Prudential Regulation Authority (APRA) executive board member Suzanne Smith has used an address to tell the private health insurance sector that it should "feel cautiously satisfied" about its recent performance.
Ms Smith made the comments in an address to the Members Health directors’ professional development program in Sydney.
"This is my first speaking engagement since being appointed last October as APRA Executive Board Member with responsibility for private health insurance (PHI) and life insurance," she said.
"If the PHI industry were to reflect right now on its position and trajectory, it would be entitled to feel cautiously satisfied.
"After many years of declining membership, the past two years have seen the industry’s vital signs start to improve: membership growth has increased for nine successive quarters, and PHIs have made progress developing more innovative solutions to some of the industry challenges - such as via alternative models or partnerships in providing care and through the better use of data.
"From a prudential perspective, the PHI industry remains sound - policyholders can have confidence that private health insurers have the financial capacity to pay their claims and the industry remains well-capitalised."
However, while Ms Smith said that the pandemic had led more Australians to positively re-evaluate the importance of their PHI, she added that "many of the industry’s long-term structural challenges remain; in particular, increasing pressure on insurance affordability as health care costs continue to outpace wages growth, and an ageing population with associated higher claims costs."
She continued, "Coupled with this is a challenging macroeconomic environment. Higher inflation, interest rates and workforce constraints put pressure on the costs of providing healthcare and on household budgets – pressures which could see those sustainability risks increase once more.
"As APRA has stated previously, responding effectively to these challenges will require a co-ordinated effort by all industry participants, including insurers, regulators and Government."
Ms Smith said APRA's key priorities include the industry’s financial resilience and long-term sustainability, in addition to issues such as cyber risk, operational risk and risk culture.
She referred to last year's cyber attack against Medibank and urged all PHI companies to "interrogate key service providers on their cyber controls and any contagion risk because their failures quickly become yours."
Looking ahead to the rest of 2023, Ms Smith said APRA will focus on implementing the new PHI capital framework that will come into effect on 1 July.
"It is a framework that will strengthen the financial resilience of private health insurers for the protection of policyholders," she said.