Health insurer Vivas Healthcare plans to increase its premium charges by an average of 7.5 per cent from next month.

The company will be writing to its intermediaries and agents next week telling them that it intends increasing its premium charges.

The maximum increase will be 9.5 per cent for some insurance packages, but the average will be 7.5 per cent. No increase will run into double figures.

This month, State-owned VHI, which has 80 per cent of the market, hiked its charges by an average of 12.5 per cent. The company cited inflation in medical costs, driven chiefly by Tánaiste and Minister for Health Mary Harney's decision to add 25 per cent to the cost of private beds in public hospitals.

This is also the main reason behind Vivas's increase, although that company has decided to keep its price rise below that of VHI's.

The private sector player's prices will be on average 25 per cent below those of VHI's. When it was launched last year, it said that the majority of its packages cost 20 per cent less than similar products offered by the VHI.

Vivas is currently quoting €1,749 a year for cover that includes private hospital rooms for families with two students and two children.

A 7.5 per cent increase on this package would raise this by €131 to €1,980. From last month, VHI's Plan B cover for two adults and two children has increased by €165 a year.

Vivas launched last October, and is the third and smallest player in the Republic's health insurance market, behind VHI and British-based Bupa.

The company has not yet released subscriber figures, but it is thought to have just over 1 per cent of the 1.9 million people with private health cover, giving it a customer base of around 20,000.

Last month it launched a promotion offering 50 per cent off for children in family policies in a bid to recruit more customers. It has also been targeting the corporate market, and is the preferred option for at least one large employer that offers health cover as an incentive to staff.

Its chief executive, former VHI boss Oliver Tattan and its management team jointly own one-third of the company. Businessman Dermot Desmond owns one-third through his vehicle International Investment and Underwriting (IIU). The State's biggest bank, AIB, owns the remaining third.

Increases in health insurance mean hikes in employers' PRSI costs for companies that offer staff health cover as remuneration. The Revenue taxes such incentives as a benefit in kind.

News of Vivas' increase comes against the background of the ongoing debate on risk equalisation, a system that could result in the VHI being compensated for the fact that it has the lion's share of older, more at-risk customers in the Republic.

Vivas will not be included in this process for another year, but Mr Tattan has already made it clear that the company opposes its introduction.