Will consumers benefit from Aviva entering the Irish health insurance market?

First there was the VHI, a solid, State-owned operator that stood alone offering five levels of private health insurance cover that ran the gamut from A to E.

Then, in the 1990s along came Bupa, which quickly morphed into Quinn Healthcare (owned by Seán Quinn), which in turn turned into Laya Healthcare.

Then Vivas arrived, which was later acquired by Aviva, which itself exited the market in 2016 with Irish Life buying the unit, while at the same time taking out the 51 per cent of another provider, GloHealth, that it did not already own. They were merged to become Irish Life Health.

Aviva has now announced plans to re-enter the market less than a decade after it upped sticks, and it will be guided through the choppy waters of Irish health insurance via a joint venture with old hands including Oliver Tatten (formerly of VHI, Vivas and Glo Health) and Jim Dowdall (who was most recently the boss of Irish Life Health), as well as health entrepreneur Stephen Loughman.

Confused? You’re not alone. It wouldn’t be a stretch to compare Ireland’s private health insurance market to a particularly convoluted and long-running game of musical chairs, albeit with a lot of money on the table for the winners.

The return of Aviva took the market by surprise and, although there had been whispers of some new entrant coming to the table, few expected it to be an old player.

“Nobody saw this one coming,” says Dermot Goode of broker totalhealthcover.ie. “We heard a rumour a couple of weeks back about a new entrant but we actually thought it was somebody else, a completely different insurer.”

It has to be good news for consumers whether you’re a family or an individual or an employer

—  Dermot Goode

The new venture is set to start selling private health insurance in the second half of 2024, subject to regulatory approvals, Aviva said in a statement released last week. It still requires Central Bank of Ireland authorisation.

“Aviva is delighted to support the set-up of an exciting new health insurance business in Ireland. This is great news for Irish consumers, as it will provide greater choice and value,” its chief executive, Declan O’Rourke, said.

The Health Insurance Authority (HIA) has been watching closely. It said it had been “contacted by a new insurer some time ago to discuss their intention to join the market” and added that it would “work with any potential new market entrant along with colleagues in the Department of Health and the Central Bank of Ireland to ensure full compliance with the relevant legislation. Our aim in all engagement is to deliver a competitive market, value for consumers and to give full consideration to future needs.”

In a somewhat terse statement in said it respected “the prospective new insurer’s right to disclose further information in due course/at the appropriate time”.

The British insurer has returned to the Irish health insurance market not long after Axa, one of its main rivals on the global stage, took over Laya for €650 million.

Axa’s takeover of the State’s second-largest provider will allow it to cross-promote its general insurance products with ease, and Aviva, no doubt mindful of that, might fancy a bit of that crossover action, too. The expectation, according to sources, is that Aviva will attack the retail market first, followed by corporates.

“It has to be good news for consumers whether you’re a family or an individual or an employer,” says Goode.

“A new entrant like these guys will have to get scale very quickly. They have not acquired an existing player so they need to get a lot of members on board fairly fast, and they need to attract the right risks, and the only way to get that type of scale is to have a very aggressive pricing model that undercuts the existing providers and significantly undercuts them to get people to switch. The new provider will also have to offer very attractive benefits.”

[ Will Aviva’s return to the Irish health insurance market reduce premium prices? ]

At the end of 2023, 2.48 million people had health insurance. VHI continues to have the largest market share and ended the year at 48.9 per cent, followed by Laya on 28 per cent and Irish Life Health on 20.5 per cent. The new entrant will have to get tens of thousands of customers fast, and in the absence of convincing people without insurance to sign up, it will have to take them from the three others on the market.

Whatever about the challenges that will present, it is a challenging time for the existing health insurance providers, which are all facing a surge in claims in the post-pandemic period, as well as a spike in medical inflation.

The VHI’s annual results, published earlier this month, showed that it took in a healthy €1.68 billion in premiums for its private health insurance business, with its customer base increasing for the ninth year in a row.

However, the results noted that in 2023, Ireland experienced “a faster than anticipated recovery in demand for healthcare” following years of restrictions in access and capacity associated with the pandemic.

It saw “an unprecedented increase in the volume and cost of claims” and paid out more than €1.68 billion, up 18 per cent on 2022. It recorded a net deficit or loss of €43.4 million last year compared with a net surplus or profit of €34.3 million in 2022.

[ Cost of health insurance jumped sharply last year – watchdog ]

Times are also challenging for consumers, with the cost of health insurance for a family of four climbing by about €500 last year compared with 2022, according to the HIA.

Its market report covering last year also showed that while nearly one in two Irish people have health insurance, the pace at which people are taking out cover has slowed since 2022. A total of 47 per cent of the population have health insurance, with that number increasing by just 1.6 per cent since 2022.

The slowdown is, the HIA suggests, because of higher prices and the cost-of-living crisis. The average cost climbed by 10 per cent since 2022 to €1,594, with price increases throughout 2023 by all three health insurers.

This suggests the Aviva comeback will meet headwinds. “The people involved in this new venture have been around with different insurers so they know the market very well,” says Goode. “I have no insight into their thinking but I’m sure they’ve done their research and they obviously see an opportunity in the market.

“On the face of it the market is difficult for any new entrant and it has always been a difficult market because you have to comply with minimum benefits you have to make your products available to everybody and you have to pay into the risk equalisation fund, so even if you’re very successful in your strategy of attracting younger members, you’re going to have to contribute more to the risk equalisation fund.

“It’s not an easy market to make money in quickly. But these individuals have done this a number of times, so I’m sure they’re doing focus groups and I’m sure they know how many how many people they need, and I would say they have very clear targets and know what level of membership they need to achieve certain milestones.”

Goode says that although it “has to be good news for consumers the devil will be in the detail”.

It is not speculation to say that older people already pay more despite the supposedly level playing field of the health insurance market

Industry sources suggest it might not be the good news some believe it to be. “Some of the people behind this have been here before,” one said. “They come in, set up a business, hoover up the younger more profitable consumers and once they reach a certain number of members, they sell up. I am not sure who wins in that scenario other than those behind the companies.”

It seems certain that the new company will seek to attract a younger, healthier and more profitable cohort – to do anything else would be foolish – and it will have to make its plans attractive, but the nature of the health insurance market in Ireland is such that people cannot be penalised or excluded based on their age or any pre-existing condition, so any plan the new company rolls out will be open to all comers.

“You can go out with an aggressive strategy to try and attract those younger, more profitable members but everything you launch will be available to every consumer,” says Goode. “You can design plans that might be less attractive maybe to older members because you might put higher excesses on those plans and you might have co-payments for things like orthopaedics and cardiac and ophthalmic care, so you can design plans that are very structured and might be less attractive to certain segments but we can only speculate.”

It is not speculation to say that older people already pay more despite the supposedly level playing field of the health insurance market.

HIA research shows that people over the age of 65 are paying 43 per cent more on average for health insurance, with the higher cost of orthopaedic and joint replacement cover one of the main reasons for the higher premiums.

Two-thirds of the over-65s are on high orthopaedic cover compared with only 27 per cent of those under 65. Just under three-quarters of the under-65s are on restricted orthopaedic cover that would see them cover a portion of the bill should they require such care.

The same report also notes that while there are 350 plans and three insurers in the health insurance market, half of all customers have signed up to fewer than 10 per cent of the plans on offer.

The new arrival will mean there are more plans on the market – and not just from this company. “The other insurance companies are not going to sit on their hands,” says Goode. “They can quickly copy new plans and only have to give one month notice to the health insurance authority, so aggressive competition is to be expected.”

And when will it happen? There are no hard and fast dates yet but the peak time for health insurance renewal is January and February, and once a person renews or signs up they are locked in for a 12-month period, so the new company will need to have all its ducks in a row and be out selling itself to Irish consumers by October at the very latest.

“We don’t know what their distribution model will be,” says Goode. “Will it be via brokers or online? There are a lot of questions at the moment but no answers although I’m sure all those details will become obvious over the coming weeks and months. I have been saying for a long time this market could easily sustain five health insurance companies each with about half a million members. The fact that we only have three is not enough at all, so hopefully this will stir up competition and shake up the whole switcher market.”