Private Health Insurance & the AASB17 journey

The finalisation of the AASB17 standard on accounting for insurance contracts in 2020 which created a hard deadline for implementation has meant a number of funds have decided it’s time to get their AASB17 journey into gear.

This has led to a number of questions, such as what steps are required on this journey, how does our progress compare with others, are there any urgent deadlines, and what (if any) industry consensus is there on some of the key issues for health insurers?

An implementation pathway

To help navigate the AASB17 journey I have mapped an implementation pathway (below) which any fund can adopt to implement AASB17 - breaking the journey into three steps;

• Evaluating where your fund sits with respect to the standard and what options you have, and what gaps in your data, systems or modelling need to be overcome prior to adopting AASB17.

• Deciding what your approach will be, and agree this with the auditor.

• Implementing policies, procedures, models and training based on the decisions made.

Based on discussions I’ve had with funds, Appointed Actuaries and industry groups, I have a thorough understanding of how the industry is currently placed. Most funds are in the evaluation phase; they’re setting up their implementation plans while a few have performed gap and options analyses. Funds of every size are in this group.

A handful of funds are in the decision or implementation phase. Generally, these are larger funds, but not exclusively. With the comparison year starting 15 months from now for many funds, there is a strong incentive for listed funds to be ready so that they can fully inform analysts of how AASB17 will impact the accounts. Also, of the two funds participated in APRA’s practice run Quantitative Impact Study (QIS) it was identified that those two funds needed to be more prepared.

Key deadlines approaching

There are two key deadlines funds need to be aware of. ASIC published a statement last year saying all insurers should be including information on the impact of AASB17 in the disclosures to their financial accounts. However, many funds are likely to cover this with a more generic statement. The more important deadline in many funds minds will be the industry QIS in Q4 this year. APRA will be requiring every fund to participate, and they will have to submit accounts showing the impact of AASB17. The QIS will be on a best endeavours basis, so funds won’t have to have finalised their decisions on implementation. But the QIS will obviously require funds to have some idea of what they may do, and have performed analysis on how AASB17 changes the accounts.

There appears to be a push to be ready for the QIS.

With respect to industry consensus, the major form this is currently taking is the AASB PHI Focus group. This group is reviewing the areas of the standard where application is not clear for health insurers, and is reporting to the AASB Transition Resource Group (TRG). The TRG is the AASB committee which is overseeing the process of integrating feedback on the standard (before it was completed) and interpretation of the standard for the AASB.

The PHI Focus group is comprised of industry representatives (AU, Bupa, HBF, HCF, GMHBA, Medibank, Teachers and Finity) and the large accounting firms (Deloitte, EY, GT, KPMG, PwC). The AASB cannot make recommendations, so the papers will lay out considerations and options. The March meeting had papers on the Contract Boundary, Onerous Contracts and Level of Aggregation, with papers to be published on the AASB website (date to be confirmed).

We will also hear the results of the full QIS in 2022, and as listed funds start briefing analysts we will get a feel for how they are implementing the standard. Of course, there will be the question of whether industry consensus is required, and how long it may take to achieve it.

Hopefully this blog has assisted you in thinking about how to move along on your AASB17 journey. Although health funds are amongst the least impacted by the standard, and to date the changes I’ve seen are more cosmetic than revolutionary. There is still enough devil in the detail that funds will be required to make choices and a number of changes.