BUPA Ireland to close
BUPA have announced the closure of their operations in the Republic of Ireland.
This comes rapidly after the Irish courts ruling against them in their appeal against penalties imposed as part of the Risk Equalisation process. Under this process, an insurer that can demonstrate that it is carrying a higher level of risk than its competitors can claim compensation from those same competitors. This may seem anti-competitive, but there is some logic for it in a highly regulated market such as exists in Ireland. Unlike the situation in the UK, Irish medical insurers cannot vary the price that they charge according to age or any other indicator of risk. Since entering the market in 1996, BUPA have built up a 22% market share, composed very largely of younger lives compared to the state-owned insurer, VHI, who carry a large proportion of sicker and older consumers. These people could not take advantage of the lower rates offered by BUPA because they would be re-underwritten on transfer.
There is some dispute over the exact sums involved, but BUPA claim that the process would have cost them €161 million over a three-year period and that this would have removed all profits made during their period in Ireland. To continue would have meant asking UK members to subsidise members in Ireland.
The possibility of Risk Equalisation penalties has been hanging over BUPA’s Irish venture throughout its history, but the more imminent threat had led BUPA to set aside funds in expectation of some penalty. They were not enough, but this is doubtless one of the reasons why BUPA’s recently declared results were so poor and why its pricing of corporate business had hardened in recent months.
BUPA’s decision leaves the Irish market largely free once again of competition to VHI, although there is one other very small insurer, VIVAS, writing medical risks. VIVAS have declared their opposition to Risk Equalisation and intend to lobby for a change to the rules before they are themselves obliged to make payments in 2008, when they will have been in the market for three years.
BUPA will be taking on no new subscribers in Ireland, but will honour all existing contracts. This means that some people are likely to remain insured with BUPA until the end of 2007.
The judgment of the Irish courts has no effect in Northern Ireland, which remains fully integrated into BUPA’s UK products and services.
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