Mr. Liam Downey:

I thank the Chairman and committee members for the invitation to appear before the committee to discuss my appointment. I was pleased to be asked by the Minister for Health, Deputy Leo Varadkar, to become the chairperson of VHI. Following a request by the committee, I welcome the opportunity to introduce myself and set out the main issues and challenges facing the private health insurance market generally and VHI in particular as well as to outline the future priorities for the organisation. I will summarise the key points in this short oral presentation. The committee members have been given more detailed information in a longer written presentation so I will simply summarise some of the key points.

I will begin with a brief summary of my background. I graduated from University College Dublin with a bachelor of commerce degree. I am a member of the Chartered Institute of Personnel and Development and a fellow of the Irish Management Institute. Most of my working life has been spent in the health care sector. I worked for more than 30 years in the medical technology industry with a leading US multinational company. In that time I gained extensive management experience of national and international business affairs and management practice. I am a former president of the Federation of Irish Employers, a former director and trustee of IBEC and a former chairman of the Irish Medical Devices Association. I served for several years as a member of the Labour Relations Commission as well. I was chairman of the Health Service Executive for a little over five years and I have been a non-executive director of VHI Healthcare for more than four years. In summary, I consider that I have extensive experience and knowledge of business management practice in Ireland and internationally. Furthermore, I have had a close involvement with the health care sector over many years from the perspective of supplier, provider and, more recently, private health insurance. I also have experience of executive and non-executive roles and am familiar with the private and public sectors.

VHI has operated as a profitable and sound business since its establishment as a State monopoly in 1957. The company met and successfully dealt with the advent of competition in the 1990s and has continued to evolve and innovate. It has developed successful businesses alongside its core health insurance business and has been responsible for bringing many innovations to the marketplace, including VHI Swiftcare clinics, VHI HomeCare, VHI Dental and VHI MultiTrip.

With almost 1.1 million customers and over five decades of experience, VHI is the market leader for health insurance in Ireland and is the insurer of choice for many corporate schemes. VHI employs approximately 1,000 people spread across six different locations in Ireland. The bulk of these employees are now based in our state-of-the-art business centre in Kilkenny.

In recent years, the company has delivered a solid financial performance against the backdrop of a contracting marketplace and in the face of ongoing economic pressures. This is as a result primarily of a focused cost containment programme. In 2013, the year of the most recent published accounts for the company, VHI recorded a surplus after tax of €65 million on its consolidated business for the year ending 31 December 2013. This surplus represents a profit margin of 4.4%, in line with the industry norm. In addition, VHI improved its solvency position and maintained a low operating cost ratio. The 2014 results will be published in the coming months and will show continued good performance.

I will set out the key challenges in the private health insurance market. The first relates to preserving the community rated market. Ireland has a robust private health insurance market despite the impact of the economic downturn, with 45% of the population still choosing voluntarily to purchase private health insurance. The Irish private health insurance market, unlike other insurance markets such as motor and home insurance, is community rated. This means that the price everyone pays for their health insurance plans is the same regardless of age or health profile. However, the reality is that while everyone pays the same amount, not everyone costs the same and this is the crux of the issue. This is why risk equalisation is essential and without it the market would simply collapse. Risk equalisation in its simplest form is about sharing the claims costs of the old and the sick among the young and the healthy across all the private health insurance companies. The risk equalisation scheme has to be dynamic. It needs to be continually changed, improved and developed to reflect the changing nature of the market. In this regard, more needs to be done to develop the health status aspect of the scheme in order that the health status of customers is properly taken into account.

In recent years, the Government has taken several steps to address these issues and stabilise the health insurance market. Policy statements on risk equalisation issued in 2013 and 2014 are designed to strengthen the risk equalisation scheme in support of community rating and to begin to take account of health status as well as age. The Government announced two further policy objectives late in 2014, namely, the introduction of lifetime community rating, which serves to incentivise customers to take out health insurance early and retain cover as well as discounts for young adults to address the fall in market penetration in younger age groups.

The second main challenge facing the sector is one of affordability. This committee has addressed the issue several times. While the health insurance market has proven to be relatively resilient over recent years compared to other sectors, affordability constraints have resulted in a declining health insurance market. This decline has been most pronounced at the young profitable end of the market. Since 2009, there has been a fall of almost 32% in the number of young people, those between 18 and 29 years of age, with health insurance cover. This results in upward pressure in premiums for all remaining holder of private insurance.

VHI is acutely aware of the considerable financial pressures facing our customers. Our focus has been on delivering quality health care at the most affordable price. In January 2015, we announced premium reductions on seven plans and confirmed that there will be no price increases on any other plans at this time. This means that for the third year in a row VHI has had lower price increases than any of our competitors. We have managed to do this because we have been totally committed to managing costs and increasing efficiencies in our business. We have been driving a cost containment programme since 2009 and this has generated significant savings in several key areas. This has been achieved through a combination of measures, including the implementation of targeted claims efficiency programmes, reductions in fees paid to consultants and providers, the increased activity of our special claims investigation unit and the continued transition of procedures to lower-cost medically appropriate settings. Details of the savings achieved are included in the more detailed written statement provided to the committee.

A key element of our cost containment strategy has been to identify ways of doing things smarter and better rather than simply cutting costs. One of the best examples is the VHI HomeCare service, which began in 2010. This has delivered excellent results, treating 3,000 patients, saving 40,000 hospital beds and delivering savings of €13.5 million for our customers. This is a consultant-led service which provides hospital-in-the-home type treatment to our customers. It allows them to receive high-quality care in the comfort of their own home.

I will set out my future priorities and those of the company. The immediate priority for VHI in 2015 is to secure authorisation by the Central Bank of Ireland. The bank continues to assess the application to determine VHI's readiness for authorisation and we continue to work closely with the bank in respect of our application. In 2014, we put in place a long-term reinsurance agreement with Berkshire Hathaway and strengthened our capital reserves in support of our application for authorisation. The capital requirement will be determined by the Central Bank as the independent regulator following its assessment of the VHI application.

Another priority for the business is to ensure that we have in place the necessary team to operate effectively in an authorised environment. In this regard I welcome the recent appointment of appropriate additional expertise to the board. I believe this will broaden and strengthen the skill-set of the board and provide relevant oversight of our business. I wish to draw attention to the strengthening of management capability in key areas such as risk management, actuarial expertise and data analytics. I was directly involved in the appointment of the current chief executive, John O' Dwyer, as chairman of the selection committee. He has vast industry experience and has had a singularly positive impact on the business to date.

I have every confidence in his ability to lead VHI into the future and look forward to working more closely with him.

The next priority is that we continue to work on the evolution of our business strategy to ensure effective business plans and related risk management activity that will ensure continued and increased success for the company. There is a great opportunity for VHI to leverage its scale and medical expertise to devise new approaches to managing health care that will deliver a competitive advantage for the company but will also deliver better health care outcomes for our customers. While we need to continue to deliver affordable health care, we also need to develop models of health care that tackle the serious demographic changes taking place in the country. The Irish population is ageing and people are living longer with more chronic illnesses. We need to provide for this. We also need to promote a new model of private health insurance that will deliver high value, effective, quality care and at the same time deliver improved health care outcomes for customers.

Another key priority is to enable young people and young families to return to the private health insurance market. In order to achieve this we will continue to prioritise cost containment and drive down costs, increasing efficiencies and focusing on providing affordable health care for our customers. We welcome the introduction by the Government of lifetime community rating as it will lead to a stronger and more sustainable market over time, with younger people actively participating in the market. We look forward to its introduction on 1 May and will compete robustly for our share of the market. In fact, only this week we announced the introduction of two new hospital plans, VHI Start Plan and VHI Start Plan 250, which are ideally suited for people taking out health insurance for the first time. With premiums from €449 per adult and €99 for a child, the plans offer private health insurance at an attractive price. Encouraging young people to join and stay in the market is the key to keeping private health insurance affordable.

My objective and that of the board will be to ensure VHI Healthcare is well directed and managed in accordance with high standards of governance to deliver performance excellence and sustained success of the business. The purpose is to ensure VHI will continue to be the number one health insurer of choice committed to delivering quality health care solutions for the people of Ireland. In that way we will also ensure it remains a valuable asset for the State and a beneficial resource for its people.

I thank the Chairman. I am now happy to answer questions the committee may have.