The start-up operation, believed to cover close to 5% of the 2 million people with private health insurance, insists that it will still undercut its rivals after the price hikes.

The state-owned VHI, which has about 80% of the market, is raising prices by 12.5% from Friday, an increase that will mean the cost of health cover with that insurer has doubled in eight years.

In a letter sent to brokers last week, Vivas blamed the price hikes on rising medical costs. "The average price increase across all Vivas Health plans is an economical 6.7%, compared to an average price increase of 12.5% with VHI and 9.5% with Bupa, " the company said.

"This ensures that the both the price and the benefits gap between ourselves and our competition is broadening even further."

The price increases will push basic hospital cover from Vivas to 306.50 a year for a single person, compared with 422.92 for VHI's equivalent Plan A.

VHI's flagship Plan B cover is increasing to 612.60 a year, and Vivas claims that it can provide an equivalent level of cover for 503. VHI says these comparisons are misleading, claiming that its products provide a higher standard of cover.

Vivas refuses to disclose customer numbers, but has picked up valuable corporate clients recently, including an exclusive deal with American financial services giant Citigroup. That contract is expected to put about 2,000 new subscribers on Vivas' books when families of the bank's 1,200 employees are included, pushing Vivas' customer base close to 100,000 people.

Vivas won the Citigroup deal after a three-way pitch with Bupa and VHI, which previously held the contract.

The price hikes come as the industry awaits the outcome of a High Court challenge by Bupa to the controversial policy of risk equalisation backed by health minister Mary Harney. If Harney gets her way, Bupa, and eventually Vivas, would have to compensate VHI for the large number of older people on its books.

Bupa has challenged risk equalisation, claiming that it would drive it into losses and force it to abandon the Irish market. The High Court is expected to rule on the issue by the end of September.