The Sunday Times - Money Comment 26/07/09

Posted by Jill Kerby on July 26 2009 @ 21:00

It’s a common enough question in these worrisome financial times:  how safe are the Irish credit unions?  


Rather like with the banks, it all depends of course on which one you happen to have joined. According to Brendan Logue, the Registrar for Credit Unions in his separate report in the Financial Regulator’s annual report for 2008 (see financialregulator.ie), all is not well in the credit union movement. 


Of the 419 credit unions operating in 2008, just under a third of them – 133 - had high enough levels of arrears or rescheduled loans to trigger investigations by the registrar, a process that is on-going.  Ninety of them, nearly one in four, “were instructed to stop advancing any new loans for periods in excess of five years until they return to compliance with the limits set out in the [Credit Union] Act.” 



The growing level of bad debts among many unions has resulted in the registrar warning all of them “that lending for commercial property, project finance or main line business activity is not the business of credit unions and this type of lending should not be undertaken.”



Meanwhile, 76 of 101 credit unions that informed the registrar they were planning on paying a dividend in 2008 were subsequently told to reduce the size of the dividend after their books were examined.  The registrar doesn’t say how many credit unions paid dividends in 2008 but it has already been estimated that only about half did so.  This in turn has put pressure on credit unions, struggling with bad debts, as more and more members move their money to other deposit takers offering not just better returns, but any return. 


The registrar doesn’t name any of the 90 credit unions his office told to stop lending, despite the fact that they have serious bad debt or liquidity problems, so you will have to ask for a set of your individual credit union’s most recent accounts to get that information.   


But when you do, you might try to see the other elephants in the room that the regulator doesn’t mention in his report but could result in serious damage to individual unions as the recession progresses.  One in particular is the amount of unofficial residential mortgage lending that was done in the form of loans that were used as down payments for home loans at the height of the boom.  How many of those borrowers are now in negative equity or have lost their jobs?


The impact of the housing bust on lenders will be felt by more lenders than just the high street banks. 


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Health insurance is one of those consumer services that certainly hasn’t enjoyed (sic) a place in the -5.6% fall of the consumer price index rate for the year to June, as recorded by the CSO.  


The cost of “Health”, says the CSO, has gone up by +3.4%.   


If only. The cost of “health” for my family is up over 20% - the annual increase in our health insurance policy this year. And while our family’s income is down, like so many others employed in the private sector, our GP, dentist or medical consultants haven’t reduced their charges in line with the CPI.  


That said, the loss-making Vhi, has just announced that they’ve brought down the price of covering a child member on their three most popular Plan Bs by another €20, lowering the child member’s cost by as much as €140 since April. 


This is a welcome reduction for any parent paying the bill, but health insurance brokers like Jeremy Tucker of  buyhealthinsurance.ie and Dermot Goode of healthinsurancesavings.ie, who review health insurance costs for companies and individuals, describe the latest reduction as a “PR stunt” and “window dressing”. 


The claims record for children attending hospital “is tiny in this country”, says Tucker “and the cost to the Vhi or the other insurers is very small in their overall level of claims.”  


Dermot Goode says the €20 is a “token” reduction.  If the Vhi “starts reducing the cost of adult premiums”, he says, “that would be significant news.” Both also point out that even with these child premium reductions, a family of four – two parents and two children - are still better off price-wise in the equivalent plans offered by rivals Quinn Healthcare and Hibernian Vivas. 


The cost of health insurance is quickly reaching a tipping point, something that was always inevitable given how many people are losing their jobs. They don’t have much choice but to drop their membership, and hope they will find work soon enough in order to rejoin their insurer before the time restrictions for pre-existing conditions kick in. 


Anyone who is still employed, but under financial pressure can drop to a cheaper plan or to a cheaper provider – and clearly many are:  Vhi has reportedly lost 40,000 members in the past year, some of them switching to Quinn or Hibernian Vivas.  


Are the insurers, especially Vhi doing enough to cut their own costs?  The independent consultants are not convinced.  “If the Vhi, which says it has made a loss this past year, had to operate like any other insurer, which they do not because they are owned by the Department of Health, they’d probably be closing down some of their ancillary offices and introducing other cost cutting measures,” says Dermot Goode.  They may claim to be the most efficient private health insurance operator, “but there is no independent evidence.” 


Meanwhile, a professional review of your family’s existing health insurance policy will, at least, let you in on a well kept Vhi (or Quinn or Hibernian Vivas) secret – that there is nothing to stop you accessing any of the three insurer’s equivalent corporate health plans. Not only can the price of the corporate policy be lower than those sold to individuals or families, say the independent advisors, but the benefits might be superior too. 

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