THE EUROPEAN Commission is taking Ireland to court for failing to implement an adequate regulatory regime to oversee State-owned health insurer VHI.
The commission, which has consistently threatened legal action over the issue, said it had decided to refer Ireland to the European Court of Justice (ECJ) over the exemption of the Irish Voluntary Health Insurance (VHI) board from certain rules on non-life insurance.
The VHI still benefits from an exemption from the general insurance supervisory regime established by two EU non-life insurance directives, even though the firm has expanded beyond the health insurance market. This discharges the company from meeting certain obligations its rivals in the non-life-insurance sector have, such as setting aside reserves for a minimum guarantee fund and meeting solvency levels.
Minister for Health Mary Harney said yesterday the Government was addressing the issue of having a level playing pitch for all health insurers and ending the VHI’s special derogation under directives on insurance from prudential regulation by the Financial Regulator. She said the Government had decided the VHI should be in a position to attain authorisation from the Financial Regulator and satisfy its prudential requirements as soon as possible.
However, The Irish Timesunderstands the VHI requires a capital injection of more than €100 million to bring its financial reserves up to the level to allow it to secure authorisation. In essence, the VHI needs to bring its reserves up to 40 per cent of premium income. The company had intended to use millions of euro it hoped to receive under a controversial risk-equalisation scheme to boost its reserves. However, this plan evaporated after the Supreme Court struck down the scheme in 2008.
Ms Harney said the timetable for achieving authorisation had been “adversely affected” by the Supreme Court decision. “Without the transfers due to VHI under the scheme to compensate the company for the higher claim costs associated with its older membership base, it could not proceed with the authorisation application,” she said.
The Minister told an Oireachtas committee last week the VHI was not in a position to be regulated because it could not meet the solvency requirement, “which in Ireland is very high”.
Ms Harney said if the Government was “to force the VHI to be regulated in the morning and it was not regulated, it would go under, with 1.5 million customers, and no one wants to see that happen”. She said she hoped to bring proposals to Government in relation to the VHI shortly. “The VHI requires a capital injection to be regulated. That is the reality. It will not be regulated under its current financial arrangements, and the issue arises as to how that capital injection can be made,” she said.
The VHI said yesterday it had sufficient financial strength to ensure customers were protected at all times.
“On December 31st, 2008, VHI Healthcare had retained reserves of €340 million which is more than sufficient to ensure its customers are protected,” it said.
Rival insurer Vivas Health, now called Hibernian Aviva Health, had complained to the EU executive the current exemption gave the VHI an unfair advantage. The complaint sparked a long-running investigation, which is now likely to result in a hearing at the ECJ later this year or early next year.
Jim Dowdall, managing director of Hibernian Aviva Health, welcomed the commission’s court action yesterday.
Meanwhile, the commission also referred Ireland to the ECJ for failing to implement the statutory audit directive. This directive aims at overhauling regulation of the audit profession in Europe in an attempt to increase the quality of audits following a spate of recent corporate scandals.
