Laya in rude good health after scare

FRESH FROM his firm’s recent rebrand, the head of Laya Healthcare enters the room with a spring in his step. In fact, as we get down to discussing the nuts and bolts of the health insurance industry, I find myself thinking that Donal Clancy wouldn’t look out of place in an advertisement for health insurance.

A youthful 49, he lives in Cork with his wife and four children, and cites kayaking as his favourite hobby.

But while Clancy may be an exemplar of the good life, he is also a serious businessman. He is a major figure in the world of Irish insurance as managing director of Laya Healthcare, or, as it’s better known, the company formerly known as Quinn Healthcare, itself a revamped version of Bupa Ireland.

Clancy has spent most of his career in the health insurance sector. After studying computer science at UCC, he moved to Britain to work for the multinational company ITT in the area of engineering support.

After a two-year spell in Vienna and a year travelling around the world, he joined VHI in Dublin in 1991, staying with the State health insurer for five years before moving to Cork with Bupa when the global health insurer entered the Irish market.

Along the way, Clancy migrated from IT and began making his way up the executive chain, taking up a position as director of operations with Bupa in Ireland. This led to the top job at the company, a position he held for the duration of the Quinn tenure.

For him the shift in career was seamless. “There wasn’t really a divide for me. I suppose, instinctively, I had a broader sense of the company. When you worked in IT, you had to produce and deliver services that were relevant to business. You’re part of a business team, so doing something for technical elegance was not an option,” he says with a characteristic smile.

But despite his chirpy demeanour, the last two years have been stormy ones for the company. On March 31st, 2010, the financial regulator Matthew Elderfield appointed an administrator to Quinn Insurance, amid concerns about the insurer’s solvency. It emerged that subsidiaries of Quinn Insurance had made guarantees in relation to the Quinn group’s assets.

How much did Clancy and other senior management know about what was happening?

“It went to the High Court at 11 o’clock, and we were told at noon. That is genuinely the first we knew about it,” he says.

As the managing director of Quinn Healthcare, was it not his duty to know what was going on?

“On a personal basis I was very disappointed myself I didn’t know. We had been asking certain questions and we got answers and we had no reason to doubt them. So that was a shock. Hindsight’s a great thing. In hindsight, when we look at the information, and got our information, the answers weren’t as clear cut maybe.”

Clancy stresses that Quinn Healthcare was never in administration. Its underwriter, Quinn Insurance, was.

“From an underwriting process Quinn Insurance were underwriters for Quinn Healthcare. Just as Bupa were the underwriters for Bupa. Fundamentally they’re the ones who take the risk. We manage the business for them, the operations, make sure it’s run from a customer point of view. But if you’re looking at solvency, at who is taking the risk, it’s Quinn Insurance Limited taking on the risk, as Bupa Insurance did in the past.”

Within a few hours of the announcement, the company went into crisis-management mode. “Within an hour we were on to our legal team. We were very lucky in that regard. We got legal advice, issued press releases. We had to communicate to our customers and to our providers that, from a Quinn Healthcare point of view, we were not in administration. All of the providers had to be contacted to tell them, ‘You will get paid’.”

He believes communicating with staff was also a key factor in sustaining the business. “We had been through this when Bupa announced they were withdrawing from the market, and we had told staff what was happening straight away. At the end of the day, it’s about people’s jobs.”

As the turbulence passed, the focus at Quinn Healthcare shifted towards strategy, as the importance of retaining customers became a primary concern.

“Naively we thought the administration would be over fairly quickly, but pretty soon we had to get a retention strategy in place. In a matter of weeks, we changed our strategy. It was a three-pronged approach really: retaining customers; getting the business into good shape, by extracting efficiencies, etc; and getting it ready for a sale.”

That sales process was a protracted one. Macquarie was appointed to handle the sale on behalf of the administrators. Liberty Insurance, which bought Quinn Insurance, were not interested in the healthcare business.

“It’s an exhausting process. We were doing beauty parades for potential buyers, and you’re running a business in the meantime.”

Clancy and the management team indicated their interest in the business “very early on”. While Irish Life was the clear front runner, the deal fell through amid concerns about the future structure and status of its parent company Irish Life Permanent, which was eventually split in two, with the insurance business being taken over by the State.

Another ambitious plan, which would have seen the Government buy Quinn Healthcare and merge it with VHI, also fell by the wayside.

Eventually, last December, the business was sold to Clancy and other senior managers, in conjunction with Swiss company Elips, a subsidiary of Swiss Re.

Clancy is tight-lipped about the terms of the sale but it is believed to have been a non-cash transaction involving a complex permutation of deferred payments, debt write-downs and equity stakes, due to the complex nature of the Quinn group structure, which involved monies owed on inter-company balances.

He says management held discussions with a number of interested parties, before choosing Elips. “The level of interest made us realise that this was the right move for us. Once we had the underwriters, people began to sit up and listen.”

How much involvement do Elips have in the business? “The Swiss are our underwriters. They’re 100 per cent our underwriters and that’s their involvement. We are the service company, if I can put it that way,” says Clancy.

There is no representative from Swiss Re on Laya Healthcare’s seven-member board, which is currently being finalised and includes three executive members from Laya’s management team – Donal Clancy, Mary Condon and Dermot O’Connor.

Nonetheless, he hints that there will be more hands-on involvement than was the case when the business was owned by Quinn. Seán Quinn visited the Cork centre a handful of times, according to Clancy, and was hands-off in approach.

“They were positive experiences. He didn’t come in and change anything around. He didn’t take out any of the ethos. The goal was to increase the business, as you’d expect.”

Today, in terms of the current position of the business, Clancy is resolutely upbeat. His optimism is not unfounded.

While Irish consumers may be feeling the brunt of unrelenting premium increases, Laya Healthcare is in a good position. It is still the second-largest player in the market, and the rebrand has had a good reception with the public. The business is profitable – Quinn Healthcare made pretax profits of just over €2 million in 2010.

Crucially, Clancy’s retention strategy has evidently worked. Laya Healthcare has not been any more affected by the widespread defection of customers from the private healthcare system than any other provider.

The Health Insurance Authority (HIA) estimates that a total of 75,000 people will have dropped their health insurance in the 18-month period running from June 2011 to the end of 2012.

In tune with the phrase “Looking after you always”, which lies behind the Laya acronym, Laya Healthcare is keen to position itself as a “consumer champion”, offering services such as free GP calls and heart screening services.

From a branding and marketing point of view, it’s an interesting play, but the notion of profitable health insurers, who are relentlessly pushing up prices, championing the rights of consumers is questionable at the very least. (Quinn Healthcare already raised its prices once this year, on top of two premium increases last year.)

Nonetheless, there are instances where the interests of the patient and the bottom-line commercial interests of insurers do coalesce. He cites an anecdote where a customer went in to a regional hospital on a Friday and was told they needed an angiogram. They remained in that bed until the following Thursday when they were shipped to the Mater public hospital to get it done. The unnecessary cost to the insurer and the customer is obvious.

“From a customer point of view, they need a service delivered. They should get the service. I’m not too sure of the wisdom of putting someone who needs an angiogram into an institution that doesn’t have a Cadillac? How does that happen? The policy seems to be to charge the customer more, not making the system more efficient.”

Unsurprisingly, Clancy is a supporter of centres of excellence. “I cannot understand if you get the best outcome in a particular establishment, why wouldn’t you go 100 miles up the road,” he says, though he concedes that this does not apply to the A&E sector.

He also has strong views on the health insurance industry as a whole. He identifies the “price spiral” – the paradox that the more people who leave the system, the more the price will increase, ensuring yet more people will leave – as the key issue facing the industry.

Affordability is also a key issue. “I genuinely believe we have to have the consumer interests at heart. It’s got to be fair. Under the current system, they never ask, ‘Can you afford it?’ It’s not customer-focused.”

He criticises the current system whereby a flat rate levy is charged, regardless of the cost and cover of the product. “If you pay €485 for a healthcare product, €285 of that goes on the levy. If you pay €3,000, the same amount is charged.”

He says this is unfair to those who can least afford it. “I believe everybody should have a standard product which would ensure you get the essential healthcare you need to give you the best outcome. You may want extras, a private room, etc, but that should be an independent supplement that you purchase. There’s no way that somebody who’s buying the standard product should be subsidising you.”

He is also an advocate for an age-based system, which would involve different price points at the age of entry into the system, unlike the current community rating system, whereby a 60-year old taking out insurance for the first time pays the same as a 60-year-old who has been insured since the age of 30.

“This is where community rating falls down,” he says.

Laya also has to confront another challenge waiting in the wings – a group headed by former Aviva head Jim Dowdall is planning on entering the market later this year, itself an indication of the commercial allure of the health insurance business, despite the fact that it’s operating in a shrinking market.

How does Clancy feel about the imminent arrival of a fourth player to the health insurance market?

“I’ve no objection to anyone coming into the market,” he smiles. “Theyll be operating under the same basis as we’re operating. If I was to object to anything, it would be the dominant position of the VHI and the fact that they’re not operating under the same basis. I don’t understand why that is not dealt with clinically by the Government.

“Are we going to spend our entire time protecting the VHI. Or are we going to let the VHI get out there and compete themselves through the market?

“At the moment they’re the dominant player, setting the market price and that hasn’t changed for years. It needs to change.”

Few would argue with Clancy’s criticisms of the health insurance market in Ireland, which he argues needs to be “fundamentally overhauled”.

“We, as an industry, are sick ourselves. The insurers are going to be pretty okay, the Government is going to sort themselves out, and there’s a good possibility that all the providers – both public and private – will be fine too. But a lot of customers will disappear in the meantime.

“Ultimately, that is why we need to have the consumer’s interests at heart. Without them, we don’t have an industry.”

Friday interview

Name: Donal Clancy

Age: 49

Job: Managing director of Laya Healthcare

Family: Married to Mary. Has four children: Moya, Ben, Anna and Jack

Interesting fact: He went to school with Willie Walsh

Something that might surprise you: He's an accomplished artist, mainly specialising in oil paintings, but also producing pastel and ink works.