Josh Frydenberg (Kooyong, Liberal Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

Today I introduce a package of bills to transfer the prudential regulation functions of the Private Health Insurance Administration Council, which I will refer to as the council, to the Australian Prudential Regulation Authority, which I will from here on refer to as APRA, from 1 July 2015. The legislation will also abolish the council effective from 1 July 2015.

With this package of bills, the government is continuing to deliver on its commitment to a smaller, more rational, government. This will, over time, result in lower costs for industry, while ensuring that Australia's private health insurance industry remains stable and well regulated.

These bills are also designed to stop unnecessary duplication. Where previously one regulator was responsible for the prudential supervision of general and life insurers while another was responsible for the prudential supervision of health insurers, APRA will now supervise all three industries. APRA is also responsible for regulating the superannuation industry, except self-managed superannuation funds, and the banking sector.

The government has taken opportunities to harmonise, where possible, with APRA's existing legislative framework, and to eliminate unnecessary duplication within the private health insurance regulatory framework. This is consistent with the government's deregulation agenda.

The council is the prudential regulator of the private health insurance industry in Australia, and is currently responsible for monitoring the prudential performance of registered private health insurers. This role includes the registration and prudential supervision of private health insurers; developing solvency, capital adequacy and other prudential standards for the industry; publishing circulars, statistics and reports on insurer activities and performance; and administering the Risk Equalisation Trust Fund. From 1 July 2015 these functions will be undertaken by APRA.

The decision to abolish the council and move its functions to APRA was announced in the 2014-15 budget as part of the government's Smaller Government Reform Agenda.

This package of measures aims to streamline government bodies and reduce duplication of government agencies. As a result, a number of statutory bodies are being abolished and rationalised where activities are no longer needed or can be managed within existing departmental resources. The abolition and merger of statutory bodies, including the council, is expected to improve coordination and accountability and reduce the costs associated with separate governance arrangements on industry.

It is important to note that this package of bills will not fundamentally change the regulatory requirements currently faced by the private health insurance industry. The approach outlined in the legislation is intended to minimise the disruption to industry and the risks to sound supervision. APRA will continue to provide the private health insurance industry with the prudential supervision services that were provided by the council.

At the same time, the transfer of the council's prudential supervision functions to APRA is expected to deliver economies of scale, resulting in savings for the private health insurance industry over time.

The valuable knowledge held by council staff regarding the supervision of the private health insurance industry will also be retained, with nearly 80 per cent of the council's staff being expected to transfer to APRA from 1 July 2015.

Under these new arrangements, the Minister for Health will continue to have overall policy responsibility for provisions relating to private health insurance policy that will remain in the Private Health Insurance Act.

This includes the establishment and administration of the premiums reduction scheme—the Private Health Insurance Rebate—lifetime health cover and the rules for complying health insurance products, including the community rating principle. Enforcement provisions required to support these obligations will also be retained in the Private Health Insurance Act.

The Private Health Insurance (Prudential Supervision) Bill 2015 will give effect to the transfer of the council's prudential supervisory functions to APRA.

The bill replicates elements of the regime currently set out in the Private Health Insurance Act, with some modifications to harmonise certain provisions with other legislation administered by APRA, to reduce duplication and to update investigation powers to bring them into line with the Regulatory Powers (Standard Provisions) Act 2014.

Part of this streamlining process involves replacing the existing capital adequacy, solvency and prudential standards making powers in the Private Health Insurance Act with a single consolidated standards making power to be exercised by APRA.

Bringing these three standard-making powers into one will harmonise the legislation with APRA's existing prudential standard-making powers in relation to authorised deposit-taking institutions—such as banks—life insurers, general insurers and superannuation trustees.

APRA also intends to re-make all prudential standards in substantively the same form as they are now following royal assent. This will provide certainty to industry during transition.

Further, APRA has provided an assurance that there will be no substantive changes to any existing regulatory obligations for the private health insurance industry as a whole before 1 July 2016.

To address concerns raised by the private health insurance industry, strict liability offences have been removed; the severity of penalties for offences have been reduced overall and have been made more consistent throughout this bill.

The bill will also transfer responsibility for a number of rules that the Minister for Health and the council currently handle, including a range of other procedural matters under the Private Health Insurance Act, to APRA. These rules will be remade in substantively the same form to ensure that the obligations of private health insurers will remain unchanged.

The Minister for Health will retain responsibility under the Private Health Insurance Act for a number of rules, including the policy rules relating to the risk equalisation fund.

The bill also contains a number of minor and technical amendments to the current regulatory regime in order to ensure a smooth transition to APRA.

As stated before, this package of legislation ensures that the government is continuing to deliver on its commitment to a smaller, more rational government. It will enable APRA to supervise the private health insurance industry and will, over time, result in lower costs for the industry, while ensuring that Australia's private health insurance industry remains stable and well regulated.

The full details of this bill are contained in the explanatory memorandum.

Debate adjourned.