VHI seeks to enter financial services sector

VHI Healthcare, the State-owned health insurance company, is asking the Government to grant it commercial freedom to diversify into other areas such as the provision of general financial services, possibly including pension products.

A VHI spokeswoman confirmed to The Irish Times last night that it was in discussions with the Department of Health about its future corporate structure.

It is understood the company believes that with 1.5 million people now subscribing to private health insurance, the scope for further growth in this market is limited.

Management at VHI is believed to have pressed for greater commercial autonomy as part of the current discussions on its overall future status.

At present the company must seek the approval of the Minister for Health for the development of new products or to increase prices.

The two other companies now operating in the Irish private health insurance market, BUPA Ireland and Vivas Health, do not have to meet these requirements.

Sources said that one area into which the VHI was looking at diversifying was the provision of general financial services.

Last year the company examined the possibility of offering PRSA pension products but concluded that it did not have the authority to do so.

If the VHI was allowed to diversify, it would lose a derogation from having to adhere to solvency rules, which was granted to the company in 1996. One of the conditions of this derogation was that the company had to operate exclusively in healthcare.

The removal of this derogation would pressure the company to increase its capital base.

Such a move would undoubtedly lead to increased demands from the company for the introduction of the controversial risk equalisation scheme.

This is a form of compensation scheme under which VHI, which has a predominantly older subscriber base who make more frequent claims, would receive payments - estimated at up to €20 million - from its rivals which have more younger members.

The Government believes, in theory, that such a scheme is necessary to uphold the concept of community rating where everyone pays the same premium regardless of age. However, the regulator, the Health Insurance Authority, has ruled that this scheme should not be introduced at present.

In the current talks the VHI is also pressing the Department to decide on its future corporate structure, an issue which has been on the agenda for several years.

The board of VHI Healthcare was reported yesterday to be in favour of the company being turned into a mutual organisation, which would be owned by its subscribers in the same way as those holding loans or deposits with building societies are considered to be the effective owners.

Other options for the future of the VHI, which have come in and out of favour over recent years, include the full or part privatisation of the company.