Health Financial Condition Reports the first five years. Raewin Davies / Adam Jupp PricewaterhouseCoopers

Transcription

1 Health Financial Condition Reports the first five years Raewin Davies / Adam Jupp PricewaterhouseCoopers 1

2 Background to FCR survey Survey results communication content perceived value Concluding comments Agenda 2

3 FCR background PHIAC requirement since 2005 Private Health Insurance Act 2007 requires each insurer to appoint an actuary Roles and responsibilities of the AA are set out in the Private Health Insurance (Insurer Obligations) Rules 2009 annual FCR provided to PHIAC prepared in accordance with the IAA guidance note (progressing to a PS in 2011) 3

4 Purpose of FCR For the Board, with a copy to provided to PHIAC. - also of use to management and the auditor Financial Condition of the insurer, as seen by the actuary - Risks to solvency and profit - Recent and prospective performance - Adequacy of contribution rates - Current and prospective capital requirements - Implications of business plan 4

5 Objectives of survey Identify value of FCRs to Insurers Identify strengths/weaknesses of FCR: process content Keep it / Lose it / How to improve it 5

6 Survey background Separate surveys (mirror image questions where possible) to AAs and senior management (CFO) Group # surveyed # responses % AA % AAs have responded based on their experiences with 15 insurers Insurer 33(a) 17 52% (a)35 registered insurers, of which 2 are wholly owned subsidiaries 6

7 Appointed Actuaries Vital Statistics Most AAs have > 10 years experience in PHI Largest insurers have internal AAs For most insurers, the AA is external Most external AAs practice in another area, including: General Life Superannuation A minority of insurers have internal actuaries, and employ an external AA 7

8 How do insurers view AAs? 8

9 Perceived knowledge 100% 80% 60% 40% 20% 0% AA knowledge Industry knowledge Company knowledge Very strong Strong Adequate Less than adequate Insurers rate AAs knowledge as strong to very strong Similarly, AAs generally regard management s knowledge as strong to very strong, although a small number were perceived as adequate. (note that the AA responses with respect to 15 insurers will not fully correspond to the 17 insurers completing the survey) Key: Orange columns are insurer responses 9

10 Communicating across the organisation The FCR is informed by discussions with the following areas: 100% 80% 60% Areas of communication Insurer response AA response Generally, a broad range of discussions across the insurer. 40% 20% 0% C suite Products Policy services Claims mgt Invest's Less involvement with the policyholder services, and investment areas Alternative responses were No / NA / blank Key: Orange columns are insurer responses Blue columns are AA responses 10

11 100% 80% 60% Presenting the FCR Presenting the FCR Insurer response AA response Presenting to the Board is not a requirement, and an isolated case where this hasn t occurred 40% 20% 0% Board Management AA responses indicate management are informed of findings, although this may not be via a concluding presentation 11

12 Frequency of communication 100% 80% 60% General communication* Insurer response AA response 50% or more are in contact with the insurer at least monthly (not necessarily related to the FCR) 40% 20% 0% Blank Weekly Monthly Quarterly * where the AA is external Some communication may not be visible to the CFO, which may partly explain the lower frequency as assessed by the insurer 12

13 How do we communicate? 13

14 Quality of communication Quality of communication 100% 80% 60% Written Verbal 40% -Insurers rate AAs as good communicators -Verbal skills are rated more highly than written skills 20% 0% Weak Key: Reasonable Good Very good Orange columns are insurer responses 14

15 Written communication Report - length 100% Report - content 100% Exec summary Exec summary Main report 80% Main report 80% 60% 60% 40% 40% 20% 20% 0% 0% Too short Key: About right Too long Too technical About right Too general Orange columns are insurer responses Report length and content generally favourably perceived 15

16 Are we alert to risks? 16

17 Report content (1) How well does FCR cover risk areas? 100% Solvency / profitability Performance Contributions Capital adequacy Business plan Investments 80% 60% 40% 20% Insurers generally perceive the areas covered by the FCR as insightful, but less so on: financial implications of the business plan, or on investment performance and structure 0% Needs Improvement Key: Adequately Good Very Good Orange columns are insurer responses 17

18 Report content (2) From the insurers perspective: -A higher score on written communication is linked with higher scores on coverage - Suggested improvements for AAs: - Report better targeted for the Board - More detailed interpretation of experience - Suggested improvements with the process: - Much of the FCR can be a review of in-house work - Change the timing of the report - Make use of other expertise (eg investment review may be bolstered by outside expertise) 18

19 Report content (3) Other risks mentioned by the AAs as also being included in the report: - Product migration - Product design - Risk equalisation - Variability in claims cost escalation From the AAs perspective -managements response to risk is good to very good Check the AA commentary appears correctly in the Board Minutes! 19

20 Recommendations in report (1) Insurers responded that the FCR includes some recommendations that - they regard as important to the business (44%) - were primarily technical (75%) - they did not agree with (25%) Multiple responses to this question was possible. 100% Report recommendations 80% 60% 40% 20% 0% Findings from general insurance survey: ~ 40% of AAs reported only some recommendations were acted on Important to business Key: Technical Mgt disagrees Orange columns are insurer responses 20

21 Recommendations in report (2) Other areas where insurers perceive the FCR adds value include: - capital management (mentioned by a no. of insurers) - contribution rates - product strategies Value add throughout the year, not just FCR A few instances where issues have been escalated to PHIAC 21

22 Notifiable circumstances 22

23 Notifiable circumstances (1) Advising AA of notifiable circumstances 100% 80% 60% 40% 20% 0% During Proposal Stage Key: During Planning Orange columns are insurer responses Possible responses are: -During proposal -After implementation -During planning -During FCR process -N/A Products Business plan Investments M'ship profile Capital mgt AAs are involved from a very early stage with product changes, and with capital management Changes to investment policies are notified later than other circumstances A small number where the AA was advised later in the process for example, during the FCR AAs provided isolated past examples of circumstances that were not advised: Changed distribution Changed commission 23

24 Notifiable circumstances (2) Is advice timely? Products 100% Business plan Investments 80% AAs generally perceive they are kept well informed M'ship profile 60% Capital mgt 40% 20% Generally insurers err on the side of caution in keeping the AA informed 0% Blank Key: Always Usually Not usually Blue columns are AA responses Has not been applicable A small number where the AA required earlier advice 24

25 Outstanding claims provision OSC - AAs' role Outcome of OSC review 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% Set by AA Reviewed by AA Blank Key: Modify the methodology Modify the provision Orange columns are insurer responses The AA will have some involvement in the OSC provision For a (small) majority of insurers, this includes a valuation report on the OSC 25

26 Role of AA in PHIAC2 returns PHIAC2 - AAs' role 100% Low level of AA involvement in completing returns past OSC and risk margins 80% 60% 40% 20% 0% OSC and margin Key: high level significant involvement Orange columns are insurer responses 26

27 Does the FCR add value? 27

28 Perceived value of FCR Usefulness of report 100% To Management To Board 80% Influence decisions 60% 40% 20% 0% Yes Key: Orange columns are insurer responses No - Insurer CFOs believe FCR is valuable to the Board (intended audience) - For a significant minority, recommendations in the FCR have influenced business decisions - AAs perceive that the FCR adds to managements knowledge of risks (with one exception) 28

29 Continue with FCR? Continue FCR? 100% Insurer response 80% AA response 60% 40% 20% 0% Blank Discontinue Reduce frequency Continue with annual FCR If the regulatory requirement for an FCR were removed: - Most insurers would continue with an annual FCR - AAs were less sure on whether the annual FCR would continue 29

30 FCR Professional Standard Exposure draft - IAA Professional Standard currently in second exposure draft - PS to be enacted from 1 July A significant minority of AAs regard the draft PS as overprescriptive - Comments include: consult insurers on the draft tension between advice to insurers, and regulatory role 30

31 Findings from General Insurance Various recent surveys on FCRs, external peer reviews, insurance liabilities valuation reports are relevant. Some common FCR strengths: - Useful to Board - Met management expectations Suggested improvements - More focus on business implications - More explanation of reasons for movement - Include a provision for management response to recommendations All the above points for improvement were made by respondents to this survey Be courageous 31

32 Concluding comments AA role is now highly valued by insurers. We need to continue to add to our strengths Add value avoid process - avoid negative assurance - plausible sensitivity analysis - explain movements Finances of an insurer can change rapidly, quality timely advice is important Balance the needs of users, including PHIAC 32

33 Main issues from survey Balancing needs of Board / PHIAC Is PS600 over-prescriptive? Who is the primary audience of FCR? Where to increase value of FCR Avoid duplication of work performed by Management Improve coverage of Investments/Business Plans Meaningful scenarios Describe change in experience Assistance with capital management has been well received 33