Review of health insurance under way

The Government has appointed Colm Barrington, managing director of Babcock and Brown investment bank in Ireland, to head the new review group that is to carry out a business appraisal of the private health insurance sector.

The group will seek to determine whether the sector can be profitable under current regulations.

The other members of the three-person group are Dorothea Dowling, group liability manager with CIÉ and chairperson of the Personal Injuries Assessment Board, and Séamus Creedon, former head of financial actuarial practice at KPMG in the UK.

In a statement yesterday the Department of Health said the group is to provide its view on "whether an adequate rate of return is available in the Irish health insurance market to insurance undertakings in current conditions".

In its deliberations the group will have to take account of the need to maintain community rating in the health insurance sector where everyone pays the same regardless of their age.

The group has been asked by Minister for Health Mary Harney to report back to her by the end of March.

The establishment of the group follows the announcement by Bupa Ireland, the second largest player in the sector, that it is going to withdraw from the Irish market.

Bupa has claimed that the introduction of a risk equalisation scheme, under which it will have to pay millions of euro to rivals such as VHI, has made its business in Ireland unviable.

Bupa has also maintained that the absence of major international insurance companies from the Irish market is a sign that they do not believe they can make money under the current regulatory regime.

The Department of Health said the terms of reference of the new group were: "To examine whether, having regard to all aspects of the current health insurance market in Ireland (structure, size, regulatory framework, etc) and the need to maintain community rating, it is possible for current and prospective participants in the health insurance market to earn a rate of return on capital employed which would be regarded as adequate for the insurance industry."

The group has also been asked to make whatever recommendations it considers appropriate in the light of its findings.

All companies in the market are likely to wait anxiously the outcome of the review group to see if it will recommend any changes to the risk equalisation scheme.

Bupa has said the scheme would force it to pay out €161 million in payments over the next three years at a time when its projected profits will amount to about €60 million.

Vivas, the smallest player in the market, is expected to become liable for risk equalisation payments from this autumn when its existing derogation expires.