Risk Equalisation - Maybe Car Insurance

seamus

dan nukem wrote:

Pat McCarthy is 24, he graduated from a computer science degree 2 years ago, he has 2 jobs and he works on average 60hours per week.
He doesn't drink or smoke and he exercises 4days per week. He earn less than E30,000 per year.
Of his second job in the evening, for every 2 shifts he does, 2 are essentially done for free because of tax (paying for the costs of some person who is too lazy to get a job, or paying to hold prisoner in Clover Hill etc.)
He has a GF, would like to get married but has to save his money. He would like to get a mortgage but has to struggle to save the Stamp Duty(which the government have admitted they don't need). Luckily, he doesn't live in Dublin as he would not be able to afford to rent and would have to live at home like his friend Tom does.
He pays higher car insurance than a lot of people because the government are unable to provide him with a driving exam so he will be waiting and paying higher premiums for a while yet, despite the fact that he had to pay a few hundred euro to sit 10 driving lessons/theory tests.
He also has to pay council charges, refuse charges, tv license charges(even though he has not time to watch the bloody thing) and a whole host of other charges. He also loses even more of his salary because he has a private pension to operate.
He knows there is an economic boom in the country because he sees a lot of 50 year olds who have high salaries driving big Mercedes.
He has an ECO friendly car because he wants to do his bit for the enviornment but the government don't seem to care, he still pays the same road tax as anyone else.
On the bright side, he only sits in traffic for 1hour per day, unlike his friend Tom in dublin who spends about 3hours per day.
He is not in debt yet, but he is essentially trapped and praying for crash in the property market.
He is dissapointed with the government even though he voted for them in the last election. He has yet to see any affordable houses being built anywhere.
He has his health cover with BUPA and has been very pleased with them but is saddened to hear that the government have tried to extort money from them and they will be forced to leave Ireland because they're unwilling to fine young people for looking after themselves.
It reminds him of the situation with SMART telecom and Eircom.

Sounds like Pat is a bit of an unmotivated bugger. Degree and two jobs, and not pulling down more than €30k? He must be doing less than 40 hours a week or so in total. Most of the rest of us do that with one job. Never done a driving test, yet he's 24? Not living in Dublin and paying a high premium at 24? Maybe his car is too big. He should be able to get something at well under a grand.

There's no point in trying to pull in marginal cases to make an argument. Most people at 60 don't have multiple houses, huge pensions and nothing to do. Most of them have *a* house, a government pension waiting for them, and still work the same 37-43 hour week that the rest of us do.
Most people at 24 aren't struggling to survive. They may not necessarily have their own homes, but they have plenty of disposable cash to spend on laptops, phones, car loans, big tvs, mp3 players, and still have change to go out and get lathered at the weekend.

shoegirl

ziggy67 wrote:

OP i think from what you say it isn't so much risk equalisation (companies compensating each other for higher payout risk) that you are against rather it is community rating (all customers paying the equal ammount regardless of circumstance) that you have a problem with.

TBH i don't blame you, young people are getting it in the ass 2 ways from paying higher car insurance and then having to pay equal health insurance.

If community rating is right/wrong in one insurance sector it should be right/wrong in the other.

Apparently "risk equalisation" exists to "protect" the community rating.

Of course the question remains, if risk equalisation was not necessary before competitors entered the market then why is it necessary now? Has it been proven beyond reasonable doubt that the new entrants have "taken away" fresh young business from VHI? I'm not sure. Surely any company which has a 40 year headstart in the market is going to initially have an older customer base, but this will decline as the market matures.

Only Sean Barrett has pointed out that VHI already "subsidises" its loss making, more expensive plans (C-E) with the cheaper basic plans. So he concludes, than effectively, those on BUPA's equally cheaper plans will also effectively be involved in transferring cash to subsidise the more expensive loss making plans. Not to mention "closed" plans such as the Gardai, ESB and Prison Officers who in most cases on average earn nearly twice the average industrial wage.

In my opinion BUPA argued their case badly, but they are not wrong to withdraw. If you cannot make ends meet in the market, then its time to pull out. It was obvious to me when BUPA sold its interest in the Blackrock Clinic that it was starting a retreat from the irish market. I can't say I blame them, or any other company thats found it impossible to compete with a state backed player.

shoegirl

seamus wrote:

Sounds like Pat is a bit of an unmotivated bugger. Degree and two jobs, and not pulling down more than €30k? He must be doing less than 40 hours a week or so in total. Most of the rest of us do that with one job. Never done a driving test, yet he's 24? Not living in Dublin and paying a high premium at 24? Maybe his car is too big. He should be able to get something at well under a grand.

....
Most people at 24 aren't struggling to survive. They may not necessarily have their own homes, but they have plenty of disposable cash to spend on laptops, phones, car loans, big tvs, mp3 players, and still have change to go out and get lathered at the weekend.

Chances are if he has a degree he's probably only 2-3 years in a job, and since he did IT he probably ended up in a very dead end "entry level" position which will never afford pay rises of more than 4-5% per annum, despite a very small starting salary. I know literally dozens of former colleagues, the vast majority with degrees, who don't even come near to 30k.

If he didn't start to drive until later it would partially explain why his premium is so high. I couldn't afford to learn to drive until I was 25, so my first years premium was 1000 pounds (about 1270 euros). Guys I knew who were older were being quoted as much as 3200 POUNDS at the time, on a salary of around 15-18k pa.

Its bullSH** to suggest that everybody aged 24 is rolling in money. Not if you come from a relatively less well off background and have to help out at home you're not. When I was living at home we all were expected to contribute 20% of our after tax salaries to help run the family home. Adding to that a car loan and running a car left us with not a lot left - and that was on what was at the time an above average wage. It is true however that the converse goes for the 60 somethings - not all are well off. A lot of people I know in their 60s are crippled because they remortgaged a few times along the way for a variety of reasons and so many are cash poor. Also a lot haven't had very big pay rises (if outside the public sector) so wouldn't have huge money to blow.

Lucky you if you are better off than the cases mentioned, but a lot of well-qualified people are caught in low wage spirals - especially in industrial and IT jobs.

Byrno

shoegirl wrote:

Of course the question remains, if risk equalisation was not necessary before competitors entered the market then why is it necessary now?

Risk equalisation was not necessary before competitors entered the market because before that VHI were the only private health insurance provider. Risk Equalisation is between competitors. If there is a monopoly there is no reason for it.

OT - The way Community Rating works is that when you are young, you pay a higher premium so that when you are older you don't have to pay as much as you would otherwise. People now in their 50s, 60s, 70s etc. subsidised the older generations when they were younger so that when they got to this stage they wouldn't have to pay as much. Now you want to take that away. Equitable? I don't think so anyway.

Risk Equalisation is stupid in Car Insurance. If I have a No Claims Bonus of over 5 years I don't want to pay as much as someone who has 2 crashes a year. That is what it would mean.

However I do agree that age is a very arbitrary way of formulating Driver Risk. Just because I'm 22 doesn't necessarily mean that I'll be a bad driver. Just because you are 60 doesn't mean that you are in poor health.

seamus

shoegirl wrote:

Chances are if he has a degree he's probably only 2-3 years in a job, and since he did IT he probably ended up in a very dead end "entry level" position which will never afford pay rises of more than 4-5% per annum, despite a very small starting salary. I know literally dozens of former colleagues, the vast majority with degrees, who don't even come near to 30k.

Yes, but how many of them work a second job and still earn less than €30k? Even a part-time job should be netting €9k per year at a minimum, and if you're not pulling in over €30k (before tax) at that point, then you have one or two jobs that you need to change.

Its bullSH** to suggest that everybody aged 24 is rolling in money.

I didn't. But I haven't heard of any 20-somethings with degrees who are living on the breadline, regardless of background.

To give you an idea of where my view is coming from, I'm 24, 3 years out of college *and* working in I.T. So I'm not talking out of my arse here

ninty9er

dan nukem wrote:

The reason they are leaving of course is Risk Equalisation. BUPA would have to make 1million payments per week to VHI for their ineffiency. Obviously the only way to generate this money is to hand it over to the consumer.

Sorry if it's already been said, but the reason for this is because BUPA have been cleaning up for the last 10 years while VHI have been running losses. IT is not €1million every day for the next year. Adjusted it is €100,000 per day or 300 million odd over ten years.

BUPA knew this was on the cards when they came here and if they can't deal with it now, let them go crying to mammy...Vivas will jsut fill the void. BUPA feel that Ireland can't live without them and it's about time a government stood firm instead of caving in

ninty9er

seamus wrote:

Yes, but how many of them work a second job and still earn less than €30k? Even a part-time job should be netting €9k per year at a minimum, and if you're not pulling in over €30k (before tax) at that point, then you have one or two jobs that you need to change.

I'm 20 in college and have a part time job, so I can vouch that a summer of work and 45-47 weekends a year will net around 9k, however I'm headed for accounting and entry salary is 12 k so 30k is a bit optimistic at 23-24, but definately by 30 €40k should be the target. Pahrmacists etc would be on 100k by 30, but thats the exception rather than the rule

SeanW

So you accept that this is nothing more than a regressive stealth tax on young people who cannot always afford it?

Gurgle

SeanW wrote:

So you accept that this is nothing more than a regressive stealth tax on young people who cannot always afford it?

Health insurance is voluntary.

If old people had to pay much more than young people, there would be more old people relying on the public health system.

This would require lots more money to run.

This money would come from tax.

Tax is not voluntary.

seamus

Gurgle wrote:

Health insurance is voluntary.

So then why is the Government going to such pains to protect people's access to this insurance?

Surely if, shock horror, we had a decent public health service in this country, then health insurance would only be for those who require five-star hospital service. As it is, health insurance is a requirement for anyone who wants access to anything resembling a first-world health service. This is why the Government is so hell-bent on protecting it. If suddenly a large number of those over 55 were forced to go public, the real shambles of the health service would then become an electorate issue.

Be under no illusions, FF & the PDs have never had any interest other than protecting their votes.

Gurgle

seamus wrote:

So then why is the Government going to such pains to protect people's access to this insurance?

Money money money.
If we spend it, they don't have to.

seamus wrote:

Surely if, shock horror, we had a decent public health service in this country, then health insurance would only be for those who require five-star hospital service. As it is, health insurance is a requirement for anyone who wants access to anything resembling a first-world health service.

Every trip I've ever made to hospital has been related to falling off something, ranging from a motorbike to a roof. I've had VHI cover for my whole life and never used it.
At 60 I expect to be making more trips due to internal organs approaching their use-by date. Less urgent, more expensive to treat. Thats when I expect to be cashing in on a lifetime of paying health insurance.
Everyone needs more medical treatment in their 60s than in their 20s. Its beyond statistics. Medical treatment is expensive, I'd rather pay for it over my whole life than have to produce the money on the day I need it.

The absence of community loading and by extension risk equalization would mean I would have been paying for nothing through my fit & healthy decades.

seamus wrote:

This is why the Government is so hell-bent on protecting it. If suddenly a large number of those over 55 were forced to go public, the real shambles of the health service would then become an electorate issue.

Be under no illusions, FF & the PDs have never had any interest other than protecting their votes.

I would like to believe that the high court decision was not politically motivated.

tbh, if the government were to have their way, risk equalization would never have gone through and they would be making a huge fuss about how they had encouraged competition and provided cheaper health insurance.

seamus

Gurgle wrote:

Medical treatment is expensive, I'd rather pay for it over my whole life than have to produce the money on the day I need it.

Well, me too. Except that I'd prefer to know that *anyone* can get access to the medical treatment that they need, and only those that really want to can go the private route.

I'd rather pay €450 a year in tax to know that when I'm 65, the facilities will be there for me, for free, rather than pay a private company the same money and take a gamble on whether they will or will not pay my medical expenses depending on what has happened to me.

Car insurance is *mandatory*. Surely risk equalisation in this sector makes more sense? I'd rather that younger drivers defer the cost of their first few driving years up to their later years, when they will have the money to afford a slightly higher premium. Of course, drivers would need proper education, but that's a different thread altogether.

Gurgle

seamus wrote:

Car insurance is *mandatory*. Surely risk equalisation in this sector makes more sense? I'd rather that younger drivers defer the cost of their first few driving years up to their later years, when they will have the money to afford a slightly higher premium. Of course, drivers would need proper education, but that's a different thread altogether.

But to compare the two:

Driving - you start out as a learner, getting better as you get more practise. You can reduce by 95% your risk of causing an accident by the way you drive, the attention you pay to what you are doing, keeping your speed reasonable, not driving drunk etc. You can go a lifetime without ever having a claim against your insurance, or it can all go wrong - one mistake can lead to a payout of more than the total you spent in your life on car insurance.

Health - You start out healthy, statistically becoming more and more likely to need more and more medical treatment as you get older, say from 50 on. If you reach 90, you will almost definitely need more medical treatment in an average year than the €1000 or so you pay for health insurance will cover. The deterioration in your health can be accelerated by lifestyle but it will happen eventually no matter how healthily you live. You cannot control this process, it happens to everyone.

mayhem#

With all the discussion on risk equalisation I still have not seen a single attempt at a logical explanation for it.
Honestly, I am not taking the piss. If it is so much better can someone please explain the benefits to me?

E.

is_that_so

"Risk equalisation is a process that aims to equitably neutralise differences in insurers’ costs due to variations in the health status of their members. Risk equalisation results in cash transfers from insurers with lower risk members to insurers with higher risk members."

HIA

mayhem#

I know what the definition is (I'm not completely stooopid) it's just that I do not understand the logic behind it...

E.

is_that_so

mayhem# wrote:

I know what the definition is (I'm not completely stooopid) it's just that I do not understand the logic behind it...

E.

In a fully "free" market companies could cherry pick - for example only people in their 20s or 30s who are deemed low risk and therefore more profitable. Risk equalisation is designed to discourage that and level the playing field for all health insurance companies.

mayhem#

is_that_so wrote:

In a fully "free" market companies could cherry pick - for example only people in their 20s or 30s who are deemed low risk and therefore more profitable. Risk equalisation is designed to discourage that and level the playing field for all health insurance companies.

No it's not.
It's an unashamed attempt by the governement to interfere in what should have been a free market.
At no point has it been made clear how the consumer benefits from this.

E.

is_that_so

mayhem# wrote:

No it's not.
It's an unashamed attempt by the governement to interfere in what should have been a free market.
At no point has it been made clear how the consumer benefits from this.

E.

Depends whether a consumer is 30 or 60.

mayhem#

is_that_so wrote:

Depends whether a consumer is 30 or 60.

Really?
Is anyone paying a lower premium or getting better cover now that risk equalisation has been rammed down Bupa's throat?

E.

Gurgle

mayhem# wrote:

It's an unashamed attempt by the governement to interfere in what should have been a free market.
At no point has it been made clear how the consumer benefits from this.

It was the high court, not the government.

To dumb it down all the way - A consumer benefits from this because the extra cost they pay when they're young reduces the cost they will pay when they're old saving them from the public health system.

If you don't plan to get old, don't take out health insurance when you're young.

mayhem#

Gurgle wrote:

It was the high court, not the government.

To dumb it down all the way - A consumer benefits from this because the extra cost they pay when they're young reduces the cost they will pay when they're old saving them from the public health system.

If you don't plan to get old, don't take out health insurance when you're young.

Yeah right, and I presume that you also believe that you will receive a pension that is directly related to the deductions that you are paying now?

Also the high court merely enforced the decision made by the government, check your facts..

E.

is_that_so

mayhem# wrote:

Really?
Is anyone paying a lower premium or getting better cover now that risk equalisation has been rammed down Bupa's throat?

E.

Health insurance is not like car insurance, unfortunately it increases each year. Hospital costs, consultant cost, inflation, medical salaries etc. Risk equalisation is aimed at ensuring that it does so consistently across the board.

mayhem#

is_that_so wrote:

Health insurance is not like car insurance, unfortunately it increases each year. Hospital costs, consultant cost, inflation, medical salaries etc. Risk equalisation is aimed at ensuring that it does so consistently across the board.

How so?
Bupa is ordered to pay VHI what? 60 million a year?
VHI also announces that in spite of that they will also have to increase their premiums by 45% over the next three years.
So who benefits from that?
VHI is just as badly run as the public health service, period.

I also do not see why I should pay more for my health insurance in an mis-guided attempt to equalise the costs difference between old & young. I should be assesed for the risk (and subsequent costs) of medical care that I, and other people on my policy, encompass.

E.

dan nukem

seamus wrote:

Yes, but how many of them work a second job and still earn less than €30k? Even a part-time job should be netting €9k per year at a minimum, and if you're not pulling in over €30k (before tax) at that point, then you have one or two jobs that you need to change.

I didn't. But I haven't heard of any 20-somethings with degrees who are living on the breadline, regardless of background.

To give you an idea of where my view is coming from, I'm 24, 3 years out of college *and* working in I.T. So I'm not talking out of my arse here

Put it to you this way.
You earn E2000 per month on your first job for which you work 9hours per day. This is 45hours per week at work.
On your second job, you do two 5hour shifts per week (if you can get the extra shifts!), friday and saturday for E100 more per week. This totals 55hours per week at work and E550. You do the math.

Perhaps I'm mistaken but I thought the average working week was 37.5 hours, therefore it would be unfair to describe one who does a 55hour week discluding travelling after a 4year degree to get the meagre job as unmotivated.

After rent, road tax, car and health insurance, car loan repayments, food bills, gas/telephone/electricity, petrol costs, refuse charges/council charges and whatever else that pops up, then scrape together some money for family, theres not much left!

Most of the people I know in IT are not even making E21k per year after 2 years in industry. I know of one multinational in Cork which is hiring people at 18k per year for a 45 hour week which includes shiftwork etc. They have had a pay freeze in place for 6 years despite inflation and you will be fired if you join a trade union.

The only people I know around my age who earn more than E30k are involved with construction, health & safety etc.



Of course, all of this is irrelevant to someone like the PM who is making E100,000 per year, not to mention ad-hoc income such as speeches and whip-rounds.


One point which is fair is that there are not too many graduates who are living on the breadline. I do know many who live close to it however. Those that don't probably live with Mommy and Daddy.

Gurgle

mayhem# wrote:

Yeah right, and I presume that you also believe that you will receive a pension that is directly related to the deductions that you are paying now?

Em, yes.
Thats how my pension works.

mayhem# wrote:

Also the high court merely enforced the decision made by the government, check your facts.

The high court is there to evaluate a case and make a decision on the fairness of the case. They do not rubber-stamp government decisions.

If Bupa had the same customer age distribution as VHI, the total sum due to be paid by Bupa to VHI would be exactly €0.

Instead of taking this as their target and trying to attract more older people, they said 'Oh fcuk it, we can't hit our profit targets under these circumstances' and pulled out.

Bupa starting up here, under community loading etc was a cynical short-term money making exercise. No matter what happened, their customer profile was going to age and their profit margin drop over the next couple of decades.

Were they ever likely to be here long term?
I very much doubt it.

dan nukem

mayhem# wrote:

With all the discussion on risk equalisation I still have not seen a single attempt at a logical explanation for it.
Honestly, I am not taking the piss. If it is so much better can someone please explain the benefits to me?

E.

LOL, I agree.

I would also guess that the people who are saying its a good idea are past the age where it would be a disadvantage and quickly approaching the age where its a big advantage (i.e. the people who made money on the property boom). GREEDY B*STARDS:rolleyes:

layke

As a 25 year old i'm not even going to look at health insurance until i'm 30 something. Especially now since my premium will go up to support other people which I really do not want to pay for.

is_that_so

layke wrote:

As a 25 year old i'm not even going to look at health insurance until i'm 30 something. Especially now since my premium will go up to support other people which I really do not want to pay for.

This is not actually true. You will be paying for the health cost increases and when you get really old like say 40 or 50 you'll be paying the same for the same treatment as the next 25 year old with a post like yours. We don't get a NCB for being healthy.

Gurgle

dan nukem wrote:

LOL, I agree.

LOL, you don't know what you're talking about.

Community loading says everyone pays the same regardless of age. This has always been here and there was no question of removing it.

Community loading has a loophole whereby a company can come in and undercut an established company in the short term, by targeting younger lower risk people. This is not sustainable in the medium to long term, as people tend to get older.

Risk equalization is plugging this loophole and cutting off the supply of free money to companies exploiting it.