Vivas aims to revitalise our health insurance

This week, after a gap of more than eight years, a new player entered the Irish health insurance market. Vivas has promised to shake up the market by competing with the two existing players on both price and the range of cover available in each of the 44 new products it has launched on unsuspecting Irish consumers.

The existing players are the State-owned Voluntary Health Insurance (VHI) and the British group BUPA. Their reactions to the new arrival contrast. On the same day as Vivas announced its arrival, the VHI launched a set of new products that looked suspiciously like those offered by its new rival.

Yesterday, it issued a statement challenging some of the newcomer's claims about price. BUPA, on the other hand, seemed content to sit back and utter truisms about competition being good for the consumer.

The pair have led a more or less charmed life for the eight years that they have co-existed in the Irish market. During this time, the economy took off, the numbers at work doubled, and the demand for private health insurance simply grew along with everything else. They are both "not-for-profit" but make healthy surpluses from their operations here.

The VHI is the dominant player. Its 1.5 million subscribers account for more than 80 per cent of the market. And it is the one that Vivas chief executive Mr Oliver Tattan seems to have most in his sights. He should have at least one advantage in this respect: he served as chief executive of the company during the time that BUPA entered the market in 1996 and became its first "competitor".

He is very circumspect about his time there, claiming that the market has changed a lot since he left. He is similarly backward about some of the details of his new business - such as the number of subscribers Vivas expects to sign up - on the basis that he does not want to give anything away to his competitors.

But he's adamant it's going to make an impact. "Our plans are very ambitious, we do want to take on the big players in the market and I believe our proposition is much better than theirs," he says.

Vivas has three product types, aimed at three groups: young single people, families and older people. Within those categories, there are various levels that allow customers to "tailor" their health insurance cover to their own needs. Mr Tattan says that its packages undercut the VHI equivalent by between 8 per cent and 49 per cent, but most cost around 20 per cent less.

In addition, Vivas will charge lower excesses (the sum paid towards the claim by an insured party) and are offering cover for more treatments, more scans, more drugs and even more hospitals.

Mr Tattan says that Vivas can deliver the savings and the extras because it is spending less on everything else - particularly administration. "Ask anyone in financial services and they will tell you that the biggest part of any cost base is an administrative cost base," he says.

"Outsourcing allows us to turn on and turn off capacity as required. We don't carry a lot of people that are not continuously being used," he says. Its front-of-house partners are the Cork-based Merchant Group, while a UK company, Rubicon, which specialises in the health insurance industry, is providing the back office.

Distribution is the next plank of its strategy. Vivas has its own direct sales force charged with chasing up corporate business. AIB, one of its investors, will also sell its products, while it is also in the process of signing up brokers. So far, 20 of these intermediaries have agreed to sell its packages. Mr Tattan hopes that it will ultimately recruit "many hundreds".

VHI chief executive Mr Vincent Sheridan was particularly sceptical this week about that aspect of the Vivas strategy. He argued that brokers' commissions run at 6 per cent - six cent in every euro goes to them. He pointed out that the equivalent cost to the VHI of selling any of its policies was 1.5 cent.

Mr Tattan agrees that brokers charge up to 6 per cent commission, but he argues that Mr Sheridan was not taking VHI's marketing costs and other associated overheads into account. "You have got to take all costs into account to be comparable," he says.

Vivas itself is the insurer. Mr Tattan has rejected strongly suggestions that it is simply retailing insurance products for someone else. He also points out that it is unique in that it is the only health insurer of the three that the Irish Financial Services Regulatory Authority (IFSRA) has licensed. The VHI has a derogation from this regime, and the British authorities regulate BUPA.

The company has €12.5 million in the bank to fund all operations. It had to have a minimum of €3 million to qualify for IFSRA approval. According to the regulator itself, it will have to have 200 per cent of premium income available at all times to satisfy the solvency limits imposed on insurance companies.

It also has re-insurance. This is effectively insurance for insurance companies. It allows them to insure part of their risk with specialist underwriters. In Vivas's case, this is German operator Munich Re which has an established reputation in the sector.

It has two types of cover.

One is excessive loss, for very unlikely events that could effectively wipe out a big chunk of Vivas' reserves.

The second is "quota share", where an insurer offloads a percentage of its book on to its re-insurer. The proportion changes as time goes on, but the re-insurer permanently carries part of the insurer's risk.

Vivas has three backers: its management (including Mr Tattan); AIB (which paid €7 million for a one-third share in the company); and Mr Dermot Desmond's International Investment and Underwriting (IIU).

One of Mr Desmond's associates, Mr Michael Walsh, who is also chairman of Irish Nationwide, is on the Vivas board.

The fact that the country's biggest bank has decided to take a punt, albeit a small one, on Vivas, must mean something. But only time will tell if the long-awaited arrival of a new player in its market will result in a better deal for consumers.