Printable version of 50/12 (PDF 133 KB)
4 July 2012
Information regarding the topping up of pre-paid Insurance Premiums
The Department is aware that some private health insurers may not be compliant with their obligations concerning premium rate increases as they relate to insurance paid for a period in advance of those rate increases. The purpose of this circular is to clarify the relevant obligations for insurers.
Division 63 of the Private Health Insurance Act 2007 (the Act) requires insurers to only offer products which are made up of complying health insurance policies (CHIPs). One of the criteria that a CHIP must meet is to comply with the premium requirement under section 66-5 of the Act.
Essentially, a premium will meet the premium requirement if it adheres to the relevant approval by the Minister, as required by section 66-10. Namely, that the premium payable for a CHIP will be the amount most recently approved by the Minister on the date that a policyholder pays the insurer.
As a consequence, where a policyholder pays their premiums for a pre-defined period of time (the advance period) and the insurer increases rates some time during that period, the new rates cannot be imposed on the policyholder during the advance period. In other words, an insurer must not ask a policyholder to ‘top up’ pre-paid insurance.
The Department is aware that some insurers’ Fund Rules are drafted in such a way that may allow insurers to require policyholders to top up their insurance during the advance period. The implementation of such a rule would cause an insurer to breach its obligations under the Act.
The Department advises that insurers who impose a ‘top up’ rule, by requiring policyholders to pay an additional amount to cover new rates before the expiry of the advance period, must remove such an obligation entirely from their Fund Rules and in practice.
The Department also suggests that insurers (who have not already done so) take steps to clarify that premiums paid in advance of a rate increase will be protected from that increase. Taking such action, which may include, for example, amending its Fund Rules, is useful in demonstrating to the Department that an insurer is compliant with its obligations in relation to this issue.
The Department will be carefully scrutinising insurers’ requirements with respect to the topping up of premiums, to ensure compliance in the industry.
For further information about this circular, please contact Mr Stephen Lewis on (02) 6289 8283.
If you require further information please telephone: (02) 6289 9853/24 hr answering machine or email the enquiry to Private Health Insurance Branch
For more information visit 2012 Private Health Insurance (PHI) Circulars
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