APRA warns health insurers: don’t bank pandemic savings

The financial regulator has put health insurers on notice not to bank savings from a coronavirus-fuelled fall in hospital and extras claims.

NIB Managing Director Mark Fitzgibbon. Picture: Hollie Adams

The financial regulator has put health insurers on notice not to bank savings from a coronavirus-fuelled fall in hospital and extras claims.

In a letter to health insurers, the Australian Prudential Regulation Authority (APRA) said funds must have enough capital to cover a backlog of claims from the pandemic.

The regulator said claims were rebounding towards pre-coronavirus levels and if a health insurer banked savings during the June quarter as profit instead of allocating those funds to support their customers, it would take further action.

“APRA may ask the insurer to resubmit its returns and may also consider taking further action such as applying a capital adequacy supervisory adjustment to that insurer,” the regulator wrote in its letter to funds.

“APRA’s guidance is intended to protect the interests of policyholders by making sure that insurers have adequate capital to meet all legitimate claims from policyholders, including those which have been disrupted due to COVID-19. Providing clarity on this specific issue should also enable greater focus by insurers and their boards on how they deliver value for policyholders over the longer term.”

APRA said, “reflecting a prudent approach”, it expected insurers to value the deferred claims liability at no less than the percentages of ‘‘claims that did not occur’’.

“As some treatments were unable to proceed, insurers will typically have experienced a fall in benefit expenditure in the June quarter. However, in many instances policyholders affected by the restrictions will defer rather than forgo treatment, resulting in a delay in when they claim benefits from their health insurance policy.

“For the 30 June 2020 returns, the claims that did not occur should be calculated with regard to the claims that were expected to occur during March to June 2020 but did not eventuate. Insurers may use the benefits projected during the 2020 premium round or another projection to calculate this amount.”

Already some insurers have indicated that they will refund their policy orders, less any benefits paid, rather than bank the savings.

Health insurer AIA Australia is refunding at least 50 per cent of premiums for its extras policyholders after claims plummeted during the COVID-19 lockdown. AIA Health chief executive Damien Mu said singles would receive up to $900, while families were expected to be refunded up to $1800. He said refunds would be paid next February and be calculated depending on the level of policy, less benefits paid during the period.

But Private Healthcare Australia chief executive Rachel David said while claims dropped early during the pandemic, the savings predicted by some had failed to materialise.

“As the government’s ban on elective (essential non-emergency) surgery lasted only six weeks, the savings predicted by some have not eventuated for health funds,” Dr David said.

“The full and accurate picture will be known in a few months’ time when APRA claims data is released. It is at this point that health funds will evaluate their financial position in line with regulatory capital requirements and consider if savings need to be returned to members or if no savings eventuated as a result of COVID-19.”

NIB managing director Mark Fitzgibbon said while claims were beginning to return to pre-pandemic levels, the industry still faced challenges ahead of a full recovery.

“Yes we saw a significant drop off in hospital and allied treatment, most of which will return or is already returning this current financial year,” Mr Fitzgibbon said.

“Yet we suspect an underlying impact on what we would normally expect in treatment volumes. First, there are possible limitations on the healthcare system’s capacity in FY21 to accommodate the additional deferred treatment. Second, we suspect there may be an aversion to treatment and especially hospitalisation while ever the threat of COVID-19 survives. Only time will tell.”

Regardless, Mr Fitzgibbon said NIB was well positioned to meet its mandated regulatory and additional internal capital targets.

He said APRA was taking a “prudently conservative position” on the COVID-19 impact.