Document ID: chunk:federal_register_of_legislation:F2023L00015:reg:21:p5
Version: federal_register_of_legislation:F2023L00015
Segment Type: reg
Provision Reference: reg 21 (pt 5/101)
Character Range: 43829–46667

pay-as-you-go basis are focused on meeting net cash outflows expected to occur in the current period, rather than on meeting net cash outflows related to events that arise in a particular coverage period that may involve fund outflows expected to occur in both the current and future periods.

Indicator: Source and extent of funding

     E18                Under an insurance contract, a policyholder usually pays premiums to an insurer. In most cases, the premiums are the primary source of funding the payment of any claims and the costs of operating the insurance business.

     E19                When a public sector entity receives premiums or levies under an arrangement in exchange for accepting risks from those who stand to benefit, it is an indication that an arrangement gives rise to insurance contracts within the scope of AASB 17. The greater the extent to which the participant who stands to benefit from an arrangement is providing the funding, the more indicative this would be of a policyholder–insurer relationship and an arrangement that gives rise to insurance contracts that fall within the scope of AASB 17.

     E20                The individual or entity from which the public sector entity receives premiums does not need to be a direct beneficiary of the arrangement. Instead, they may be an indirect beneficiary. For example, when a public sector entity receives levies from the participant for the purpose of compensating other parties that might be damaged by the participant's actions, the benefit to the participant would often be that the damaged parties cannot seek additional compensation from them by other means.

     E21                When all of a public sector entity's funding to meet benefits is received in exchange for accepting risks from those who stand to benefit, this is highly indicative of an arrangement that gives rise to insurance contracts that fall within the scope of AASB 17. The lower the proportion of a public sector entity's funding to meet benefits in exchange for accepting risks from those who stand to benefit, the less likely it is that those arrangements would be accounted for as insurance contracts. For example, a co-payment from a beneficiary that is intended to help ration services and is not intended to fully fund services is unlikely to indicate an arrangement that gives rise to insurance contracts that fall within the scope of AASB 17. When a public sector entity receives a significant portion of funding from sources such as general taxation, this would indicate that an arrangement does not give rise to insurance contracts that fall within the scope of AASB 17.

     E22                Under most general insurance contracts issued by private sector insurers, in the event that a policyholder cancels its coverage prior to the end of the coverage