Failure to sell insurer would trigger a new crisis

THE state could find itself in even more financial turmoil if it is unable to sell VHI in the already volatile insurance market.

Speaking after the shock announcement that Ireland’s largest health insurer is up for sale, Permanent Health Insurance (PHI) Consulting managing director Dermot Goode warned that the Government move could potentially result in a serious financial hazards.

Mr Goode, an insurance analyst for over two decades, said the decision to put VHI on the market made sense in principle.

He said due to the decision, the possibility of Irish insurers moving towards a type of “price discrimination” based on age or illness had been lessened. However, warning that the “devil is in detail which won’t be known for two years”, the insurance expert said, if VHI became an unattractive purchase, the state could be faced with another financial crisis on its hands.

He added that as a result it was highly likely Ireland’s largest insurer, which is losing €170 million a year and has seen its financial reserves slump to just €286m, may have to be “fattened up” through increased taxes over the next two years.

“My only fear is that with this plan they (Government) have a sizeable task ahead of them and I don’t know if its achievable,” Mr Goode warned.

“They want to open the market up to competition, to protect the elderly, to still try and make health insurance cost affordable, and to make VHI attractive to buy. But if problems or legal issues arise with risk equalisation then sustaining the value of VHI will be difficult.

“The devil is in the detail with this. This market is in trouble when you look at Quinn Insurance and now VHI, when you see young people dropping out, with less people being in the system but those who are claiming more often.

“If this plan is done correctly and they strike a balance between risk equalisation and incentives for new customers, details which have to be hammered out, then it could work. But in the market and with the type of customer they have it’s going to be very difficult to make VHI an attractive purchase,” the expert added.

The comment was repeated by Brian Turner of University College Cork’s (UCC’s) department of economics, who said the entire plan depended on the continuing safe passage of the risk equalisation reform scheme.

“Based on the reaction to previous risk equalisation schemes in Ireland, I strongly suspect any new scheme will be challenged in the courts, which might delay its implementation.

“Given that VHI’s financial position will be challenging in the absence of such a scheme, the attractiveness of the insurer to new buyers might be affected by such uncertainty.”

While a Department of Health spokesperson insisted no officials have met with any companies over the possibility of taking over VHI, she said “different companies have come in to discuss the health insurance market in general”.

The decision to sell VHI has raised further concerns over the possibility of a health insurance monopoly being created in the coming months by one private firm.