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Publications |
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Topics in this section Private Patients' Hospital Charter Insure? Not Sure? (pdf format) Operations Of The Private Health Insurers Annual Report Financial and Statistical tables of past Operations Annual Reports |
PublicationsPrivate Health Insurance Administration CouncilReport of Operations 2007-08Corporate Governance and Risk ManagementCorporate Governance in the Private Health Insurance IndustryPHIAC exists to protect consumers through the financial monitoring and regulation of the private health insurance industry. Its objective is a financially sound, innovative industry with professional management and strong governance. The corporate governance values of professionalism, accountability, leadership and integrity are central to PHIAC’s relationships with the private health insurance industry. PHIAC strives to promote these values through:
Fund Review ProgramThe fund review program was designed in 2002 to enable PHIAC’s analytical team to gain a broader understanding of the operations of each PHI and to assist the early identification of issues which might trigger regulatory intervention. The program was also developed to improve industry awareness of the importance of sound governance practice, and to assist the Council in determining the most appropriate manner in which future regulation of the PHI could be conducted. Within the parameters of the functions and powers set out in the PHI Act, each review seeks to assess:
These reviews have identified areas of potential risk and provided the PHI with recommendations to address areas of greatest risk. All but one of the 38 operating registered PHIs operating in the industry has now experienced a Round 1 review by PHIAC’s analytical team or an external consultant. Each of the Round 1 reviews involved a detailed information gathering period preceding the review; a shorter period of on-site discussions with personnel and a formal, detailed report to the PHI after the review. The reviews conducted in the future, part of the ongoing review process embedded in PHIAC’s regulatory process, will be exception based and will focus on:
As in the past, PHIAC may also utilise the specialist services of the Australian Prudential Regulation Authority (APRA). APRA’s involvement will depend on the scope of the review and the availability of APRA officers. Development of a Prudential (Governance) Standard for Private Health InsurersThe PHI Act gave PHIAC the legislative power to develop prudential standards for the industry beyond the existing Capital Adequacy and Solvency Standards. Section 163–1(2) of the PHI Act provides that these standards address prudential matters relating to: (a) the conduct by PHIs of any of their affairs in such a way as:
(b) the conduct by PHIs of any of their affairs with integrity, prudence and professional skill. The governance standard will provide further clarity to the industry about PHIAC’s expectations, and encourage greater consistency between PHIs in their approaches to governance. The standard will encourage boards to benchmark their performance, and, through improved reporting and accountability lines, should assist boards to better evaluate whether a PHI is being managed prudently. PHIAC’s experience in dealing with governance issues specific to the industry over the last decade will be taken into account in drafting the standard. Governance work conducted by other regulatory bodies has also been referenced to ensure those PHIs who are jointly regulated will find sufficient complementarity such that the new standard will not impose any significant additional regulatory compliance costs on them. PHIAC remains committed to fostering a regulatory environment which encourages high standards of practice and ethics. Once implemented, PHIAC will commit to a formal review of the impact of the standards in 2014 to ensure they remain relevant and continue to take account of local and international developments, and that in the interim, PHIAC will conduct an ongoing, informal review of the standards through the fund review program. Risk Management Practices in the Private Health Insurance IndustryThe following documents available on the PHIAC website provide guidance to the private health insurance industry. They are:
The guidelines introduced new reporting requirements for PHIs to allow PHIAC to monitor and regulate corporate governance and risk management processes with greater accuracy and effect, thus enhancing the continuation of a viable private health insurance industry. The guidelines require PHIs to have adequate systems in place to mitigate and manage risk. While the guidelines do not specify procedures for managing risk, they set out general policy requirements to be adhered to by PHIs. The guidelines categorise risk within the two main types of financial and operational risk, and give examples of particular risks relevant to the private health insurance industry. They then discuss the roles of management and the board in ensuring appropriate risk management practices, and general matters to be addressed by these practices. Ultimately, it is expected that the risk management practices will be replaced by a prudential standard on risk management. Directors of PHIs are required to annually certify:
Directors are asked to certify that they carry Directors’ and Officers’ Liability Insurance and that they consider the coverage is adequate. The giving of false or misleading information, documents or statements to PHIAC is a serious offence under the Criminal Code Act 1995. The Criminal Code Act imposes substantial penalties, including imprisonment, for committing these offences.
Managing Supervision and InterventionThe following principles underlie the managing supervision and intervention guidelines: the board of each PHI is accountable for the financial stability and effective operation of the fund, and for the management of risk. PHIAC’s role is to intervene where there is cause for concern about the affairs of a PHI, or where there has been a breach of the PHI Act. The guidelines set out PHIAC’s general approach to regulation:
Appointed ActuaryWithin the increasingly complex environment of private health insurance, PHIAC considers that an appointed actuary provides independent expert analysis and adds value to the management and boards of PHIs and to PHIAC as regulator. Section 160–1 of the PHI Act requires PHIs to have an appointed actuary. Actuaries taking on the appointed actuary role for private health insurance must ensure that they meet the Institute of Actuaries of Australia’s professional requirements and code of conduct. The appointed actuary must be involved in:
PHIAC also requires actuarial assessment of the reasonableness of the discretionary margin in relation to the capital adequacy standards. Merger and Acquisition of Health Benefits FundsThe PHI Act prohibits a PHI from transferring its health insurance policies to another fund (section 137–25(1) except in accordance with Division 146 of the PHI Act. PHIAC’s approval for the transfer must be obtained. Section 146–5 of the PHI Act deals with a PHI transferring policies, assets and liabilities of a health benefits fund/s to another PHI so that the PHI to which the assets and liabilities are transferred assumes the legal responsibilities for the transferred assets and liabilities. PHIAC has provided practice notes, an example deed plus a compliance checklist on its website to provide information, and to assist funds with this process. Audit Programs and GuidanceGuidance notes for completing the PHIAC 1 and PHIAC 2 statutory returns, updates to the audit program and an example audit certificate are provided on the PHIAC website. PHIAC has also made available a data dictionary which explains the terms used in these forms. These documents have been published on PHIAC’s web site. PHIAC Reporting RequirementsInformation to be given to the Council annually is stipulated in Division 169–5 of the PHI Act:
Division 169–15 of the PHI Act stipulates that private health insurers notify the Department of Health and Ageing (DoHA) and Council about the current chief executive officer. (This requirement includes advising PHIAC and DoHA the name and contact details of an acting chief executive officer).
Circular 08/14 issued by PHIAC on 25 June 2008 informed insurers of their annual reporting requirements. The circular contained:
The circular also provided the requirement that insurers’ external auditors adopt the audit program and guidance provided by PHIAC. Also outlined is the requirement to submit a financial condition report and a statement by directors in relation to capital adequacy margin, loss ratio and risk management procedures. PHIAC rules: Private Health Insurance (Insurer Obligations) Rules 2007 and the Private Health Insurance (Health Benefits Fund Administration) Rules 2007 give effect to these requirements.
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KRA 1 |
Business as usual-ensure core functions are managed and deadlines met |
KRA 2 |
Planning for change-building capacity in staff skills and management |
KRA 3 |
Governing PHIAC-managing leadership change |
KRA 4 |
Building capacity-develop PHIAC's ability to deal with corporate activity |
KRA 5 |
Investing in relationships-invest in key relationships and manage perceptions |
KRA 6 |
Industry governance-formalise and strengthen PHIAC's approach to industry governance |
KRA 7 |
Information-leverage PHIAC's information and knowledge base. |
Outlined in the corporate plan are PHIAC’s core functions, values and behaviours; its vision statement; risk management framework and key risks; and how the agency will achieve the KRAs.
The business plan evolves from the corporate plan and identifies the strategies, actions and target dates to achieve the KRAs. The corporate plan is reviewed and updated annually at the strategy and planning workshop and progress reports against achieving the KRAs are provided at each Council meeting by the Chief Executive Officer and management.
PHIAC is a Commonwealth Statutory Authority which has aligned itself with the principles and values of the Australian Public Service:
executing its functions in an apolitical, impartial, effective and professional way with the highest ethical standards
accounting for its actions within the framework of ministerial responsibility to the Government, Parliament and the Australian public
being responsive to the Government in providing frank, honest, accurate and comprehensive advice
focusing on achieving results and managing performance
providing a fair, flexible, safe, non-discriminatory and rewarding workplace.
PHIAC’s corporate plan and its reporting of performance are closely related to the outcomes in the portfolio budget statements.
The annual report to Parliament on its operations is one of the key means by which PHIAC as a Commonwealth Authority discharges its accountability obligations, through reporting on its activities throughout the year, and the efficiency and effectiveness of its operations.
The Commonwealth Authorities and Companies Amendment Act 2008, which received Royal Assent on 26 May 2008, amends the Commonwealth Authorities and Companies Act 1997 and is intended to:
overhaul the process by which relevant Commonwealth bodies may be notified that they must comply with specified Government policies
introduce new, and revise existing penalties relating to contraventions of various reporting and accountability obligations
bring various provisions into line with equivalent provisions in the Corporations Act 2001.
For a Commonwealth authority such as PHIAC, the main, relevant changes are as follows:
section 27F(1)—failure to make proper disclosure of material personal interests will carry a criminal sanction
section 27J—the provision dictating that directors should not vote on matters in which they have a material personal interest has been clarified
section 27D—now states that a director must make an ‘independent assessment’ having regard to their own understanding of the authority and the business at hand Where, having done so, the director can show that his/her reliance was based on advice from a reputable source (eg an agency employee, professional adviser, etc) and made in good faith, then their actions will be presumed to be reasonable unless the contrary is proved.
On the Council’s initiative, a compliance statement that is signed by both the PHIAC CEO and Chief Financial Officer (CFO) is presented annually to the Audit and Compliance Committee, stating that, for the preceding financial year, PHIAC has complied with the:
provisions and requirements of the Commonwealth Authorities and Companies Act 1997
provisions and requirements of the Commonwealth Authorities and Companies Regulations 1997 (CAC Regulations) and the Commonwealth Authorities and Companies (Report of Operations) Orders 2005 (CAC Orders). (1)
The Council also receives advice whether the costs of the agency are forecast to be within its estimated sources of revenue for the current financial year.
(1) As amended or replaced
Risk management remains an integral part of all PHIAC activities and operations. PHIAC has a risk management policy, a risk management action plan and a crisis management framework. A report against the risk management plan and the key strategic risks is a standing agenda item for meetings of the Audit and Compliance Committee. This plan covers not only the more common risks, but specific risks that would apply primarily to regulators and regulatory action. Staff manuals and policies approved by the Audit and Compliance Committee address specific risks as part of a multi-level approach to managing and mitigating risk. Compliance with PHIAC’s risk management policy is linked to staff performance appraisals.
PHIAC considers it good risk mitigation practice to commission an independent risk review every three years. PHIAC’s next external review is to be undertaken in 2009–10.
Portfolio agencies within DoHA covered by the Financial Management and Accountability Act 1997 (FMA Act) were required to develop an Intellectual Property Policy Statement by 1 July 2008. These statements were to be based on the Intellectual Property Principles (IPP) for Australian Government Agencies (Statement of IP Principles), which was adopted by the Government in May 2007.
PHIAC is a CAC Act Agency, and as such, is not required to develop an IP policy statement at this time. However, PHIAC has determined that the agency should develop an IP management framework that reflects its needs and objectives, as an expression of good practice in the management of IP.
PHIAC staff have commenced work on the policy statement and are developing an IP register to complement the statement.
Principal IP created within PHIAC is PHIAC data, computer programs, the industry model and publications such as Insure? Not Sure? The policy will also cover the use of third party and background intellectual property such as health fund information.
The Commonwealth Authorities and Companies Amendment Act 2008 which received Royal Assent on 26 May 2008, repealed the provisions permitting ministers to notify ‘general policies of the Commonwealth’, and established a new process whereby ministers can notify all or some agencies—or even just one agency—that a particular policy is a ‘general policy’ and must be complied with by that agency. As was the case under the now-repealed section 28, before a minister can issue a general policy order he/she is first required to consult with the agency in question.
PHIAC has received no general policy orders.
Under section 264–25(1) of the PHI Act, the Minister for Health and Ageing may, by legislative instrument, give directions with respect to the performance of the Council’s functions or the exercise of its powers. The Minister has made no directions in relation to PHIAC.
Finance Circular 2008/05 stipulates that CAC Act bodies must report on legislative compliance and financial sustainability, on an annual basis, to the Minister for Health and Ageing and the Minister for Finance and Deregulation (Finance Minister). The compliance report must be provided to the Finance Minister by 15 October, annually. Directors of a CAC Act body are to provide a compliance report indicating whether or not, in their opinion the:
(a) provisions and requirements of the CAC Act, the Commonwealth Authorities and Companies Regulations 1997 (CAC Regulations) and the Commonwealth Authorities and Companies (Report of Operations) Orders 2005 (CAC Orders), collectively ‘the CAC Act legislation’, have been complied with; and
(b) the costs of the body are forecast to be within estimated sources of external receipts for the current financial year, including, where appropriate, estimates of external receipts in the Australian Government’s central budget system.
The Finance Minister’s requirement under paragraph 16(1)(c) of the CAC Act to provide the compliance report is a Ministerial Direction to a Commonwealth Authority in the GGS that must be described in its annual report (for the purposes of paragraph 12(1)(a) of CAC Orders).
During the reporting period, PHIAC was not the subject of any judicial decisions or decisions of an administrative tribunal.
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Private Health Insurance Administration CouncilSuite 16, Level 1, 71 Leichhardt Street, KINGSTON ACT
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Last modified: 16 October, 2008 |