BUPA departing with a healthy surplus

BUPA claims risk equalisation would cost it €161m over the next three years compared with projected profits of €64m under the current system.

That’s approximately €21m per annum profit generated through the surplus of premium income over costs — principally staff, marketing and medical claims.

This return reflects BUPA’s relatively young customer base whose age profile would automatically mean a lower incidence of claims.

While BUPA is willing to recruit older customers, and has undoubtedly taken on a modest number, its marketing was focused on recruiting company schemes in well-paid employments where the average age is probably as low as 30.

Older people are far less likely to move from an insurer they’ve been with all their lives in case the newcomer proves unreliable — as has turned out to be the case here.

If BUPA is currently making profits of approximately €20m per annum, then presumably it has long ago recouped its set-up costs and accumulated a healthy surplus over the past several years.

These surplus funds should be invested to meet future claims from an ageing membership while, in theory, the premium levels would remain relatively stable in real terms.

By cutting and running now, BUPA is able to pocket the accumulated surplus which should considerably exceed their winding-up costs, estimated at €20m.

Meanwhile, VHI and Vivas are obliged to take on the 475,000 abandoned BUPA subscribers without penalty — and without the profit from the subscriptions of these customers in their earlier years of cover.

We should be grateful that BUPA has been forced to show its hand now rather than in 10 years’ time when it really would have milked the market before folding its corporate tent and dumping unfortunate members on VHI, with all the additional cost implications for VHI members at that time.

Peter Molloy

9 Haddington Park

Glenageary

Co Dublin