VHI plans efficiency drive to halt runaway premiums
VHI, which did a landmark deal last week with legendary US investor Warren Buffett, now plans to drive through major efficiencies to reduce premium prices for cash-strapped consumers.
The insurance giant is understood to have hired international consultancy McKinsey as part of its plans to advise on strategic direction and how to cut costs.
"We have very ambitious plans to reduce costs for people in the pipeline," said John O'Dwyer, the chief executive of VHI.
"We are obsessed with making sure we can reduce costs," he added.
"I think there can be more economy packages but we have to be very careful. We do have a community rated environment and have to have a minimum set of criteria that has to be offered. You can't exclude a cataract operation, but you can, for example, exclude certain hospitals."
Despite a slew of double-digit hikes in the industry, Mr O'Dwyer says VHI has made significant in-roads in this regard.
"Consultant fees are back at 2004 levels and costs have halved through introducing pay by length of stay for hip and knee operations.
"All our plans and strategies are designed to make absolutely sure, and it's our mission obsession to make sure costs are as low as possible and reduce what they have been in recent years."
The company will still be asking the State for a significant wedge of cash to meet capital solvency requirements, but less than anticipated.
"We will have to ask the Government for around €100m," he said.
The exact figure has yet to be determined but should be less than €150m.
"We are looking at all sorts of ways where we can minimise capital requirement," he added.
Mr O'Dwyer said the €700m reinsurance deal with Warren Buffett's Berkshire Hathaway helps this mission. He said negotiations with Berkshire for a further underwriting contract are under way.
"The next challenge is to make it a longer-term deal. We are in positive discussions for a longer-term deal," he said.
Mr Buffett is already being tipped in insurance industry circles as a potential buyer of VHI if the State ever decides to put it on the market. He has made reference to previous, unsuccessful Irish investments in financial services. In 2009, Mr Buffett admitted taking an 89pc loss on a $244m (€184m) investment in the shares of two Irish banks but his deal with VHI indicates a renewed appetite for Ireland.
A VHI spokeswoman added: "McKinseys have worked with us to provide an external, independent and expert review of our organisational strategy for the next three to five years. This is prudent prior to an application for authorisation by the Central Bank ."