Private health insurers in Australia face mounting financial pressures as hospital and medical costs continue to outpace inflation, APRA Executive Board Member Suzanne Smith warned during a speech at the Members Health Directors’ Professional Development Program.
Smith highlighted that while the private health insurance industry remains financially stable, it is entering a more challenging period due to accelerating healthcare costs.
“In the 2024 financial year, hospital and medical inflation stood at 6.7 per cent, which was almost double the headline inflation rate of 3.8 per cent,” she stated. She noted that this gap is driving tensions between insurers and hospitals, making negotiations more difficult and requiring insurers to adopt a disciplined and data-driven approach.
Consumer affordability was also a concern, with Smith acknowledging the financial strain on policyholders.
“These pressures are making it harder for people to hold the level of cover they would like, so we continue to see people migrate to lower levels of cover and to self-insure more risk by opting for higher excesses.” At the same time, consumers increasingly expect enhanced digital services, pushing insurers to invest in customer relationship management systems and improved interfaces.
Looking ahead, Smith urged insurers to take a long-term view of their sustainability and business models. She pointed to the need for more proactive planning, including preparedness for potential exit scenarios. “I’d encourage all of you to be so brave, because it is a good risk management and strategic planning exercise,” she said, referring to APRA’s CPS 190 standard on recovery and exit planning.
Cybersecurity was another area of focus, with Smith cautioning that health insurers remain prime targets for cybercriminals. She stressed the importance of ongoing investment in cyber defences, referencing APRA’s CPS 234 information security requirements and the upcoming CPS 230 operational risk management standard.
Smith also reinforced the responsibilities of insurers’ boards, particularly as the Financial Accountability Regime is set to extend to insurers in March. She urged directors to critically assess their governance structures and skillsets to ensure they are equipped to manage emerging risks.
“You and your fellow board members should also have honest conversations about whether you have the right people, skills and processes in place to navigate the challenges of today and tomorrow,” Smith said.
While acknowledging the industry’s current financial strength, Smith warned against complacency, emphasising the need for resilience and proactive leadership. “There are simply too many signals that suggest the future is uncertain and could be volatile,” she said, encouraging directors to take a forward-thinking approach in steering their organisations.
APRA, she assured, will continue to challenge and support the industry in meeting its obligations and ensuring policyholders receive the coverage they need.
