Buffett's VHI deal will ease pressure to hike premiums
THE multi-million euro deal between the VHI and legendary investor Warren Buffett will ease pressure on the state-owned insurer to push up premiums.
The Irish Independent revealed the deal between the health insurer and the world's most successful investor, which could save the taxpayer €90m.
And Health Minister James Reilly has welcomed the €700m deal. Speaking at the Oireachtas Health Committee, Dr Reilly said he welcomed the deal but added efforts to reduce health insurance costs will "continue unabated".
He said the costs are still "far too high" and said the deal is "no substitute for cost control".
And health insurance experts said the tie-up between Mr Buffett's Berkshire Hathaway and the State-owned VHI will benefit consumers.
Berkshire Hathaway will take over €700m worth of the risks of the VHI. It is re-insurning these risks for the State-owned company.
Effectively, some of the VHI's health insurance claims are being laid-off with Berkshire, though customers will still deal with the VHI.
It is expected that the taxpayer will save about €90m on the deal, as less money will have to be put into the VHI by the Government to bring its reserves up to those demanded under insurance regulations. Insurance expert Dermot Goode said the move will dampen pressure for further hikes.
This was because the re-insurance deal will cut costs for the VHI. Mr Goode, who is general manager of the healthcare division of Cornmarket Group and founder of healthinsuranceavings.ie, said the deal with the was a huge positive for the VHI and its subscribers.
Private medical insurance premiums have more than doubled in the past number of years.
It now costs around €2,500 to insure a typical family of two adults and two children, a pricing point that is too much for many.
This high cost of cover has prompted people to either downgrade their cover or leave the market altogether.
Some 200,000 people have dropped out of the market in the past five years, with most of these under the age of 40.
Mr Goode said the Berkshire deal would not mean there would be no more premium rises, but it would take away some of the pressure on the VHI to increase prices.
The tie up with Mr Buffett marks one of the largest insurance deals done in Europe this year. The American has a fortune estimated at $53bn (€40bn) and is known as the Sage of Omaha.
The deal means some of the risks on premiums, and claims being made by VHI customers, will now move over to Berkshire Hathaway. This will mean that VHI will need less money put into it by the State.
EU officials are pressing the State to have the VHI regulated by the Central Bank, but its reserves are too low at the moment.
VHI will need at least €100m put into its reserves by the State, but it would have needed even more if it was not for the re-insurance deal.