Bidding war for VHI possible but clarity on legal issues essential

AXA, Alliance, Aviva or even BUPA could be interested in buying VHI in what could easily turn into a bidding war for the national insurer, put up for sale two days ago by the Irish state.

However, any potential buyer will want greater clarity on legal issues such as risk equalisation and any future government levies. These concerns aside, VHI is a tempting opportunity. At its peak, it had 1.75 million members (now down to 1.5m), about 60% of the total Irish market and an enviable databank of information, albeit with a seriously ageing membership profile (70% of all over-60s, 90% of all over-80s).

At present, all the main players are staying remarkably quiet. Independent insurance industry consultant and MD of healthinsurancesavings.ie Dermot Goode believes the Government has its work cut out to fatten VHI up for sale.

“It will be entirely dependent on the legislative landscape,” said Mr Goode, who is also MD of PHI Consulting. “If people believe they can make money out of VHI, they will come in and have a look. If they think the regulations are toopenal, they won’t. As it stands, any buyer would want far greater clarity.

“There is a lot of complexity to work through. The Government will want community rating to protect the elderly. The insurance levy has been extended until 2012, so the buyer would want clarity on how much the levies will be.

“They don’t know what the risk equalisation will look like. That is what drove BUPA out of the market. Who knows? Given greater clarity they might even consider coming back into the Irish market. But, for now, everybody is staying tight-lipped. Putting any names out there would purely be idle speculation.”

VHI has been losing members in recent months. Almost all of those switching over to its competitors have been younger members, thus adding to its ageing profile. Up to 60% of all health insurance claims in Ireland are being carried by the VHI. Its solvency is now at 22%, down from 35% a few years ago. It has a huge wage bill with 900 staff, and lost €170m last year.

That said, its huge databank will still draw local and global interest. Other possible buyers could include Irish Life & Permanent, Eureko or Friends First. The eventual buyer may even be a bank or some other non-insurance business, but only with greater clarity and only if the price is right.

Mr Goode added: “A lot of people’s focus has been on the likely increase in health premiums. There are currently about 1,000 people a week leaving health insurance. The cost for everybody else will grow.

“From the consumer point of view, there is no good news ... There will not be cheaper rates.”