Business Irish

Sunday 21 September 2014

Department rejects GloHealth’s bid to buy a third of VHI

Sale could have returned €200m to taxpayers

Published 06/07/2014 | 02:30

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VHI TARGET: Jim Dowdall, the Glohealth chief executive
VHI TARGET: Jim Dowdall, the Glohealth chief executive

THE DEPARTMENT of Health has rejected proposals by private insurer GloHealth for the purchase of one-third of the state-backed VHI.

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The insurer had proposed that the Department, which under the last government had pledged to privatise the VHI, split the state-backed insurer in three equal parts and sell two portions.

One third of VHI’s book would be worth a couple of hundred million, according to an industry source, which would be returned to taxpayers. The insurer made an after-tax profit of €65m last year.

There would be heavy international interest in any sale of VHI’s book, GloHealth’s chief executive Jim Dowdall said. “We think a split and sale would be good for everyone. It would solve a host of structural problems in the system as well as promote competition,” said Mr Dowdall.

The company is too large to attract a bid if sold in its entirety, he added. Selling it in its entirety would also perpetuate its dominant market position, a long-running source of criticism.

By retaining one-third, the Government would meet its commitment to keeping a state-run health insurer as promised by the Programme for Government.

“The partial sale of the VHI would remove a major conflict of interest because it means the Department of Health would no longer control the dominant player in the health insurance market,” Mr Dowdall told the Sunday Independent.

“The current situation is inequitable given that the Department of Health sets policy for this industry,” he said.

A partial sale would also promote competition by attracting new insurers and helping existing players grow their businesses, he added.

“The Irish health insurance market only has four providers — ourselves, Laya, Aviva and the VHI. This is far less competitive than general insurance, which has about 15 providers.”

GloHealth is the most recent entrant, signing up 90,000 customers in its first two years, thanks to individually tailored plans.

But the department has rejected any proposals for the sale of VHI. Its immediate focus is bringing standards up at the VHI to the point where it can be classified as regulated by the Central Bank, meaning it must meet extensive solvency requirements.

Progress is understood to be on track following the signing of a major reinsurance deal with Warren Buffett’s Berkshire Hathaway and the VHI is expected to come under the Central Bank’s oversight by the end of the year.

The increasing cost of healthcare is becoming a barrier to foreign investment, Mr Dowdall added.

Unlike Irish companies, most US businesses offer health insurance as standard. This means that companies weighing up the establishment of an Irish office calculate health cover as part of the cost of running a business here. About 25pc of all health insurance policies are now fully or partially paid for by companies.

Health insurance costs have been cited as a concern both by IBEC and the American Chamber of Commerce.

Also on insurers’ minds this month is a Bill tabled by Senator Feargal Quinn which is widely expected to fail.

The senator’s Bill proposed that control of VHI be passed over from the Department of Health to the Department of Public Reform, to lessen any conflict of interest, while the powers of the Health Insurance Authority would be passed over to the Central Bank.

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