Ireland defends case over non-regulation of VHI

A JUDGMENT is expected within the next three to six months in infringement proceedings taken by the European Commission against Ireland over its alleged failure to implement an adequate regulatory regime to oversee the VHI, the largest company in the health insurance market.

The European Court of Justice in Luxembourg yesterday heard the case, which effectively centres on exemptions currently enjoyed by the State-owned VHI from certain EU rules on non-life insurance. In essence the case is over the fact that the VHI is not subject to regulation by the Central Bank.

The VHI’s status as an insurer not authorised by regulators is regarded as a market distortion because the company does not have to operate under the same rules as rival insurers.

The State is strongly defending the action.

Official Department of Health documents, which were drawn up for former minister Mary Coughlan, state that part of the State’s defence “includes reference to the Government’s decision on the future strategy for the private health insurance market, including regulatory change and the capitalisation, authorisation and sale of the VHI”.

However, the new programme for government agreed at the weekend says that sale of the VHI, which was announced by former minister for health Mary Harney last May, will not go ahead. The document says the company will remain in public ownership.

Exemptions originally granted under the first and third non-life insurance directives mean that the VHI does not have to meet obligations, such as meeting minimum solvency levels, which are required for every insurance company operating in the EU.

The commission has taken the view that the VHI today differs considerably in terms of membership and activities from 1973 when the exemptions were granted.

One of the main reasons for the delay in the VHI being authorised by the Central Bank is that this would require the company to bring its reserves up to 40 per cent of premium income.

Ms Harney said last May that to increase the VHI’s reserves from the current 20 per cent of premium income to 40 per cent would involve an investment of €338 million.

The former government said that it would invest up to €300 million in the VHI.