by Susan Mitchell, Sunday Business Post

Donal Clancy clearly remembers the day in March 2010 when the news broke that Quinn Insurance, which owned Quinn Healthcare, had gone into administration.

Clancy was managing director at the time, but said he had “no heads up whatsoever. It was the biggest shock of my career to date. I think we heard about it 20 minutes after the media was told.”

Last year, Clancy led the management buyout of the health insurance company in a deal that was announced just before Christmas.

If 2011 was a challenging year, 2012 looks set to give him and his team a run for their money. Minister for Health James Reilly has recently announced a steep hike in the price public hospitals will charge private health insurers for beds in public hospitals this year. There has also been a hike in the health insurance levy – from €208 to €285 for adults, and from €66 to €95 for children.

Clancy estimated the levy increase would cost Quinn Healthcare an additional €20 million a year. Although the company has yet to outline the impact this will have on the cost of its health insurance premiums, it is widely expected to announce an increase in the near future. Its prices have already climbed by 12 per cent in January.

“It is very difficult to see how we can avoid a price increase. We just can’t absorb that levy increase, but we do want to keep [the increase] as low as possible,” he said.

However, none of this appears to have dented Clancy’s optimism. “We expect to make a profit this year, and I am very optimistic about the medium and long-term prospects here. We believe in the Irish economy and we also believe universal health insurance offers great opportunities,” he said.

With around 400,000 customers, Quinn Healthcare is the second-largest health insurer in the market, after VHI and ahead of Aviva. Aviva has grown its market share significantly over the past year, and has been the main beneficiary of customers who decided to jump ship from the state-owned VHI.

“We immediately changed our strategy to one of retention last year. Literally up until that day in March, we would have been on a growth strategy. From a business point of view, I think it was the most important thing we did, because we shored up our membership. The key message that came out was that it was business as usual. We have gone from a market share of 22 per cent to 21 per cent, while Aviva went from 10 per cent to 18 per cent.” Clancy said.

This year, Clancy said he wanted to grow market share, and said Quinn Healthcare, which also has an occupational health and travel insurance operation, would rebrand in spring. He also believes there are opportunities for Quinn Healthcare overseas.

“We are effectively a service agency, and we are very good at what we do. We are a good brokerage.

“And I would like to expand into Europe – as in, do what we do now in the Irish market overseas,” he said.

Clancy has spent most of his working life in the health insurance business. He studied maths and computers at university and emigrated to Austria in the 1980s with his wife Mary, who is an occupational therapist.

He returned to Ireland to take up a position as software manager with VHI, where he worked for five years before jumping ship to British insurer Bupa, which was setting up in Ireland. He did a short stint as customer and operations manager for Bupa in Britain, but jumped at the chance to return to his hometown of Cork after 18 months. He has four children and “wanted them to grow up here. Unfortunately we came back at a time when Bupa was closing down the business,” he said.

At the time, Bupa Ireland had taken a case against the state over risk equalisation. The High Court rejected Bupa’s case. The court’s decision was ultimately reversed by the Supreme Court in 2008, but in the intervening period Bupa decided to pull out of Ireland.

“Bupa was making money but if you looked at the forecasts, in terms of where risk equalisation was going, it wasn’t a viable proposition for the future – at least that was Bupa’s view. It definitely wouldn’t be my view,” Clancy said.

Quinn Insurance acquired the health insurance arm that was formerly Bupa Ireland for an estimated €30 million. After the collapse of the Quinn empire last year, Clancy and a number of other senior managers completed an MBO with the backing of underwriter Swiss Re, a reinsurance giant.

Irish Life is understood to have made a bid for the company, but the Irish Bank Resolution Corporation (formerly Anglo) opted for the management’s bid. Clancy refused to say how much was paid for the company, or discuss terms.

“I wouldn’t necessarily say that our offer was higher, but perhaps they believed they were more likely to get their return on an MBO,” he said.

Industry experts have said the figure would have been substantially less than what Quinn paid in 2007. Clancy confirmed there were outside investors. “I have no doubt that their names will come out in the wash at some stage, but not right now,” he said.

“There were 27 or 25 interested parties at first. It was silly, really. That was narrowed down to six bidders. Then the government announced it would up the price the HSE charged insurers for private beds by 21 per cent.

“A lot of the bidders were scared off by just how impacted we were by government decisions,” he said.”It comes back to the same theme: the analogy I use is that they [the government] own the club, they manage the club, they set the rules for the club, and they ref the game.”

Clancy said he was disappointed by the successive price hikes which were forcing more and more consumers to abandon their health insurance.

“What is happening in the market at the moment is grossly unfair on the customer. An absolute figure of €285 is applied to every customer, whether they have a €3,000 policy or a €700 one.

“That is unfair. There is a price spiral going on, and people who cannot afford it are being forced out. We need a risk equalisation system that balances the market,” he said.

“VHI has a dominant position in the market, and does not behave in a way that protects intergenerational solidarity.” Clancy said that VHI was “driving a horse and cart through community rating”.

Community rating is supposed to ensure that a person’s age at entry does not determine the level of premium that they pay, but Clancy pointed to the fact that the VHI had upped the cost of cover for policies that included cover for orthopaedic and ophthalmic procedures (largely needed by older people).

In early 2011, VHI announced a 45 per cent increase on its most popular offering, Plan B. “It is cherrypicking customers more than anyone else, yet it is being compensated and subsidised for its older customer profile.

“For example, [health minister] Reilly has expressed concern about the practice, but the regulator, the Health Insurance Authority [HIA], has not stopped the practice. Is the regulator asleep at the wheel?

“I wouldn’t like to say that. The HIA advises the minister and upholds the legislation as it is currently set out.”

Clancy said the proliferation in the number of health insurance policies on the market – about 200 – had created huge confusion for customers. VHI has 80 schemes, as does Aviva. While Quinn Healthcare might be best in class in this respect, it still has 43 policies on the market, ranging from €485 per adult to its HealthManager Gold policy for €3,495.

“We have to compete. I genuinely believe that having policies with free insurance for kids is irrational, but we have done it as a defensive mechanism to compete. They set the market and we have to follow,” he said.

Clancy said the failure to introduce legislation around the age of entry was another anomaly in the system. For example, someone who had paid health insurance all their adult lives should not be paying the same amount as someone who bailed into the market at the age of 40, he said. He said that the government could find a bidder and underwriter for VHI “fairly easily. It has a phenomenal customer base with significant commercial value.

“I would love to get my hands on that business. There is a lot of value in the VHI, and it should be utilised and harnessed to maximise value for the taxpayer.”

Quinn Healthcare’s accounts were not itemised when owned by the Quinn Group, but Clancy said the business was profitable. He was measured when asked about the bankruptcy of business tycoon Sean Quinn.

“I find it difficult to understand what is happening at this stage, but I am very thankful for what he did for Quinn Healthcare,” said Clancy.

“I found him great to deal with. It was white knight stuff. We would have been unemployed without him.”

Patrick Brennan
Director of Corporate Business
Irish Health Insurance

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