Press Release

Department of Health and Children responds to European Commission decision

The Minister for Health and Children , Mary Harney TD notes the European Commission decision today to initiate infringement proceedings before the European Court of Justice over the exemption of the VHI from certain EU rules on non-life insurance. The Minister said: “The Government is addressing the issue of having a level playing pitch for all health insurers in the country and ending the special derogation for the VHI”

The following points are relevant in the context of today’s decision.

VHI currently has a derogation under the Insurance Directives from prudential regulation by the Financial Regulator. However, notwithstanding the derogation, VHI maintains reserves significantly above the EU’s minimum requirement.

In addition, the Government had already decided that the VHI should be in a position to attain authorisation as an insurance undertaking from the Financial Regulator and satisfy its prudential requirements as soon as possible. It provided a legislative basis for this in the Voluntary Health Insurance Board (Amendment) Act, 2008. The timetable for achieving authorisation was adversely affected by the Supreme Court decision in July 2008 striking down the 2003 Risk Equalisation Scheme. Without the transfers due to VHI under the scheme to compensate the company for the higher claim costs associated with its older membership base, it could not proceed with the authorisation application.

The Government announced an interim scheme to replace the Risk Equalisation Scheme in November 2008 and this scheme was submitted to the Commission as a potential state aid at that time. The Commission gave its approval to the interim scheme last week. Having such a scheme in place has a significant influence on the VHI’s capacity to produce a credible and viable plan in order to satisfy the Financial Regulator’s requirements.

The turbulence in global financial markets has created difficulties for all financial services companies, including health insurance companies such as VHI.