NON-LIFE INSURANCE
NON-LIFE INSURANCE
2001
1
NON-LIFE INSURANCE
Table of contents
1.
2.
Introduction ............................................................................................................. 4
Analysis of business results in the non-life insurance lines....................................... 7
A. Profitability ............................................................................................................... 7
B. Concentration in the line .......................................................................................... 8
C. Seasonality............................................................................................................... 11
3. The reform in the compulsory motor-vehicle insurance line ................................. 13
A. General.................................................................................................................... 13
B. Rates starting from April 2001 ................................................................................ 13
C. Correct declarations given by insured ...................................................................... 14
D. Claim report............................................................................................................ 15
E. Database.................................................................................................................. 16
F. Residual insurance................................................................................................... 16
G. Avner....................................................................................................................... 17
4. Rates in property motor-vehicle insurance............................................................. 18
A. Cancellation of minimum premium ........................................................................ 18
B. Review of the rate formulas ..................................................................................... 18
5. The terrorist attack of September 11th and its implications ................................... 21
6. Cancellation of venue stipulation in insurance contracts ....................................... 22
7. Health insurance .................................................................................................... 23
A. Introduction............................................................................................................ 23
B. Business results in the sickness and hospitalization line............................................ 23
C. Long-term care insurance ........................................................................................ 24
1) Background.......................................................................................................... 24
2) Guidance on long-term care insurance (individual) .............................................. 25
D. Health insurance for foreign workers ....................................................................... 26
E. Proper disclosure in group health insurance............................................................. 28
F. Prohibition of selling policies for supplementary medical covers to traffic
accident casualties.................................................................................................... 28
List of tables:
Table D-1:
Distribution of Non-Life Insurance Gross Premiums, by Lines,
in the years 1998-2001................................................................................ 6
List of figures:
Figure D-1:
Figure D-2:
Figure D-3:
2
2001
Distribution of gross non-life insurance premiums by lines in 2001 ............ 5
Profitability of the Non-Life Insurance Line in the years 1996-2001........... 7
Profits in Non-Life Insurance by Main Lines in 1998-2001 ........................ 8
NON-LIFE INSURANCE
Figure D-4:
Distribution of Gross Premium by Companies in the Non-Life Insurance
Lines in 2001 (excluding Avner and Karnit)................................................ 9
Figure D-5: Distribution of Gross Premium by Companies in the Motor-Vehicle
Insurance Line in 2001 ............................................................................... 9
Figure D-6: Distribution of Gross Premium by Companies in the Homeowners
Insurance Line in 2001 ............................................................................. 10
Figure D-7: Distribution of Gross Premium by Companies in the Property Loss
Insurance Line in 2001 ............................................................................. 10
Figure D-8: Distribution of Insurance Premiums in the Main Lines, by Quarters
in 2001 ..................................................................................................... 11
Figure D-9: Business Results in the Sickness and Hospitalization Line in 2000-2001... 23
Figure D-10: Distribution of Gross Insurance Premiums by Companies in the Sickness
and Hospitalization Line in 2001 .............................................................. 24
Appendices
Appendix A: Parameters used by the insurance companies to set the compulsory
motor-vehicle insurance premiums as of 31.12.01..................................... 31
Appendix B: Companies that have not used the parameters for pricing a private car ...... 31
2001
3
NON-LIFE INSURANCE
1. Introduction
The Non-life insurance Department is responsible for setting the policy, regulation and
current supervision on all the insurance lines, except for life insurance. The purpose of the
department is to protect the interests of the insured and put an emphasis on creating a market
with proper structure based on fair competition. The insurance lines include, among other
things, property insurance, comprehensive and compulsory motor-vehicle insurance, liability
insurances, financial insurances and health insurances. The health insurances include longterm care insurance, insurance for covering medical expenses, implants, individual accidents
etc.
During 2001 the Division dealt with the implementation of the first stage of reform in the
compulsory motor-vehicle insurance line. At the beginning of April the insurance rates were
updated so as to reflect the insurance risk embodied in the various vehicles, and the standard
rate of insurance that was in use for many years, was cancelled, by opening a range of ten
percent above and below a benchmark rate. In this range, the insurance companies can set
different insurance rates for different insured.
Regarding property motor-vehicle insurances, the Insurance Commissioner has issued
a circular guiding the insurance companies to cancel the minimum premium they have
integrated in the standard rate and resubmit the rate formulas for approval.
Toward the end of the year the influence of the events of September 11th was evident and
consequently the rates in insurance lines that cover catastrophes rose.
Regarding health insurances, rules were set for extending the proper disclosure toward the
insured at the time of joining the insurance and during the insurance period. Moreover, new
insurance policies for foreign workers have been approved according to the instructions set
in the Foreign Workers order that came into force on October 2001. This order instructs
employers to insure the foreign workers employed by them at a minimum scope of cover,
which is basically similar to the health basket given to Israeli citizens according to the National
Health Insurance law. In addition, during this year the Insurance Commissioner published
a draft of instructions for the insurance companies regarding the long-term care insurance in
individual policies in order to assure a fair long-term cover and maintain the stability of the
insurance business.
The total of premiums1 in the non-life insurance lines in 2001 was about NIS 14.9 billion.
This amount is an increase of about 8.7% (about NIS 1.2 billion) compared with the year
2000 where about NIS 13.7 billions were collected. This is an exceptional increase in the
premiums (between 1988-2000 there was an average decline of about 0.3% a year in the
collected premiums).
4
2001
NON-LIFE INSURANCE
Figure D-1:
Distribution of gross non-life insurance premiums by lines in 2001
(Percent)
cargo in transit
0.7%
aircraft and marine vessels
0.2%
engineering
insurance
2.1%
sickness & hospitalization
8.1%
credit
insurance
0.8%
other risks
3.7%
property loss & homeowners
9%
homeowners
7%
Individual accidents
1.4%
other liability lines
7%
compulsory motor-vehicle
26%
employer liability
1.9%
property motor-vehicle
31.8%
Source: annual report data of the insurance companies and processing of the Capital Market,
Insurance and Savings Division (Based on individual Companies’ reports (Solo)).
According to table D-1, this increase is the result of an increase of about NIS 304 million in
premiums in the business property loss and comprehensive line (about 27.4%), an increase
of about NIS 299 million in the property motor-vehicle line (about 6.7%) and an increase of
about NIS 185 million in the sickness and hospitalization line (about 18.2%).
2001
5
NON-LIFE INSURANCE
Table D-1:
Distribution of Non-Life Insurance Gross Premiums, by Lines,
in the years 1998-2001
(NIS thousands, December 31 2001 prices)
Insurance type
1998
1999
2000
2001
Change in
Rate of
premiums premium
between
change in
2000-2001 2000-2001
Business property loss and
comprehensive
1,231,438 1,115,887 1,108,390 1,412,107
303,717
Homeowners
985,275
967,226
1,006,453 1,044,091
37,637
Compulsory motor-vehicle 3,823,991 3,749,955 3,812,232 3,874,569
62,337
Property motor-vehicle
4,744,693 4,607,550 4,441,974 4,740,615
298,640
Employer liability
261,838
258,033
248,901
278,478
29,576
Other liability lines
854,667
909,745
906,671
1,040,472
133,801
Individual accidents
224,998
218,662
205,561
205,494
-67
Sickness and
hospitalization
802,350
948,638
1,019,284 1,204,392
185,108
Aircraft and marine vessels
27,476
27,418
26,581
30,283
3,702
Cargo in transit
135,390
119,053
112,328
110,495
-1,833
Engineering insurance
254,183
305,531
288,586
316,248
27,662
Credit insurance
99,734
106,249
69,840
119,508
49,668
Other risks
361,240
436,211
483,627
547,698
64,070
Businesses originating
abroad
1,206
1,053
587
1,141
554
Total
13,808,478 13,771,210 13,731,015 14,925,589 1,194,574
27.4
3.7
1.6
6.7
11.9
14.8
0.0
18.2
13.9
-1.6
9.6
71.1
13.2
94.3
8.7
Source: annual report data of the insurance companies and processing of the Capital Market,
Insurance and Savings Division (Based on individual Companies’ reports (Solo)).
6
2001
NON-LIFE INSURANCE
2. Analysis of business results in the non-life
insurance lines
A. Profitability
The profit in all the non-life insurance lines aggregated in 2001 some NIS 812 million
compared with NIS 430 million in 2000. This is an increase of about 89% in profitability.
As seen in figure D-2, the profitability in the non-life insurance lines is fluctuational.
Figure D-2: Profitability of the Non-Life Insurance Line in the years 1996-2001
(NIS million)
1,000
Line profits
(including Avner)
900
800
Avner profits
700
600
500
400
300
200
100
0
1996
1997
1998
1999
2000
2001
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division (Based on individual Companies’ reports (Solo)).
Figure D-31 shows a profit in the main insurance lines in 1998-2001. It is evident that the
compulsory motor-vehicle insurance line (including Avner) is the most profitable line in all
the reviewed years2. In addition, one can see the fluctuational nature that characterizes the
property motor-vehicle insurance line (see detailing in the Commissioners’ report for 2000).
In 2001 the profitability in these two lines was about 66% of the profitability in the non-life
insurance line (about 43% in 2000).
The profitability in the homeowners line is relatively stable, and ranging between about NIS
88 million and about NIS 103 million a year. In 2001 it was about 11% of the total profit
in the line whereas the rate of premium in the homeowners line was about 7% of the total of
premiums in the non-life insurance line.
1
The profit of the compulsory insurance line includes Avner’s profits as follows: in 1998 — NIS
571 million, in 1999 — NIS 408 million, in 2000 — NIS 85 million and in 2001 — NIS 157
million.
2001
7
NON-LIFE INSURANCE
Figure D-3: Profits in Non-Life Insurance by Main Lines in 1998-2001
(NIS million)
800
sickness &
hospitalization
property loss
other liabilities
700
600
500
(employer and other)
compulsory
motor-vehicle
property
motor-vehicle
homeowners
400
300
200
100
0
(100)
1998
1999
2000
2001
(200)
(300)
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division (Based on individual Companies’ reports (Solo)).
B. Concentration in the line
The insurance premiums collected by the Clal group (the group with the largest market
share) in the non-life insurance lines in 2001 are about 2.5% of the total insurance premiums
collected in the line. The part of the Clal group is about 1/3 of the total of insurance
premiums collected in the property loss and homeowners lines (about 36.3% and 31.5%
correspondingly) and about 1/4 of the total of insurance premiums collected in the property
motor-vehicle insurance line (about 23.1%).
According to the figures below, it appears that the four large insurance groups3 have a
considerable market share in the property insurance lines. Their share in the property loss
line is about 79.6%, their share in the homeowners line is about 72.6% and in the property
motor-vehicle insurance line about 62.9%. The differences in concentration in the various
insurance lines may indicate the degree of competition in the various lines.
2
3
8
Figures D-2 and D-3 include the profitability of the Avner Company. This company recognizes
a profit after five years, unlike most of the insurance companies that recognize a profit after three
years. If Avner’s reporting method in 2001 were like other companies, the profit would have
increased in about NIS 900,000.
List of insurance groups:
• The Phoenix group: Phoenix, Hadar
• Harel group: Shiloach, Sahar-Zion, Dikla
• Clal group: Clal, Aryeh, Ilit
• Migdal group: Migdal, Hamagen
2001
NON-LIFE INSURANCE
Figure D-4:
Distribution of Gross Premium by Companies in the Non-Life Insurance Lines
in 2001 (excluding Avner and Karnit)
Eliahu
5.3%
Other
9.4%
Clal
24.4%
Ayalon
6.4%
Direct Insurance
3.3%
Menorah
6.7%
Migdal
11.1%
Harel (Sahar-Zion)
18.4%
Phoenix
15.1%
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
Figure D-5:
Distribution of Gross Premium by Companies in the Motor-Vehicle
Insurance Line in 2001
ILD
3.4%
Eliahu
7.8%
Other
5.4%
Clal
23.1%
Ayalon
8%
Direct Insurance
5.5%
Menorah
6.9%
Harel (Sahar-Zion) 15.6%
Migdal
8.3%
Phoenix
15.9%
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
Detailing of the insurance groups in the group 'Other' in figure D-5:
AIG – 2.4%, Agricultural insurance – 1.5%, Shomera – 0.3% and Shirbit – 1.2%.
2001
9
NON-LIFE INSURANCE
Figure D-6:
Distribution of Gross Premium by Companies in the Homeowners Insurance Line
in 2001
Direct Insurance
3.2%
Eliahu
3.1%
Other
6.1%
Clal
31.5%
Ayalon
5.4%
Menorah
9.6%
Harel (Sahar-Zion)
12.6%
Migdal
13.8%
Phoenix
14.7%
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
Detailing of the insurance groups in the group 'Other' in figure D-6:
AIG – 1.9%, Hachsharat Hayeshuv (ILD) – 2.4%, Shomera – 0.7% and Shirbit – 1.1%.
Figure D-7:
Distribution of Gross Premium by Companies in the Property Loss Insurance Line
in 2001
Eliahu
Phoenix
6.1%
Ayalon
6.5%
4%
Menorah 2.5%
ILD 0.9%
Clal
36.3%
Agriculture Insurance
6.5%
Migdal
12.8%
Harel (Sahar-Zion)
15.6%
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
10
2001
NON-LIFE INSURANCE
In order to examine the concentration in the various lines in 2001, we use the following
indices:
1.
2.
The Herfindahl-Hirschman Index (HHI) calculated by the sum of squares of the
insurance company’s market share out of the total of premiums collected in that line.
The CR3 index that sums up the market share of the 3 large insurance groups out of
the total of premiums collected in that line.
The results of the concentration indices are specified below:
Compulsory
motor-vehicle
Sickness &
Property mo(excluding
Homeowners hospitaliza- Property loss
tor-vehicle
Avner and
tion
Karnit)
Indices/
Lines
Herfindahl Hirschman Index
CR3 (In percentage)
Employer
liability
0.13
0.13
0.17
0.29
0.22
0.18
52
55
60
78
73
68
As the indices grow bigger, the concentration in the line also increases.
C. Seasonality
Figure D-8:
Distribution of Insurance Premiums in the Main Lines, by Quarters in 2001
(Percent)
45
quarter 1
40
35
quarter 2
30
quarter 3
25
quarter 4
20
15
10
5
0
compulsory
property
motor-vehicle motor-vehicle
homeowners
sickness &
hospitalization
property
liabilities
loss (employer and other)
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
2001
11
NON-LIFE INSURANCE
Figure D-8 shows the distribution of insurance premiums over the quarters in the non-life
insurance lines for 2001. The figure shows that in the motor vehicle lines the main part of
insurance premium payments was done in the 1st quarter of the year compared with the
other quarters where the distribution is similar (the reason for this is probably the fact that
collectives, that are an important factor in the property motor-vehicle insurance market, tend
to arrange motor-vehicle insurances for their workers at the beginning of the year). In the
property loss line and in the liability (employers and other) lines, the trend is similar. On the
other hand, in the homeowners line and sickness and hospitalization lines the distribution of
insurance premiums is similar among all quarters.
12
2001
NON-LIFE INSURANCE
3.The reform in the compulsory motor-vehicle
insurance line
A. General
In July 1997, the Motor Vehicle Insurance Law (insurance under Conditions of Managed
Competition and Transitional Arrangements and Directives regarding Avner) – 1997
(hereinafter: "Managed Competition Law)" opened the compulsory motor-vehicle insurance
industry to competition. The main goals of the reform were as follows:
1.
2.
To arrange a competitive structure for the line in order to financially streamline it and
reduce the price of all insurance premiums in the line.
To encourage careful driving by using parameters that reflect the insurance risk for the
purpose of setting the insurance premium, and preventing the subsidization so that
each insured will pay his risk premium.
As one can recall4, in consequence of signing the memorandum of understanding between the
Insurance Commissioner and the insurance companies and the legislation that followed, the
reform implementation is carried out in two main stages. The first, starting from 1.4.2001
until 31.12.2002, the validity of Erlich’s letter expired, and the insurance companies are the
ones setting the insurance rate in the range of 10% above and below a benchmark rate with
no compensation mechanism on past losses. At the same time, the rate of liability of insurance
companies in coinsurance was raised to 70% in 2001 and to 80% in 2002 and Avner’s share
declined correspondingly. At the second stage, starting from 1.1.2003, Avner will not deal, in
a direct or indirect manner, with any business not related to the settlement of claims5.
B. Rates starting from April 2001
Starting from April 2001, with the implementation of the first stage of the reform in the
compulsory motor-vehicle insurance line, the standard rate that was common in the compulsory
motor-vehicle insurance line was cancelled and the insurance companies were allowed to set
by themselves the insurance rates in a range of 10% above and below a benchmark rate set by
the Minister of Finance, based on the recommendations of the database operator.
The regulations6 stipulate that within this range, the insurance companies can set the insurance
rates and use at their discretion seven risk parameters, set by the Insurance Commissioner
according to the recommendations of the database operator and with the Insurance
4
5
For further details on the reform and memorandum of understating, see chapter D for the annual
report of the Capital Market, Insurance and Savings Commissioner for 2000.
Managed Competition Law, section 10B (B).
2001
13
NON-LIFE INSURANCE
Commissioners’ approval. An insurance company is obligated to use all the parameters
approved to it by the commissioner. The purpose of these parameters is to evaluate the insured’s
quality of driving in order to adjust the insurance premium to the insured risk. In addition,
the insurance companies are entitled to give discounts on the permissible loadings allowed
to them up to 14.23% of the insurance premium (the loadings are designated to finance the
operational expenses of the companies, including profit and agents’ commissions).
The parameters allowed for use in compulsory insurance
Parameter
Engine volume
Driver gender
Driver age
Driver experience (years licensed)
History of road accidents
Deprivation of driver’s license
Trend
The rate decreases as the cc increases
Lower rate for women drivers
The rate decreases as the age increases
The rate decreases as the experience increases
The rate increases with the number of car accidents
The rate increases with the number of license deprivations
As of 31.12.01, a major part of the companies used a differential rate. Appendix A specifies the
insurance companies and the various parameters they used as of this day. Half of the companies
that deal with compulsory insurance have used parameters to set the premium: six companies
used the drivers’ age parameter, four used the driver’s experience parameter and one company
used six parameters. Eight companies used no parameter for pricing the insurance premium.
The usage the insurance companies do with various parameters results in a situation where
insured have different rates in different companies. Selecting an insurance policy is influenced
by three central elements: the insurance cover given in the policy, the identity of the insurance
company and the amount of premium. In a compulsory insurance the insurance cover is dictated
by virtue of the law therefore the insured must consider mainly the identity of the insurance
company, the experience he has with it and the cost of insurance. The practical meaning for
the public of insured is that when buying compulsory insurance for a car one should consider,
among other things, the insurance premium charged by the insurance company. Since starting
from April 2001 this premium is not uniform among all the companies, it is recommended for
insured to compare between the various companies and rates.
C. Correct declarations given by insured
According to the law, compulsory insurance is made for the car rather than for a specific
driver. As long as the insurance premiums were set based on the car characteristics only
6
14
Regulations of supervision on insurance businesses (the insurance premiums an insurer is entitled
to charge from insured in motor vehicle insurance), temporary provision – 2001.
2001
NON-LIFE INSURANCE
(engine type and size), it was easier for the insurance companies to check the reliability of
data given by the insured on the car. With the reform implementation, more emphasis will
be put on the driver’s characteristics, which are the main factors that influence the insurance
risk, therefore the insurance companies will have to check various characteristics of the drivers
using the car, like the age of potential drivers, their history of accidents, the purposes of using
the car and the like.
An insurance company can ask the insured questions related to parameters that influence the
insurance risk, yet it is possible that the insurance company could not condition the insurance
cover on the correctness of the obtained declarations (for example, the driver age). This
situation may result in a state where certain insured will have an incentive to give incorrect
declarations in order to pay a reduced premium, knowing that an incorrect declaration will
not influence the payment of insurance compensations. This situation may result in the
following consequences:
A. Rates that do not reflect their insurance risk will be given to insured who give faulty
data, therefore the insurance company will not collect sufficient premiums.
B. The cost of risk will be rolled over to other insured due to faulty data given by insured.
C. Faulty information will be entered to the database so that the reliability of the database’s
products will be damaged.
During 2001 a report of a professional committee appointed by the Insurance Commissioner
for examining alternatives for coping with incorrect declarations of insured was published.
According to one of the alternative offered by the committee, a limited fine will be laid on
insured who gave incorrect declarations due to which they received a reduced premium in
their compulsory motor-vehicle insurance policy.
According to the above alternative, an insured who gives incorrect details when buying the
policy – like the age of driver who will drive the car, his experience in driving, the number of
license deprivations etc. – will be fined. The fine will be limited and will be collected by self
participation when the insurance case happens only from the compensation component for
the pain and suffering caused to the traffic casualty7, yet not from the payment for medical
expenses or for the work disability. The amount of fine will be set, among other things,
according to the influence of the incorrect details on the premium paid by the insured, like
the mechanism set in section 7 to the Insurance Contract law. Setting the fines requires, of
course, a legislative change.
D. Claim report
During 2001 a circular concerning Claim Report in compulsory motor-vehicle insurance was
published, stipulating the obligation to report in writing in a uniform format on compulsory
insurance claims for policies that end starting from 1.4.02. For policies that end starting from
2001
15
NON-LIFE INSURANCE
1.10.02, the reporting will be extended and will also include a specification of variables that
influence the insurance premiums according to the definitions of the database operator, even
if the insurer has not used them when calculating the insurance premiums. Moreover, the
report will include the details of the driver involved in each accident.
The purpose of circular is to facilitate the underwriting process in compulsory insurance,
like in property motor-vehicle insurance, by the delivery of a claim report for each insured,
a report that specifies the claims for bodily injury for each policy. The specification of the
driver’s details and the variables by which the policy was issued will enable the insurance
company to better evaluate the risk of each insured and to allow fair and correct pricing of
the insurance policy.
E. Database
As stated, the basis for correct fair competition and pricing of the insurance rates is statistical
information. One of the most important components in the reform in compulsory motorvehicle insurance is the database, which goal is to recommend to the Insurance Commissioner
and the insurance companies on risk rates. Based on deliberations with the insurance
companies, a statistical plan was published in July that defines the way of collecting data and
reporting on them to the database. At the request of the insurance companies, the beginning
of data collection was delayed until 1.10.01. From this date on, information will be collected
according to the statistical plan from each insured.
F. Residual insurance
During 2001, Motor Vehicle Insurance regulations were set (a residual insurance arrangement
and a mechanism for setting rates), 2001 (hereinafter: "the regulations"). The regulations
were designated, among other things, to streamline and improve the residual insurance array
by establishing an arrangement administration, which is a corporation, and by arranging
a mechanism for setting rates. In August 2001, the insurance companies established the
Managing Corporation of the Compulsory Motor Vehicle Insurance Pool (the pool) Ltd
according to the regulations. Moreover a CEO and board of directors were appointed to the
company, workers were recruited and an information system was established.
The residual insurance is basically in loss. The financing of its losses is imposed on all insured
in compulsory insurance. A private car and motorcycles under private ownership that are
insured by residual insurance pay an addition of 25% whereas any other vehicle pays an
addition of 35% to the market rates as set in the regulations. In order to finance the losses
7
16
The payment for pain and suffering is set in the regulations of compensations to traffic accident
casualties (the calculation of compensation for damage other than in property) – 1976 and may
reach up to NIS 133,000 per casualty, depending on the degrees of disability set for him or the
duration of hospitalization. At the absence of disability or hospitalization days, the maximum
amount is up to 10% of the above amount.
2001
NON-LIFE INSURANCE
of the residual insurance, as expected due to the motorcycle insurance8, in a rate lower than
their risk rates, 4.3% were added to the risk premium of all vehicles, meaning a total of NIS
116 million a year.
G. Avner
The Motor Vehicle Insurance Law (insurance under conditions of managed competition,
transitional arrangements and directives regarding Avner), 1997 stipulates that starting from
2003, Avner will no longer serve as a common insurer in the compulsory motor-vehicle
insurance line. From now on Avner will only deal with matters related to the settlement of
past claims of traffic accident casualties.
According to the memorandum of understanding9, in December 2001 a new board of
directors was appointed for Avner which role is, among other things, to assure correct and
orderly transfer of Avner to management by a special manager in 2003.
8
9
The population insured in the pool other than motorcycles and that is not under a short-term
insurance cover is very small.
For the memorandum of understating refer to Chapter D of the Commissioner’s report on the
Capital Market, Insurance and Savings 2000.
2001
17
NON-LIFE INSURANCE
4. Rates in property motor-vehicle insurance
A. Cancellation of minimum premium
According to the provisions of the law, an insurance company that is interested in introducing
an insurance plan into the property motor-vehicle line (self and third party) must first obtain
the approval of the Insurance Commissioner. In order to obtain approval for the insurance
premium, the insurance company is required to provide certain data to the Commissioner,
like the full rate formula and a list of the parameters and their values.
Most of the insurance companies, in the framework of the rate formula, used to combine
a parameter of Minimum Premium, which is the minimum amount an insurance company
intends to charge from different insured as insurance premiums. Minimum premium means
that although the risk data of a specific insured indicate that he should pay a certain amount,
in fact he will be required to pay a higher amount.
These are two examples for the minimum premiums used by the various insurance companies
during 2000:
Company A private car – NIS 2,582
commercial car - NIS 3,095
Company B private car – NIS 2,016
commercial car – NIS 2,419
After reviewing the matter of minimum premium and due to the desire to reduce cross
subsidizations between different insured and establish actuary rates by which each insured
pays according to his insurance risk, the Commissioner of Insurance published in August
2001 an insurance circular that instructs the insurance companies to submit for approval rate
formulas that do not include minimum premiums. According to the circular instructions, the
companies have submitted new rate formulas for the property motor-vehicle insurance line.
B. Review of the rate formulas
The rate formula consists of a risk premium and loadings. The risk premium is in fact the
expected cost incurred by the insurance company due to paying claims and settling claims:
the payment due to the damage caused to the insured, including any expenses the insurance
company may have incurred for settling the claim, like lawyers and investigators. The
loadings include the expected cost due to the issue of policy, like marketing expenses and
agents’ commission and the profit component.
Setting the risk premium is done while considering three main components:
1. The cost of risk due to an accident that causes damage to the insured’s car.
2. The cost of risk due to an accident that causes damage to the car of a third party10.
10
18
The payment of the insurance company for this component is usually limited by an upper limit.
2001
NON-LIFE INSURANCE
3.
The cost of risk due to theft or an attempt to steal the insured’s car.
In order to set a differential risk premium that considers the specific risk characteristics of
each insured, the insurance company will set the cost of the various components indicated
above. It should be noted that in the property motor-vehicle insurance line, the insurance
companies use many diversified parameters for evaluating the risk.
The cost of risk due to an accident is directly related to the characteristics of the car drivers.
Usually as the driver’s age grows higher and as his experience increases, the cost of risk due to
an accident decreases. Moreover, in certain ages the driver’s gender and marital status are also
influential (single or married). At certain ages the cost of risk due to an accident for women
is lower than for men, and the cost of risk of married people is lower than the cost of risk for
singles. The reasons for this are diversified: it is possible that women are more careful than
men, yet it is also possible that women drive less than men. This is also true for marital status.
It is possible that married people drive more carefully yet there may be other reasons as well.
Additional characteristics of a driver that are relevant to the cost of risk due to an accident
are as follows:
1. Number of drivers authorized to drive the car (as the number of authorized drivers
increases, the cost of risk also increases, because the car is used for longer periods of time
or since certain drivers are more dangerous).
2. The insurance history of the driver. If an insured has not filed any property motorvehicle claims against the insurance company in the last years, this may indicate of the
driver’s nature.
The cost of risk due to an accident is also influenced by the car’s characteristics, like the
car’s manufacturer, its weight and whether this is a private or commercial car, is the car being
used as the main car or as a secondary car etc.
It should be noted that to the matter of calculating the cost of risk due to damage to a third
party, there is a substantial difference between the insurance companies regarding the way
they calculate the cost of risk. Some of the companies use a differential rate according to the
driver’s characteristics, yet some insurance companies collect a fixed amount for a third party
cover though these are different drivers.
The cost of risk due to a theft is very much influenced by the value of the car. As the value of
the car increases, the consequences of theft lay higher cost on the insurance company. Another
important component of the cost of risk is the probability of stealing various cars. There are
different types of vehicles with a high probability of theft and there are other vehicles which
probability of theft is lower. All the probabilities may change within a short time (for example
2001
19
NON-LIFE INSURANCE
a change in the thieves’ preferences). Therefore the insurance companies run a current follow
up on the types of vehicles and the frequency in which they are stolen.
In summary, since the insurance companies differ both in the way they calculate the rate and
in the parameters they consider in the formula, it is bound to have differences in the amount
of premiums they charge from the same insured. In addition, it should be noted that if two
companies use the same parameter, for example the drivers’ age, it is possible that in a certain
company, X age groups will be defined and in another company Y age groups will be defined,
with all that is implied. Due to these reasons it is important to carry out a market survey
before buying insurance.
20
2001
NON-LIFE INSURANCE
5.The terrorist attack of September 11th
and its implications
The terrorist attack on the World Trade Center in the USA on September 11th 2001 and
the declaration of war of the American government on international terrorism that followed
have influenced the international and the Israeli insurance market. The combination of the
security state in Israel and the high number of terrorist attacks have created a certain problem
with the insurance availability and an appreciation of rates in part of the insurance lines.
Claims against reinsurers due to the attack have considerably decreased the free capital in the
insurance market, and have lead to a decline in the risk capacity they are willing to receive.
The decline in free capital in the reinsurance market (decline in supply) results in increased
rates, especially in catastrophe insurance lines (for example earthquakes) and causes a problem
of insurance availability for certain lines and insured.
For example, due to the appreciation of insurance rates because of war risks for cargos in
watercrafts coming to the Israeli ports, it was feared that this will affect the import and export
of cargos. In order not to interfere with the traffic of goods to and from the ports in Israel, it
was decided to adapt an arrangement by which the governmental insurance company Inbal
Insurance Company Ltd (hereinafter: "Inbal") will sell policies for cargo insurance against war
damages within the territorial waters of the state. As part of the arrangement it was established
that the state, through Property Tax and Compensation Fund, would compensate Inbal in
case of claims, so that Inbal will bear no risk on these policies. The policy was approved in
November 2001 and may be extended up to a range of 30 nautical miles from the shoreline
of the state of Israel.
In addition to the regulation of the marine cargo insurance, in the course of the year, the
Division has reviewed the insurance availability for seam areas like the industrial areas in
Atarot and Barkan that have suffered from difficulties in achieving insurance.
2001
21
NON-LIFE INSURANCE
6. Cancellation of venue stipulation in insurance
contracts
Insurance companies used to include in many insurance policies a condition that determines
in what venue will claims regarding the policy be clarified, usually in Tel Aviv. Such a
condition limits the freedom of choice of the insured regarding the place of claim against the
insurance company and also restricts their right to ask for transferring the discussion if an
insured is sued by the insurance company.
Therefore the Commissioner of Insurance has published a circular stipulating that insurance
companies will not add into new insurance contracts sections that limit the insured’s freedom
of choice of a certain court. In addition, it was set that insurance companies will cancel,
starting from 1.5.03, the sections that limit the venue to certain courts in existing insurance
contracts. In insurance contracts where the insurance period is longer than a year, the
insurance companies were required to notify the insured in writing of this matter.
It should be noted that the circular instructions shall apply to insurance contracts in all insurance
lines, including group insurance contracts, except for business insurance contracts (property,
directors etc.) for which an insurance contract that is not a uniform contract was made.
22
2001
NON-LIFE INSURANCE
7. Health insurance
A. Introduction
During 2001 rules were set for extending the proper disclosure given to an insured in health
insurance policies when joining the insurance and within an annual report. Moreover, an
offer for instructions for long-term care insurance policies (individual) was published, new
insurance policies for foreign workers were approved, according to the instructions set in the
Foreign Workers Law and an offer for the content of the actuarial memorandum that an
insurance company has to submit, when applying for a health insurance policy approval or
when changing an existing plan, was published.
B. Business results in the sickness and hospitalization line
The scope of activity in the sickness and hospitalization line in 2001 shows a continued
growth in the line over the last years. This increase is reflected by an increase of about 8% in
the amount of insurance premiums in relation to the insurance premiums in 2000.
Loss ratio
The loss ratio is the ratio of gross claims (paid claims and changes in pending claims) to total
premiums. The data indicates a decline of about 6% in the Loss Ratio, from about 63% in
2000 to about 60% in 2001. This change may indicate a growth in profitability.
It should be noted that the sickness and hospitalization line does not cover the entire activity
in the field of health insurance, as part of it is reported under life insurance (like long-term
care insurance).
Figure D-9 shows the main data of the financial results in the line.
Figure D-9:
Business Results in the Sickness and Hospitalization Line in 2000-2001
(NIS thousand, December 2001 prices)
1,400,000
1,200,000
2000
1,000,000
2001
800,000
600,000
400,000
200,000
0
premium
expenses
claims
profits
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
2001
23
NON-LIFE INSURANCE
Market data in the Sickness and Hospitalization line
Figure D-10 shows the continued concentration of the line as presented in the Commissioner’s
report of 2000, as half of the insurance premiums are in the Harel group (a decline of 1%
in relation to 2000). The main changes compared with 2000 are in the insurance premiums
held by the other three groups: an growth in the Clal group, a decline in the Phoenix group
and growth in the Migdal group. The market share of the four large insurance groups is about
89% (like the data of 2000). It should be also mentioned that an insurance premium rate of
1.9% (it appears under another name in the figure) includes the Ayalon Company that holds
about 1.76% and other companies that hold less than 0.1%.
Figure D-10:
Distribution of Gross Insurance Premiums by Companies in the Sickness and
Hospitalization Line in 2001
Menorah
8.7%
Other 1.9%
Clal
11.7%
Migdal
12.8%
Harel (Sahar-Zion)
47.5%
Phoenix
17.4%
Source: data from the annual reports of the insurance companies and processing of the Capital
Market, Insurance and Savings Division.
Detailing of the insurance companies in the insurance groups:
1. Harel group – Shiloach, Sahar Zion, Dikla
2. The Phoenix group – The Phoenix, Hadar
3. Migdal group – Migdal, Hamagen
4. Clal group – Clal, Aryeh, Ilit
5. Other – Ayalon, AIG, Shomera, Shirbit, Direct Insurance
C. Long-term care insurance
1) Background
Long-term care insurance is designated to provide financing support to a person who needs
supervision or those who are incapable of doing daily activities, like eating, walking or getting
dressed by themselves.
Long-term care cases usually occur after the age of 75 hence the insurance cover must continue
24
2001
NON-LIFE INSURANCE
for an extended period so that the insurance period in the policy will be to the entire insured’s
life and the insurance company will not be allowed to terminate the insurance.
Within the framework of the Health Insurance Law, National Security offers a basic level of
monthly long-term care treatment for eligible insured – men of 65 and up and women of 60
and up who live at home and need the help of another person for carrying out daily activities
or who need supervision at home for their safety, according to tests and to the eligibility terms
set by the law.
According to the instructions of the National Health Insurance law, sick funds are not
allowed to offer long-term care insurance plans. They were specifically excluded from the
law due to the long-term implications of this insurance that requires risk management and
long-term financial reserves. Therefore, insurance companies provide the long-term care
insurance. It should be noted that the increase in life expectancy and the aging of population,
the increase in the standard of living, have raised the demand for buying a long-term care
insurance policy.
Most of the long-term care insurance offered by the insurance companies consists of group
insurances that are sold mainly to sick funds’ members. It should be noted that more than 3
million people have long-term care insurance through the sick funds.
Policies for long-term care insurance offer monthly payments at a fixed amount (several
thousands shekels) or indemnify for the recovery of expenses an insured may incur for getting
long-term care services. The period of insurance compensation payment when an insured is
in nursing care usually ranges between three years to life.
The unique characteristics of long-term care insurance and selling it within the framework of
a limited period group policy are problematic. In the contract entered with the policy holder
(the group representative – sick fund, employer etc.) the insurance period is set for a few years,
usually with no assurance of continuity to the insured in case of terminating the agreement
between the policyholder and the insurance company. This means that the insured may be
left on the one hand with no insurance cover in case that the insurance policy is not renewed
and on the other hand, with no option to buy another policy for long-term care insurance
due to his health condition. In addition, group policies of long-term care insurance are
characterized by premiums based on cross-age and gender subsidization. This may result in a
dramatic increase in premiums for the subsidized insured. The Commissioner of Insurance is
examining the required regulation for a group long-term care insurance.
2) Guidance on long-term care insurance (individual)
During 2001, the Commissioner of Insurance has published guidance for insurance companies
regarding long-term care insurance in individual policies. The guidance set rules to assure
long-term appropriate cover, while maintaining the stability of the insurance business.
These are the main instructions:
1. Long-term care insurance will be sold as long-term insurance that provides assurance
for the range of ages where the insured is particularly exposed to risk. Meaning an
2001
25
NON-LIFE INSURANCE
2.
3.
4.
5.
insurance company cannot terminate the insurance in a unilateral manner throughout
the insured’s life.
Due to the importance of this insurance it was established that buying the longterm care insurance will be done independently with no obligation to buy additional
insurances.
The insurance company will not be entitled to raise the scale of premiums but only
subject to obtaining an approval in advance from the Commissioner of Insurance
and in any case not before the end of 5 years since the approval to operate the policy
or since a prior approval for the raise. There is an option to change a premium in
health insurances in general and in long-term care insurance in particular since these
insurances are sold for extended periods , for the entire life of an insured (tens of years)
and the insurance company has a difficulty in committing to an unchanging premium.
This difficulty is derived, among other things, from the limited data available, changes
in the cost of medical services, and uncertainty regarding future developments that may
influence the level of risks in the field.
The insurance premium from the age of 65 and on will be level premium that does
not change with the insured’s age. This instruction was set since the function of the
insurance risk from which the insurance premiums are derived increases sharply at the
very old ages, a fact that makes it difficult for an insured to pay a suitable risk premium
in these ages.
For any payment at level premium by the insured, the insurance company accumulates
a reserve for the insured. Level premium payment means that the insured pays an
amount that is higher than his insurance risk, therefore a surplus is accrued in his favor.
An insured who terminates the insurance will still have reduced cover according to the
amount accumulated for him (paid-up values).
D. Health insurance for foreign workers
Health insurance policies for foreign workers have been marketed by several insurance
companies for some years now. Policies that were common until October 2001 provided
cover for various medical expenses, during and not during hospitalization, and compensation
for death and disability due to an accident (individual accident insurance). The provided
covers were limited both in the type of covers and in the total amount of insurance for all
covers in the policy, and no cover was provided for a physical condition that an insured may
have had before the beginning of insurance. So that for example, these policies did not cover
pregnancy, chronic sickness and AIDS.
Over the last years the number of foreign workers who stay in Israel has increased. With
the increase in the number of foreign workers, the demand for social services for them and
for their families, such as education, health and welfare services, has increased among that
population. The phenomena of foreign workers, its scope and dimensions and social and
26
2001
NON-LIFE INSURANCE
financial implications has become a central issue on the public agenda.
On the background of the stated above, the Arrangement Law of 2000, in the amendment
for the Foreign Workers Law (unlawful employment) - 1991, the rules for the terms of
employment of foreign workers in Israel were updated in order to assure reasonable and fair
working conditions for the foreign workers. This law stipulates, among other things, that it is
obligatory for any employer to arrange health insurance for the foreign workers to their entire
period of employment with that employer and that the insurance will provide a minimal
cover as will set in an order of the Minister of Health.
Therefore the Minister of Health has published the Foreign Workers order (prohibition on
unlawful employment and assurance of fair conditions) (medical cover for the worker) – 2001,
that came into force on October 2001. The purpose of order was to assure proper medical
services for foreign workers and try to prevent exploitation of the medical infrastructure in
Israel by medical immigration. This order stipulates that the scope of cover an employer must
arrange for his worker will be basically similar to the national health basket given to Israeli
citizens according to the National Health Insurance law.
In consequence of the order publication in 2001, new insurance policies for foreign workers
were approved. These are the main characteristics of these policies:
•
As stated, the scope of insurance cover and its availability are basically similar to
the national health basket given to Israeli citizens according to the National Health
Insurance law, including cover for medical services during pregnancy at the end of 9
months of work. In addition it stipulates cover for medical treatments in consequence
of work accidents in the interim until the determination of the National Insurance
Institution. In case that a specialist determines that a worker cannot work, an insurance
cover will be provided until his medical condition stabilizes, so that the worker could
return to his origin country.
•
In health insurance policies it is common to have a restriction by which the insurer may
limit the insurance cover if the insurance case has resulted from a medical condition that
the insured have had before joining the insurance. The regulation sets a certain cover in
a case of pre-existing medical condition. After three years since the foreign worker has
arrived to Israel (or from the day the order comes into force regarding a worker who
was already in Israel at the time of setting the order), the insurance company would not
be able to decline a claim by arguing that the medical treatment is for a pre-existing
condition. In any case the insurance company is obligated to finance health treatments
until the worker’s medical condition stabilizes.
•
In case of a dispute regarding the fitness for work or whether the medical treatment is
required due to a pre-existing condition, a mechanism was set by which the worker is
entitled to submit the opinion of a doctor on his behalf.
2001
27
NON-LIFE INSURANCE
•
In a large part of the policies there is cover for a death and disability insurance due to
an accident. This cover is in addition to the covers bound by the order.
E. Proper disclosure in group health insurance
In October 2001 “proper disclosure for the insured was applied when joining health
insurance policies” (circular 2001/9). The rules of proper disclosure establish what are
the main details of information to be given by insurance companies to the insured when
buying a health insurance policy. The solidification of guidance was done due to the need to
increase the transparency and disclosure toward the insured, especially on the background of
the complexity of health insurance policies (a detailing in this matter may be found in the
division’s guidance for 1999).
On the background of this circular’s guidance for proper disclosure for individual insurances,
the guidance was also extended to group insurances. It was established that starting from June
2002 an insurer will provide to any individual or a group of people insured in a group health
insurance the insurance policy and a detailing of the information included in the circular
with certain adjustments, like indication of the insurance duration and the term of agreement
between the policy holder and the insurer and the insured’s rights in case that the agreement
expires or if he leaves the group.
It should be emphasized that in group insurance, there is particular importance to the
disclosure provided to an insured regarding the insurance conditions, since in this insurance,
the insured does not sign the insurance agreement directly with the insurer therefore they are
not aware of the details in the insurance plan.
F. Prohibition of selling policies for supplementary medical covers to
traffic accident casualties
In recent years various insurance companies have been selling policies that offer medical
covers for traffic casualties in addition to the covers provided in the motor-vehicle compulsory
insurance. These policies offer, for example, compensation for a private operation, medical
examinations or hospitalization due to a traffic accident. The cost of policies was between
about NIS 70 and NIS 200 a year.
These policies have offered to provide insurance cover for traffic casualties in addition to the
insurance cover given to them according to the motor-vehicle compulsory insurance policy
that provides insurance cover according to the Traffic Accident Compensation Law – 1975.
This law provides traffic casualties broad variety of rights which purpose is to reinstate their
condition to their condition prior to the accident. In order to achieve this purpose, the
casualty gets insurance compensations under the motor-vehicle compulsory insurance due to
several factors of damage: medical expenses, compensation for inability to earn a living and
compensations for pain and suffering. The health insurance cover is very broad, even broader
than the cover given according to the National Health Insurance law.
28
2001
NON-LIFE INSURANCE
During 2001, among other things, on the background of public complaints in the matter, the
Commissioner of Insurance has reviewed the way of marketing and scope of use of policies
by insured. It turned out that since January 1999 until the end of 2001 almost 100,000
policies of this type were sold, with the compulsory motor-vehicle insurance policy or with
the motor-vehicle comprehensive insurance. These policies were sold in most cases through
a joining form attached to the compulsory motor-vehicle insurance certificate, therefore it
was sometimes bought absentmindedly or thinking this is compulsory insurance rather than a
voluntary cover that stands for itself. It was also found that insured have hardly made any use
of the policies and only a few claims were filed (4 claims as of the end of 2001).
The review results show that due to the broad medical cover already provided under the
compulsory motor-vehicle insurance and due to the method of marketing these policies and
their way of management, the policies fail to provide a real insurance cover. Therefore the
Commissioner of Insurance has decided to instruct the insurers to stop selling these policies
as of 1.1.02.
2001
29
NON-LIFE INSURANCE
NON-LIFE INSURANCE
APPENDICES
30
2001
NON-LIFE INSURANCE
Appendices
Appendix A: parameters used by the insurance companies to set the compulsory
motor-vehicle insurance premiums as of 31.12.01
Parameter
Company name
Personal Direct
Alpina
Direct Insurance
Hadar
Hamagen
Phoenix
Migdal
Sahar–Zion
Shomera
Shirbit
Car’s
engine
volume
ü
ü
ü
ü
Driver’s
gender
ü
ü
Driver’s
age
ü
ü
ü
ü
Number
of license
deprivations
ü
ü
ü
Driver’s
experience
Previous
claims
Is there
an Air
bag?
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
The insurance company is obligated to use all the parameters approved to it as specified in the table.
Subject to the approval of the Commissioner, a company may change the rate approved to it.
Appendix B: companies that have not used the parameters for pricing a private car
1.
2.
3.
4.
5.
6.
7.
8.
9.
AIG
Ayalon
Eliahu
Aryeh
Agriculture Insurance
Hachsharat Hayeshuv (ILD)
Clal
Menorah
Ilit
The rate is standard for all private motor vehicles insured by the same insurance company,
and may vary from company to company, pursuant to the approval of the Commissioner of
Insurance.
2001
31