Insurer unable to sustain '€1 million every week'

Bupa's view:Health insurer Bupa said yesterday it is pulling out of the Irish market because the subsidy it must pay State-controlled VHI will cost it over €1 million per week.

Martin O'Rourke, chief executive of British-owned Bupa Ireland, told a press conference that the "risk equalisation" payments it will be required to pay to its bigger competitor will amount to €161 million over the three years to 2008. Around €60 million of that will have to be paid this year alone.

Bupa expected to make profits of €64 million over the same three-year period. Mr O'Rourke said this situation would force the company into insolvency.

"We just could not continue in those circumstances," he said.

Risk equalisation is a way of regulating the health insurance market to ensure that profits from young, healthy customers are used to subsidise losses from older clients who are more likely to claim on their policies.

It is a means of supporting community rating, a system that guarantees that everybody pays the same for the same level of cover, no matter what the risk.

Under the system adopted by the Government, this meant that Bupa would have to compensate dominant player VHI for the fact that it has a high proportion of older, higher-risk clients on its books.

In a statement, Bupa said that it had made extensive efforts to find a way of staying in business in the Republic. "However, this decision [ to pull out] has been forced on it due to the scale of the payments required under the risk equalisation scheme, which is now costing over €1 million every week," the company said.

The move means that Bupa will not be accepting any policy renewals after January 1st. All Bupa policies are renewed on the first of the relevant month.

Mr O'Rourke said that the company had already completed renewals for January 1st. These contracts will be honoured, which means that anyone who signed up will be insured until January 1st, 2008.

Mr O'Rourke told The Irish Times that a sale to an alternative operator would not be feasible.

"What's there to sell?" he asked. "All you have is customer contracts until the next renewal. This is a loss-making company and it is operating under a regulatory structure where it will continue making a loss."

He added that it would take several months to evaluate the business, during which time it would have to continue trading while insolvent.

The company will begin winding down its operations from today. It employs more than 300 people, mainly in Fermoy, Co Cork, with some in Dublin.

In its statement, the company said it had placed everyone working for it on "at risk" notice, but added that it would need some staff to look after existing contracts as it wound down.

Mr O'Rourke claimed the company had created competition in the health insurance market since its arrival in 1996, when the only operator was the VHI.

Bupa predicted its exit would restore the market to a virtual monopoly. Mr O'Rourke added that this would force up prices.