HFA opposes rating health insurers

The Health Funds Association is opposing moves to make health insurers get credit ratings, saying it will drive up premiums without benefiting consumers.

Forcing health insurers to get ratings is an over-reaction to the risk that some might go bust, the HFA says in a submission to the Ministry of Economic Development (MED).

"Moreover (it) is insufficient in itself to protect consumers, as clearly evidenced by the recent HIH collapse in Australia," it says.

MED has sought public comment on a proposal to extend the Companies (Ratings and Inspections) Act, which currently applies only to fire and general insurers, to all non-life insurers. A change in the act would require the 33 unrated insurers to get and make public independent ratings of their financial strength.

MED believes some of the insurers, who offer health, liability, income, mortgage and consumer credit cover, are vulnerable to insolvency.

It also proposes standardising accounting practices for insurers and removing the requirement for them to place bonds of up to $500,000 with the Public Trust.

HFA says a comprehensive self-regulation framework – like the one it’s working on – is a better way to protect consumers than ratings legislation.

The cost of getting a rating, around A$28,000, might force up premiums and put some insurers out of business, it says.

The benefits to consumers are questionable because even if an insurer’s rating is downgraded, policyholders might not be able to easily switch company.

The association says a better way to protect consumers is to require health insurers to adhere to the capital adequacy and solvency standards included in its planned self-regulation regime. Only insurers who don’t comply with the regime should need ratings.

However, it warns the regime might be shelved if the rating plan goes as it would require health insurers to go through two evaluation processes.