Irish Health Insurer Vhi Expects Growth After Privatization

Vhi Healthcare, Ireland's state-owned health insurer, believes the government's plan to privatize it offers the prospect of growth within Ireland and abroad.

"Vhi welcomes" the coming changes "very much," said Declan Moran, director of marketing and business development for the Dublin-based organization. "For quite a while, we've been trying to get commercial freedoms to expand into other areas."

Vhi Healthcare, which registered a deficit of 41.7 million euros (34.5 million pounds) in 2009, shares the Irish health insurance market with Quinn Healthcare and Aviva Ireland.

"Health care is primarily age-related, particularly in the critical areas of cancer care, cardiac, chronic conditions and orthopaedic care," Vhi said in a statement released with its 2009 figures. "The current market environment encourages newer entrants to pursue younger customers as they are highly profitable, while avoiding insuring older customers who are significantly loss-making."

Ireland's private health insurance market has developed alongside the country's system of free health care, Moran said. The health insurance structure is underpinned by the principle of community rating, which means everyone pays the same. Under this system, no one can be denied cover, and there is freedom of movement by customers among health insurers.

The community-rated market is "not too dissimilar" to some of the initiatives that have recently been introduced in the United States, Moran said in a telephone interview.

Vhi, which is just more than 50 years old, is Ireland's largest health insurer, Moran said. The market has been open to competition since the 1990s. In five years, Moran expects Vhi to be a bigger company than it is now. He draws confidence from the reputation of Vhi, which he called "probably one of the strongest brands in Ireland." Moran also cited Vhi's marketing and distribution reach.

"We have about 65% market share," Moran said. "And clearly it's difficult for the government to be the regulator of the market and also to be the owner of the largest health insurer."

Jim Dowdall, group chief executive officer of Aviva Ireland, said the various companies within Aviva Europe all have the ambition to be market leader in the countries in which they operate. Aviva is Ireland's largest composite insurer and Europe's fastest-growing health insurer, Dowdall said in a telephone interview.

Aviva Ireland is adding 3,000 health insurance customers a week and is more than halfway to its goal of a half million customers by the end of 2012, Dowdall said.

"We're very, very strong in terms of our entrepreneurial spirit and our performance against our business plans," Dowdall said.

The Private Advantage

The main attraction of the private health insurance system is faster access to elective treatment, Moran said.

The popularity of private health insurance in Ireland is related to its low cost and to concerns about the state of the public system, according to Dowdall.

"What's very important is for our customers to understand that health insurance is affordable," Dowdall said. "For the cost of a cup of coffee every day you can have a quality health insurance product."

Insurance also gives peace of mind, Dowdall said. The economic downturn has brought only a small drop in customer numbers across the market, he said.

"However, customers are considering their insurers," Dowdall said. "And we're seeing more customers shopping around and switching health insurers than at any stage before."

Despite its 2009 deficit, its investment portfolio performed well, Vhi said in its statement. "Vhi Healthcare remains financially strong with liquid financial assets of 705 million euros and retained reserves of 306 million euros, which makes its balance sheet significantly stronger and more liquid than those of its competitors," the company said.

Vhi Healthcare said it spent more than 1.3 billion euros in 2009 on health care for its customers, up 14% from 2008. More than half of this went for older policyholders. Customer numbers fell by almost 120,000 in 2009, according to Vhi, whose name derives from "Voluntary Health Insurance."

Mary Harney, Ireland's minister for health and children, has emphasized the government's intention to invest in Vhi, its commitment to community rating and its determination "that older and sicker customers should be supported by younger and healthier customers."

Harney has expressed concern that the introduction of policies aimed at younger customers could undermine the principle of community rating.

"We want all companies to have an incentive to win and keep older and sicker customers, and to provide better value and developing health insurance services to their customers, particularly in primary and preventive care," Harney said in statement.

Under the community rating system, Moran said, premiums do not rise as people age. Rather, they increase for everyone as the provision of health care becomes more expensive. Vhi estimates that it is losing 170 million euros a year on older customers. Community rating is "enshrined in our legislation in Ireland," Moran said.

"As you get older and as you get sicker and as you need health care more and more, you're not being excluded, you're not being applied with pre-existing conditions or not able to get cover for the illnesses that you need," Moran said.

Vhi has 1.4 million customers, or about 30% of the Irish population, Moran said. The Irish health insurance market serves just more than 2 million people of an overall population of 4.25 million (according to the CIA World Factbook), and is worth about 2 billion euros, Moran said. Average annual premiums are about 1,000 euros.

The Irish public health care system is similar to that of the United Kingdom, Moran said. While emergency treatment in Ireland is very good, he said, there is often a delay for elective surgery.

The Irish health insurance market is also more oriented toward individual cover than that of the United Kingdom, with about 80% of Irish customers falling into that category, Moran said.

"A big factor in that is community rating, because people know that if they join the system the day they need it, they will not be priced out of the market," Moran said.

To hear the full interview with Declan Moran go to http://www.ambest.com/media/media.asp?RC=175292

To hear the full interview with Jim Dowdall go to http://www.ambest.com/media/media.asp?RC=175291

(By Robert O'Connor, London editor: [email protected])