The European Commission has issued the Government with "a letter of formal notice" following a complaint alleging the Irish Voluntary Health Insurance Board (VHI) was abusing its position in the Irish health insurance market.
The letter is the first stage of an infringement procedure and requires Ireland to reply within one month.
The move was precipitated by a complaint to the Commission by health insurer Vivas alleging that VHI Healthcare was unlawfully pursuing insurance activities without being subject to the necessary EU directive.
A spokeswoman for the Commission told ireland.comthat it would investigate whether the VHI had breached conditions - some of which related to solvency - set down in the First Non-Life Insurance Directive by acting as an intermediary selling travel and dental insurance.
The conditions allowed for certain public or semi-public monopoly institutions who were providing, in particular, health or fire insurance, to be exempted from the scope of the directive and its regulations.
The Commission is examining if the VHI exceeded its capacity as health insurer by selling other types of insurance and whether its continued exemption from the directive was valid or whether it should be subject to the same regulatory framework as any other insurers.
Private health insurers are required to maintain cash reserves to cover a percentage of liabilities unlike VHI whose cash reserves have been run down in recent years.
The Commission's letter requests the Government to submit its observations on the continued legality of the exemption of the VHI from EU rules on non-life insurance.
Depending on the Government's reply, the Commission will decide whether or not to issue a "reasoned opinion" formally calling on Ireland to amend the relevant legislation.
In a statement today, VHI Healthcare said: "This is a matter for the Government, who have already moved to address this situation."
"New legislation, currently being drafted, will mean that VHI Healthcare will have to meet the same solvency requirements as other insurers by 2012. VHI Healthcare has committed to complying with this decision," it said.
"The derogation from solvency requirements which VHI Healthcare currently has concerns capital but questions have arisen as to whether the additional activities which VHI Healthcare has engaged in travel insurance and dental insurance also benefit from this derogation," it added.
"To clarify," it said "these activities do not involve the use of VHI capital, are done on an agency basis, and therefore the derogation does not apply."
