The Central Bank has raised a number of significant issues that could prevent the successful authorisation of the VHI as an insurer. In particular, it has questioned the effectiveness of the risk equalisation scheme under which the VHI is compensated for its older and more expensive customer base.
The European Commission has given the Government until the end of this year to have the VHI authorised or face sanctions including fines and a State aid inquiry. Authorisation would put the VHI on an equal footing with other insurers Aviva, Laya and Glo in terms of capital and solvency requirements. The Government may have to inject up to €200 million into the VHI to bring it into line.
At an initial meeting with the Central Bank last month, Department of Health officials and representatives of the VHI gave conflicting assessments of the effectiveness of the risk equalisation scheme. Under the scheme, other insurers levy their customers and pay the funds into a central pool from which the VHI receives a compensating payment. The VHI claimed the scheme was 55 per cent effective and that a revised scheme due to come into effect at the end of next month was marginally worse. The department claimed the scheme was 70 to 75 per cent effective and would be improved with the goal of being up to 90 per cent effective.
Level of effectiveness
According to minutes of the meeting seen by The Irish Times, the Central Bank was “puzzled” at the difference in views about the effectiveness of the scheme. Department officials and VHI representatives replied that “this was being actively reviewed” and they hoped to have greater clarity within the next month.
“It was absolutely clear the Central Bank is hugely concerned by the level of effectiveness of the scheme and, most particularly, as it affects the VHI’s financial position,” according to the minutes.
Deputy governor of the bank Matthew Elderfield “could not understand” how an application from the VHI could be considered without clarity around Government policy for risk equalisation.
