Bupa Ireland profits excessive, study finds

Bupa Ireland is making excessive or super-normal profits, the regulator for the private health insurance industry has claimed.

In a confidential report sent yesterday to Minister for Health Mary Harney, the Health Insurance Authority has again recommended that the Government introduce a risk equalisation scheme, which would see the company having to pay millions of euro to some of its rivals.

The report indicates that the profit margins generated from the subscriptions of Bupa Ireland's 500,000 members was far higher than those of Bupa Insurance in the UK.

The report also maintains that "price-following" is being practised in the health insurance industry in Ireland.

It claims that up to the end of August, on average the last eight price rises introduced by Bupa were identical to those of the VHI.

The authority says that price-following could lead to excessive inflation in premiums to the benefit of some insurers and the detriment of consumers.

The authority has recommended that the Minister introduce a risk-equalisation mechanism in the industry, which would see Bupa Ireland making substantial payments, through the regulator, to its rivals.

Risk equalisation is a form of compensation system in the health-insurance sector under which companies with a larger number of older subscribers (who claim more frequently) would receive payments from rivals with relatively younger membership profiles.

A number of expert groups have advised the Government that risk equalisation is essential if community rating, where everyone pays the same subscription regardless of age, is to be maintained.

Bupa has strongly argued against the introduction of risk equalisation. A High Court challenge is due to be heard before the end of the year.

This is the second occasion on which the authority has recommended the introduction of risk equalisation.

Last summer Ms Harney rejected a similar proposal based on financial returns from the insurance companies for the previous six months.

In its report to the Minister yesterday, the Health Insurance Authority said the difference in the risk profiles between companies in the market was getting wider.

The authority said the underlying trend in this area was increasing and this was likely to continue.

It said that the absence of risk equalisation had facilitated Bupa Ireland in making a surplus of 17.3 per cent of earnings from subscriptions last year.

In the same period Bupa Insurance Ltd in the UK had recorded profits of 5 per cent of earned premiums.

The report said that if risk equalisation had been currently in place, Bupa Ireland would have had to make payments of €16.5 million to rival companies, based on the returns for the last six months.

The authority said that in its view the benefits to the consumer which would accrue from the start of risk equalisation would outweigh any countervailing factors such as a possible reduction of competitiveness in the VHI.

Chief executive of Bupa Ireland Martin O'Rourke said the authority's claims about his company were based on an inappropriate use of percentages. Bupa Ireland's charges were so much less than VHI's that use of percentage increases could be misleading.

He said that an independent report on the insurance sector produced by the financial regulator had shown that Bupa Ireland's profits were "way down the scale".