Bye Bye BUPA

BUPA has announced that it is leaving the Irish market and, with immediate effect, will write no new business or renew any existing business as current 1-year contracts expire. The company claims that the exit costs will amount to €20m (Stg£13m).

BUPA has operated in Ireland for 10 years, since 1997, and claims to have 475,000 customers. They claim the Risk Equalisation will cost €161m over the next 3 years, compared with projected profits of €64m under the current system of operation.

That’s approx. €21m per annum profit, which is generated through the surplus of premium income over costs, principally staff, marketing and medical claims. This is a reflection of their relatively young customer base whose age profile would automatically mean a lower incidence of medical and hospital claims.

While BUPA is willing to recruit older customers, and has undoubtedly recruited a modest number of them, the reality is that
(a) BUPA's marketing effort has been focused on recruiting company schemes in well paid employments, where typically the average age of employees is probably as low as 30 and
(b) older people are far less likely to move from an insurer they’ve been with all their working lives in case the newcomer proves unreliable - as has turned out to be the case with BUPA.

If BUPA is currently making profits of c. €20m per annum, then presumably it has long ago recouped its set-up costs and has accumulated a healthy surplus over the past 5-6 years. These surplus funds should be invested for future claims, as inevitably an ageing membership base will make increasing claims while, in theory, the premium levels will remain relatively stable in real terms.

By cutting and running now, BUPA is able to pocket the accumulated surplus which should considerably exceed the winding-up costs estimated at €20m.

Meanwhile, VHI & Vivas are obliged to take on these abandoned BUPA subscribers without penalty, but without the cushion of the profit the subscriptions of these customers have generated in their earlier years of cover.

We should be grateful that BUPA has been forced to show their hand now, rather than in 10 years time when they really would have milked the market before folding their corporate tent and dumping their unfortunate members on VHI, with all the increased cost implications for VHI members at that time.

Footnote: Pat Kenny interviewed Martin O'Rourke, MD of BUPA, on 15th Dec and read this email to him in its entirety. Some bits denied e.g. share of corporate market and average age of BUPA subscriber 38 v. VHI 46. Actuarially, that could be quite a significant gap in terms of numbers of claims etc..
Also published as a letter in the Irish Times, the Irish Independent & the Irish Examiner.