussion continues on the paper and issues raised on the PACU website
  17. 17. Key Observations • Competition in the PHI market is best described as a “mixed bag” • The good news: – PHI has strong commercial visibility (Advertising, sponsorship) – Vigorous retail presence (unlike many other countries) – Consumers have a strong awareness of the price of the product (cf. US experience – now changing)
  18. 18. New York Times, 18 July 2013
  19. 19. Key Observations • Small funds do compete effectively with big ones • “general insurance only” is an emerging area
  20. 20. Key Observations • The not-so-good news: – Australian consumers are turned off by the complexity – Consumers exhibit strong degree of “stickiness” despite very real pricing opportunities
  21. 21. From the Minister’s press release, 8 February 2013…
  22. 22. Key observations • Consumers are being sold on “up front” elements of the product with little awareness of long run issues such as: – Operation of the gap arrangements – Operation of exclusions and excesses – Availability and cost of particular providers when treatment is being considered
  23. 23. Key observations • Role of “aggregators” is contested – One person’s “churn” is another’s “competition” • We said: – “switching behaviour is, arguably, beneficial when it leads to a better matching of consumers with appropriate policies. It should also be a positive for competition if consumers feel they are getting better value for money… seen in this way, switching is welfare-enhancing if consumers trade off forms of cover they don’t required for a lower premium – However, …. “churn” can create longer term inefficiencies
  24. 24. PACU’s Work Program • Next project – Portability (discussion paper imminent) • Then - Risk Equalisation - Barriers to entry - Exclusions and Excesses
  25. 25. [End of session]

×