Contents
Introduction ................................................................................................................
3
1. Compulsory Motor-Vehicle Insurance ..............................................................
8
A. Exposing the Industry to Competition ............................................................
8
1. Principles of the Reform...........................................................................
8
2. Motor-Vehicle Insurance Law (Insurance under Conditions of Managed
Competition and Transitional Arrangements) .......................................... 11
3. Establishment of a Database..................................................................... 11
4. Database Operator’s Recommendations................................................... 12
5. Actuarial Examination of the Industry ..................................................... 13
6. Proposed Regulations for Competition in the Industry ............................ 14
B. Issuance of Certificates of Compulsory Motor-Vehicle Coverage ................. 18
C. Absorbing Past Earnings ................................................................................. 19
2. Proposals for a More Flexible Standard Motor-Vehicle (Property) Policy.... 21
3. Health Insurance.................................................................................................. 22
A. Introduction ..................................................................................................... 22
B. Disclosure Requirements and Reporting to the Insured.................................. 23
C. Disclosure Requirements in Dental Insurance ................................................ 25
D. Quantitative Analysis of Illness and Hospitalization Insurance...................... 26
E. Quantitative Analysis of Individual-Accident Insurance ................................ 32
Appendices
Appendix D-1 The National Automobile Fleet .......................................................... 37
Appendix D-2 Distribution of Insurance Premiums................................................... 38
Appendix D-3 Frequency of Accidents in Israel and the United States by
Age Cohort ......................................................................................... 39
Appendix D-4 Frequency of Accidents in Israel by Years of Driving Experience.... 40
Appendix D-5 Frequency of Claims for Drivers with Previous Claims..................... 41
Appendix D-6 Changes in Risk Cost Ratio in Airbags-Equipped Vehicles .............. 42
Appendix D-7 Changes in Risk Cost for Motor Vehicle by Engine
Size ..................................................................................................... 43
Tables
5
Table D-1
Distribution of Insurance Premiums, by Insurance Lines ..................
Table D-2
Main Business Results—Illness and Hospitalization Insurance ........ 29
Table D-3
Trend in Business Results—Illness and Hospitalization Insurance ... 29
Table D-4
Main Financial Ratios—Illness and Hospitalization Insurance ......... 30
Table D-5
Main Financial Ratios in Past Seven Years........................................ 30
Table D-6
Main Business Results—Individual-Accident Insurance ................... 33
Table D-7
Trend in Business Results—Individual-Accident Insurance.............. 33
Table D-8
Main Financial Ratios—Individual-Accident Insurance.................... 34
Table D-9
Main Financial Ratios—1993–1999................................................... 34
Table D-10
Share of Individual-Accident Insurance in Total Insurance
Transactions in Israel.......................................................................... 35
Figures
Figure D-1
Distribution of General Insurance Premiums, by Insurance Lines,
1999 ....................................................................................................
3
Figure D-2
Growth of the Illness and Hospitalization Insurance Industry,
1993–1999 .......................................................................................... 30
Figure D-3
Business Results, Individual-Accident Insurance, 1993–1999 .......... 34
INTRODUCTION
The General Insurance Department formulates policy, regulates, and supervises insurance
companies in all lines of insurance except for life insurance,1 in order to facilitate a
competitive market structure based on fair competition. General-insurance lines include
property insurance, compulsory and comprehensive motor-vehicle insurance, liability
insurance, financial insurance (credit, sales guarantees, etc.), and health insurance (individual
accident, transplants, surgery, etc.).
Total insurance proceeds2 collected in 1999 were NIS 13.58 billion. As Figure D-1 shows,
motor-vehicle insurance accounts for most of general insurance. Total insurance proceeds
collected on account of property motor-vehicle insurance and compulsory motor-vehicle
insurance in 1999 were NIS 4.54 billion and NIS 3.70 billion, respectively—representing
61 percent of insurance proceeds collected in all lines of general-insurance.
Property motor-vehicle insurance (comprehensive insurance) covers property damage caused
to the insured’s motor vehicle or property damage caused by the insured to a third party.
1
2
According to the Regulation of Insurance Transactions (Methods of Investing Insurer’s Funds and Capital)
Regulations, 5757–1996, general insurance includes all insurance lines except for life and pension
insurance.
Insurance proceeds refer to the gross premiums (risk premiums plus loadings) collected by the insurance
companies.
3
Compulsory motor-vehicle insurance is insurance required of every driver by law; it covers
bodily injury to driver and passengers in the vehicle and third party injuries and casualties (to
pedestrians). These two motor-vehicle insurance lines are substantially different from each
other, both in type (property insurance as opposed to liability insurance) and in the duration
over which a claim may mature (“short-tail” versus “long-tail” business). Additionally, these
two insurance lines operate in different market structures. Compulsory motor-vehicle
insurance, in its present form, is a nationalized industry in the de facto sense; its rates are set
by the Ministry of Finance and authorized by the Knesset Finance Committee. Since 1997,
with the enactment of the Motor-Vehicle Insurance Law (Insurance under Conditions of
Managed Competition and Transitional Arrangements), 5757–1997, the Commissioner of
Insurance has been taking action to reform compulsory motor-vehicle insurance. Although the
industry does not yet operate within a competitive framework, the effect of the anticipated
competition can already be seen in the form of improvements in the gathering and
enhancement of data and improvements in the level of service. An example is the option of
paying for compulsory insurance by credit card without having to go to the bank—a
procedure introduced at the initiative of one company and, after the Commissioner established
rules to approve it, quickly adopted by many companies and soon to be introduced in the
industry at large.
Property motor-vehicle insurance is characterized by relatively strong competition, expressed
mainly in the diversity of criteria used for rating, frequent changes in rates, and the strongly
cyclical nature of profits and losses. The two industries are similar in regard to the number of
companies active in them and customer mobility among companies. Since compulsory motorvehicle insurance complements property motor-vehicle insurance, anyone who purchases a
property motor-vehicle policy also purchases a compulsory insurance policy, generally from
the same company. Since the two products are complementary, insurance companies utilize
their relative discretion in property motor-vehicle insurance to apply parameters relating to
compulsory motor-vehicle insurance as well.
Competition in property motor-vehicle insurance coverage is still limited, mainly because
there is a standard policy that stipulates a rigid package of coverage; the only choice an
insured has is to purchase comprehensive motor-vehicle insurance or third-party insurance
only. In order to promote a more flexible policy structure, the Commissioner of Insurance
circulated a proposal for changes in the standard policy, mainly offering a policy that is more
adaptable to consumer needs and expanding requirements of disclosure to the insured. One of
the proposals was to allow the insured to select one of the following options:
(1) comprehensive
4
insurance;
(2) comprehensive
insurance
without
theft
coverage;
(3) comprehensive insurance without accident coverage; (4) third-party insurance only. These
options would allow the insured to purchase partial coverage at a lower price.
Table D-1
Distribution of Insurance Proceeds, by Insurance Lines
Insurance line / Year
Business property loss and comprehensive
1998
1999
1,214.3
1,100.4
971.6
953.8
Compulsory motor-vehicle
3770.8
3697.8
Property motor-vehicle
4678.7
4543.5
Employer’s liability
258.2
254.4
Other liability
842.8
897.1
1,013.1
1,151.1
27.1
27.0
Cargo in transit
133.5
117.4
Engineering insurance
250.6
301.3
98.3
104.8
356.2
430.1
1.2
1.0
13,616.4
13,579.7
Homeowners’ comprehensive
Personal accidents, illness and hospitalization
Aircraft and marine vessels
Credit insurance
Other risks
Business originating abroad
Total
Another issue on the agenda is the regulation of the relationship between the adjusters, the
insured, and the insurance companies. In the course of 1999,3 the Commissioner of Insurance
published a draft circular to regulate motor-vehicle damage adjustment. Recently, in response
to a petition to the High Court of Justice, additional directives were drawn up and will become
effective after the High Court certifies them. Among other things, these directives create the
basis for the insured’s right to attach to his/her claim an adjustment statement produced by the
adjuster of his/her choice. The directives also include appropriate disclosure rules (and
appeals mechanisms) that will be binding on the insurance company when the claim is being
investigated and in the case of disagreement over the amount of damages, e.g., a full
breakdown of the adjuster’s report and tendering of the report to the insured.
3
See explanatory notes to the draft circular, “Insurers’ Working Methods vis-a-vis Motor-Vehicle Adjusters,
in 1998 Report of the Division.
5
The homeowners’ insurance industry is affected mainly by the requirement to take out
structural insurance when a home is mortgaged. Since the vast majority of insured who have
building insurance purchase their policies through mortgage banks, there is little competition
in this line. The High Court of Justice is currently adjudicating a petition against the Minister
of Finance, the Commissioner of Insurance, the Supervisor of Banks, the Attorney General,
and the Director of the Antitrust Authority, that would essentially forbid mortgage banks to
act as insurance agents. Since it is an acknowledged advantage for consumers to complete all
aspects of a transaction under one roof, the draft proposal would create a special arrangement
in which banks may continue to sell homeowners’ insurance in cases where the dwelling
serves as collateral for the loan, provided that the banks meet several criteria, including
appropriate disclosure to the insured, and continue to allow customers to purchase “regular”
insurance policies from insurance companies.
As Table D-1 shows, the share of the various kinds of credit and guarantee insurance in total
insurance proceeds increased in 1999, evidently because of economic growth and the
increasing acknowledgement of the possibility of such risks and the need to insure against
them. One sign of the awakening in these regards is the entry of new companies into this line
of business.
Health insurance has been flourishing since the enactment of the State Health Insurance Law
in 1995. Over the years, the variety of products has increased, new companies are entering the
field, and established companies are updating their product lines.
Main Insurance Lines
Comprehensive homeowners—insurance of building and contents of a residence. Policies in
this line of insurance are based on a standard policy set forth in Regulations. The insurance
company may modify the policy only to the benefit of the insured.
Compulsory motor-vehicle—insurance under the provisions of the Motor-Vehicle Insurance
Ordinance, intended to cover bodily injury to passengers in the insured’s vehicle and
pedestrian injury occasioned by use of the vehicle. Coverage includes all medical expenses,
compensation for disability (loss of earning ability) up to a ceiling of three times the national
average wage, and compensation for pain and suffering.
6
Property motor-vehicle—comprehensive and third party motor-vehicle insurance cover
property damage only. Property motor-vehicle policies are based on a standard policy set
forth in Regulations. An insurance company may modify the wording only to the benefit of
the insured. Third-party insurance covers injury caused to third parties up to the sum
stipulated in the policy.
Business comprehensive property loss—insurance against loss of nonresidential property
and its contents (e.g., merchandise, machinery, equipment, or plant).
Employers’ liability—insurance that covers employers against injury to workers for which
employers are liable under law. The insurance covers claims by insured’s direct employees
for physical injury or death resulting from an accident or illness that occurred while the
worker was working for the insured or that were occasioned thereby.
Other liability lines—insurance that covers the insured for liability that may exist under a
statute or civil law. The usual kinds of insurance include product liability, directors’ liability,
and malpractice.
Personal accident and illness and hospitalization—insurance that pays benefits in case of
death or disability occasioned by accident and cover miscellaneous medical expenses
occasioned by illness.
Aviation and marine insurance—insurance that covers damage or loss stemming from
aviation or marine risks. Marine insurance includes insurance of ships and cargoes in transit.
Aviation insurance includes, in addition to these, travel-accident insurance.
Cargo-in-transit insurance—insurance that covers loss or damage to cargo, depending on
the type of coverage, if the damage is incurred while cargo is in transit.
Engineering insurance—also known as machinery breakdown insurance. Equipment is
covered for damage incurred by its use, as opposed to damage caused by exogenous factors
independent of use.
Credit insurance—business insurance that covers the risk of non-receipt of sums of money
given out as customer credit.
Other risks—war risk insurance, nuclear risk insurance, etc.
7
1. COMPULSORY MOTOR-VEHICLE INSURANCE
A. EXPOSING THE INDUSTRY TO COMPETITION
1. PRINCIPLES OF THE REFORM
In July 1997, the Motor-Vehicle Insurance Law (Insurance under Conditions of Managed
Competition and Transitional Arrangements), 5757–1997, opened the compulsory motorvehicle insurance industry to competition. At the core of the model is the transfer of full
insurance liability (risks in the industry alongside the likelihood of earnings) from the public
to the insurance companies. The existing premium-adjustment mechanism transfers all risk on
the insured at large, whereas after the industry is exposed to competition, the insurance
companies will themselves be responsible for setting the premiums on the basis of statistical
information, under the supervision of the Commissioner of Insurance. This managed
competition will be reflected foremost in the abolishment of the standard rate and competition
in the compulsory insurance market for customers’ business. The premium will be determined
in accordance to a series of explanatory parameters that will more accurately reflect the
insurance risk of each insured (hereinafter, the voluntary market)4 .
Main Goals of the Reform
1.
To establish a competitive structure in compulsory motor-vehicle insurance in order to
enhance economic efficiency and reduce insurance premiums.
2.
To encourage careful driving by setting insurance premiums on the basis of parameters
that reflect insurance risk.
FAILURES OF THE EXISTING STRUCTURE
1. Structural Failures
The industry operates as a cartel and passes its losses on to the public by adjusting premiums.
This method creates a business relationship between the public and private sectors: the
Minister of Finance sets insurance rates to keep the industry in equilibrium (no profits, no
4
For general data on the compulsory motor-vehicle insurance industry, see figures in Appendices D-1 and
D-2.
8
losses) while the private sector, which runs the industry, works for profit as a matter of
course. The result is that the insurance companies pocket the profits and the public covers the
losses.
The existence of a mechanism that assures full coverage of motor-vehicle insurers’ expenses,
including past losses, has created a market that does not reward efficient management and
abets high operating expenses that are passed on to the public.
2. The “Unraveling” of Today’s Market Structure
The current cartel structure of the market has been economically and operationally unstable
throughout its history. The problem peaked when insurance companies that accounted for
about 40 percent of the industry wished to pull out of Avner, which would have caused Avner
to disintegrate at once. At the same time, various groups of insured urged the Minister of
Finance and petitioned the High Court of Justice to dismantle the existing arrangement since
they had been set arbitrary insurance rates that were higher than their own risk rate.
This process of “unraveling,” by both the insurance companies and the insured, would
inevitably cause the existing premium mechanism to break down. This, in turn, would impair
the solvency of Avner, which depends on being a co-insurer in all policies in the industry and
at a uniform risk distribution rate.
The economic failure arose from the fact that the rate set was a standard rate (an average)
hinging on only two arbitrary parameters: the type of motor vehicle and its engine size.
Accordingly, the rate does not reflect the risk that would be reflected in a competitive market.
Under these conditions, insurance companies tend to “segment” the market of the insured in
order to insure only those who present a lower insurance risk than that reflected in the
standard rate. In this way, the companies “gain” the incremental rate over that which the
“good” insured should be charged. This natural economic process has been accelerated by
various factors including technological enhancements that make it possible to accrue more
accurate underwriting information.5
3. Lack of Information in the Industry
An insurance industry relies on analysis of statistical data and information. Data are
particularly important in compulsory motor-vehicle insurance since this is a crucial type of
5
“Underwriting information” is data that insurance companies use to decide whether to insure the risk and
for what price.
9
coverage in which claims are infrequent and “long-tail.” However, although compulsory
motor-vehicle insurance has existed in Israel for more than twenty-five years in its present
format, the industry has not gathered the necessary data and information to set differential
insurance rates that reflect drivers’ risk. Even the little information that exists is not accessible
enough.
Concepts in Compulsory Insurance
Compensation for Traffic Accident Casualties Law, 5735-1975 (hereinafter: the
Compensation Law) stipulates the insurance coverage in motor-vehicle insurance policies that
became compulsory under the provisions of the Motor-Vehicle Insurance Ordinance (New
Version), 5730-1970. For additional details, consult the General Insurance chapter of the 1998
Annual Report.
Avner—Association for Motor Vehicle Casualty Insurance, Ltd. (hereinafter: Avner) is a
private corporation owned by the insurance companies at large, each commensurate with its
share in this line of business, as is determined from time to time. Avner was formed to reduce
individual insurers’ risks and to transfer some of the risks to a central agency.
Karnit—a corporation established under the Compensation Law. Its function is to
compensate casualties who are eligible for compensation under the Compensation Law but
cannot sue an insurer for compensation for any of the following reasons (see also Paragraph
12 of the Compensation Law):
1.
The identity of the driver liable for the compensation is not known.
2.
The driver does not carry insurance under the Motor Vehicle Ordinance or his/her
insurance does not cover the liability at issue.
3.
The insurer is in receivership or has been placed under a licensed manager, appointed
by the commissioner of insurance.
The fund is financed by means of a provision at a stipulated rate (currently 5.15 percent)
of insurance proceeds paid by the public.
The pool (the residual market) functions as a department that provides co-insurance by all
motor-vehicle insurers in Israel for drivers whom the insurance companies have rejected. (For
expanded discussion, see Section F below.)
10
2. MOTOR-VEHICLE INSURANCE LAW (INSURANCE UNDER
CONDITIONS OF MANAGED COMPETITION AND
TRANSITIONAL ARRANGEMENTS)
In response to the insurers’ need for additional time to prepare for the changeover to managed
competition, on December 27, 1999, the Knesset passed the Motor-Vehicle Insurance Law
(Insurance under Conditions of Managed Competition and Transitional Arrangements)
(Amendment) 5760–2000.
MAIN STIPULATIONS OF THE AMENDMENT
1.
Postponement of exposing the compulsory motor-vehicle insurance industry to
competition—since the aforementioned actuarial examination was not completed, the
request for proposals to create the database was delayed longer than expected, and the
industry at large is generally not well enough organized, at various levels, to operate
under managed-competition conditions, an additional, limited period of preparation is
needed to complete the aforementioned supportive processes and to allow the insurers to
organize completely to ensure the soundest possible transition to operation under
managed competition conditions.
2.
Increasing insurers’ liability—the rate at which the burden of liability regarding coinsurance was divided between the insurers, the pool, and Avner was raised in 2000 to
60 percent for the insurers and 40 percent for Avner. This division marks another step6
toward exposing the industry to competition, in which each insurer will bear 100 percent
of the insurance risk of the policies it writes.
3.
Allowing the Minister of Finance to penalize insurance companies that fail to submit
information to the database as stipulated in the law.
3. ESTABLISHMENT OF A DATABASE
As stated, the information infrastructure is a main element in the sound operation of the
industry under terms of competition. Accordingly, the Managed Competition Law prescribes
the establishment of a central database to centralize the industry’s information and to make it
6
In 1998–1999, the insurers’ share of liability was raised from 30 percent to 50 percent.
11
possible to price risks on an empirical basis. The database will both ensure the insurance
companies’ solvency and determine a fair rate for the insured.
ISO (Insurance Services Office) won the Ministry of Finance’s international RFP for an
administrator of the compulsory motor-vehicle insurance database in Israel (hereinafter, the
Database Operator). In the United States, ISO gathers data for elementary insurance,
including motor-vehicle insurance, and develops and provides a wide range of statistical,
actuarial, and underwriting software products in these fields.
The function of the database in Israel will be to gather statistical data from all insurers in the
industry, process the data, and advise on the requisite insurance rates (without loading) to
cover different types of motor-vehicle users. ISO (Israel) will begin gathering statistical data
from the insurance companies in 2001.
4. DATABASE OPERATOR’S RECOMMENDATIONS
In June 2000, ISO (Israel) submitted plans and reports that included core elements of the
reform in this industry: a system to determine differential insurance rates, what data will be
gathered, the method used to gather it, etc.
RECOMMENDATIONS FOR A RISK CLASSIFICATION PLAN
The risk classification plan defines the parameters that will be used to determine insurance
rates. It is divided into three categories:
1.
privately-owned passenger cars;
2.
privately-owned motorcycles;
3.
company-owned motor vehicles (passenger and commercial vehicles, trucks, taxis, buses,
special vehicles, car dealers, and trains.
The guiding principles in choosing the parameters are the causal relationship between the
parameter and the risk factor, on the basis of data gathered in Israel, and the use of supporting
relevant data from the United States after the Israeli statistical data are examined and
compared with corresponding American data.
12
RECOMMENDATIONS IN SETTING THE INSURANCE PREMIUM FOR
PRIVATELY OWNED MOTOR VEHICLES
The findings of the Database Operator indicate that the main factors affecting the insurance
premium pertain to the driver (as distinct from the motor vehicle). In other words, until now—
unlike standard procedure in other countries—the compulsory-insurance premium was
determined solely by engine size and took no account of driver characteristics.
Accordingly, the Database Operator recommends that the insurance premium be set after
examination of eight criteria: five pertaining to the driver, one to the use of the vehicle, and
two to the vehicle itself.
The first four parameters concern the youngest person who drives the vehicle: (1) driver’s
age; (2) driver’s gender (see Appendix 3); (3) number of years licensed (see Appendix 4);
(4) how the driver uses the vehicle. (Family members who do not live with the insured will
not be taken into account.) No driver will be used to determine the risk coefficient for more
than one vehicle per insured (except where the family has only one licensed driver).
Next, two parameters regarding household members entitled to drive the vehicle will be
examined: (1) the number of compulsory motor-vehicle insurance claims submitted during the
past three years (see Appendix 5); (2) the number of license revocations of a member of the
household over the past three years.
Finally, two parameters relating to the vehicle will be examined: airbags (see Appendix 6) and
engine size (see Appendix 7).
Each parameter has a different effect on the level of the premium. A careful and experienced
driver, for example, will pay less than a dangerous driver who has caused injury accidents or
has had his/her license revoked.7
5. ACTUARIAL EXAMINATION
The actuaries, Dr. Stewart Coutts and Mr. Yedidiah Gath, performed an actuarial study of
compulsory motor-vehicle insurance. They did their work in several segments, mainly:
1.
examination of the existing insurance rate;
2.
recommendation concerning a future insurance rate;
3.
examination of reserves.
7
For the complete plans and reports of the Database Operator, see the Web site of the General (Elementary)
Insurance Department: http://www.mof.gov.il/hon/4_3.htm
13
The examination was based partly on data provided by the Central Bureau of Statistics (CBS),
the Israel Police, the Motor Vehicle Licensing Office, and the insurance companies.
The report indicates that, assuming a discounting rate of 3 percent, the rate at large (as of July
1999) is high enough and the method used to calculate the actuarial reserve, based on Avner’s
model, is actuarially sound.
At present, the insurance rate is based on two parameters: type and engine size of vehicle. The
authors of the report show that for the insurance rate to reflect pure risk cost more effectively,
parameters concerning the driver should be added. The findings of the report indicate that,
despite the correlation between a driver’s age and experience and his/her involvement in
accidents, driver data have not been linked to data concerning the vehicle due to technical
limitations.
The report recommends collecting data regarding the effect of the driver factor on the risk
cost, including, but not limited to, the way the vehicle is used, prior convictions, and the
driver’s involvement in road accidents. The report also explicitly stresses the crucial
importance of establishing a data-gathering system for the specific purpose of calculating
premiums and the need to amass a maximum of relevant data for this purpose.8
6. PROPOSED REGULATIONS FOR COMPETITION IN THE
INDUSTRY
To prepare the compulsory motor-vehicle insurance industry for competition, the Knesset
Finance Committee was asked to approve a set of regulations pertaining to three areas:
regulation of the database’s operations in the industry, the method used to control rates, and
regulation of the residual market (the pool).
A) REGULATIONS FOR OPERATING THE DATABASE
The regulations created a framework within which the database will operate.
Essence of the Regulations:
1.
defining the Database Operator’s duties;
8
For the full report, see the Web site of the General (Elementary) Insurance Department:
http://www.mof.gov.il/hon/4_3.htm
14
2.
requiring insurers to report to the database and defining the reporting procedure;
3.
asserting the insurer’s authority to demand detailed information from the insured about
three main issues (the vehicle, its use, and its users), all of which in accordance with
requirements stipulated in the statistical plan to be approved;
4.
creating a funding mechanism for the database—the Minister of Finance is authorized to
stipulate by way of regulations the payments that insurers will have to pay to fund the
database, taking into account, among other considerations, each insurer’s market share
and the quality and timing of the reporting.
General Principles of Database Activity
The database will receive statistical information that is sensitive and confidential in two
respects: the privacy of the insured and the commercial confidentiality of the insurance
companies. Consequently, the users of the database (including regulators) must have the
highest level of trust in the Database Operator to ensure the flow and professional processing
of reliable, accurate, and full information from the insurers. Therefore, the regulations
stipulate, as a matter of principle, that the Database Operator must be an independent
corporation registered in Israel that will deal solely in operating the database in accordance
with the goals set forth in the Managed Competition Law.
Duties of the Database Operator
The regulations spell out the main duties of the Database Operator, including:
a)
Preparing a statistical plan per approval of the Commissioner of Insurance. The
statistical plan is a detailed document that stipulates how the insurer will encode and
transfer information about premiums and claims to the database.
b)
Gathering data and statistical information on the basis of the approved statistical
plan. This function includes gathering of data from insurers and control inspections to
ensure the quality, reliability, and accessibility of the information.
c)
Preparing a risk-classification plan and having it approved by the Commissioner of
Insurance. The risk-classification program includes guidelines for the classification of
each insurance risk. Risk classification denotes the distribution of risk into homogenous
categories (such as driver’s age, gender and experience, and type and use of vehicle). The
15
Database Operator must evaluate and update the statistical plan on a regular basis and the
risk-classification plan at least once a year.
d)
Processing the data gathered and distributing statistical reports. The reports will
estimate the pure risk cost in the industry and will constitute a basis for determining final
rates for insured in the industry. Furthermore, they will include reports on recommended
rates for the pool, the size of the pool, and the proportion of uninsured.
B) REGULATIONS FOR CONTROL OF COMPULSORY MOTOR-VEHICLE
INSURANCE RATES
The regulations set rules under which insurers will submit insurance rates to the
Commissioner of Insurance for approval. The regulations stipulate that, to determine the rate,
the insurer must refer to the database report concerning pure risk cost. Insurers may deviate
from the findings in this report provided that they do so on professional grounds and obtain
approval from the Commissioner of Insurance (either prior approval or non-objection to the
deviation, as the case may be, and as described below).
The regulations stipulate basic guidelines for the approval of rates. According to the
guidelines, the final rate will suffice to cover costs, will not be excessive, and will not
discriminate among insured in the same risk group. These principles are used by many
regulators all over the world, particularly in the United States.
The financial balance principle ensures that the rate will not be set at a loss level that may
imperil the insurer’s solvency. The principle of guarding against excessively high rates is
invoked to make sure that the insurer does not build an unreasonable profit into the rate,
thereby forcing the insured to overpay. The principle of non-discrimination among insured in
the same risk group assures that insurers will price the risk in a way that will avoid crosssubsidization among insured in the same risk group and, by so doing, force some insured to
finance others at a level higher than the risk level they generate.
The File-and-Use Rate-Approval System
The insurance rate must be submitted to the Commissioner of Insurance for approval before it
goes into effect. However, the rate may go into effect thirty days after it has been submitted to
the Commissioner even if the Commissioner has not approved it in advance, if the
Commissioner does not raise any objection, provided that the rate complies with the
framework rules set forth in the Regulations. When an insurance rate does not comply with
16
these rules, it cannot go into effect until the Commissioner receives an application for
approval and answers it explicitly and in the affirmative.
The regulations give insurers additional flexibility to deviate from a final rate that is approved
in one of the ways described above, within certain limits and without the insurer’s having to
re-obtain the Commissioner’s approval.
Additionally, considering the fact that the market is in transition from a uniform rate to a
differential rate, rules will be applied to prevent insurers from deviating from rates submitted
for the Commissioner’s approval, all of which subject to the foregoing.
C) REGULATIONS TO DETERMINE THE POOL ARRANGEMENT AND
RATE
The law forbids the use of a motor vehicle unless its driver has a valid insurance policy that
covers bodily injury to the driver of the vehicle, passengers in the vehicle, and third parties
(pedestrians).
Notwithstanding this requirement, insurance companies refuse to insure some drivers, either
because the premium set by the Ministry of Finance does not reflect the risk in insuring them
or for other reasons. Since the onus of purchasing insurance against bodily injury is on the
driver, there is an agency—the insurance pool—that undertakes to insure every such driver at
a higher rate than normal. The insurance companies divide the losses incurred by the pool
commensurate with their market share in compulsory motor-vehicle insurance.
The regulations will set forth the principles of the insurance arrangement for these drivers and
the mechanism for determining the pool insurance rate.
The Pool Arrangement and Its Manager
The pool arrangement will be based on co-insurance by all providers of this type of insurance,
thus dividing the undesirable risks among all insurers. The arrangement will be largely based
on the current agreement between each insurer and the pool, including its appendices, and
subject to the provisions of the law and regulations.
The regulations will stipulate the appointment of a manager for the pool arrangement. The
manager must be a corporation. Officers and employees of an insurer cannot be appointed to
the management of the pool either as officers or as employees.
17
The manager has several key functions: to ensure reasonable availability of insurance, to
represent insurers vis-a-vis persons insured by the pool, to settle damage claims, and to
prepare the financial statements that any insurer must present.
To verify that the pool insurance arrangement is administered soundly and fulfills its
objectives, one of the stipulations is that an external lawyer attend special meetings.
Moreover, insurers will not be allowed to pass on business information that does not pertain
directly to the pool’s activity.
Motorcycle Insurance
Most motorcycles are currently not insured directly by an insurer. They are insured, either
directly or indirectly, by (“in the name of”) the pool. It is proposed that the range of possible
ways to insure motorcycles be kept unchanged.
Mechanism for Setting the Pool Rate
One of the most important mechanisms in regulating and controlling the industry’s insurance
rates is by setting the pool rate. The pool rates will be higher than market rates, as they are
today, and will effectively constitute ceilings.
The report that estimates pure risk cost in the market will be based on data from the entire
market, including the residual market. Accordingly, the rate will also be able to balance
activities deriving from the residual market.
B. ISSUANCE OF CERTIFICATES OF COMPULSORY
MOTOR-VEHICLE COVERAGE
Until recently, to complete the compulsory motor-vehicle insurance transaction the insured
had to pay in cash at the bank and have the bank stamp the certificate of coverage.
In view of anticipated competition in the industry, several insurers asked the Commissioner of
Insurance to allow them to market compulsory motor-vehicle insurance policies that could be
paid for by credit card. It must be stressed that premiums are paid in advance in this method,
too, but it is the insurer’s stamp that confirms that payment has been made.
The new system has many advantages from the insurer’s point of view as well as the
insured’s. It allows the insurer to give quick and convenient service to the insured, who no
18
longer has to visit the bank to pay the premium. It also improves the quality of data in the
insurers’ information systems and makes the issuance of compulsory certificates of coverage
more efficient.
Accordingly, an explanatory amendment with regard to the new system has been made in the
regulations, setting forth minimum requirements for recognition of a stamp printed by the
insurer’s central computer as a bank stamp. The circular in this matter includes requirements
for information security, lump-sum advance payment of the policy in full, etc.
There is no doubt that the new process of issuing certificates of compulsory motor-vehicle
coverage is one of the results of the Department’s efforts in recent years to promote the
compulsory motor-vehicle insurance reform. The “threat of competition” has already
improved service to the insured and enhanced insurers’ economic efficiency.
C. ABSORBING PAST EARNINGS
In July 2000, the Knesset Finance Committee approved the Minister of Finance’s request to
lower compulsory motor-vehicle insurance rates by 5 percent starting September 1, 2000. The
reduction was required after findings pointed to an accumulated surplus in compulsory
vehicle insurance. As a result, a portion of the earnings realized by the end of 1996 will be
returned to the insured public.
According to Paragraph 17 of the law, insurance rates are set by the Minister of Finance after
consultations with the ministers of Justice and Transport, after the representative organization
of insurance companies has been heard and with the approval of the Knesset Finance
Committee.
On August 1, 1977, the incumbent Finance Minister, Simcha Ehrlich, sent a letter to Avner
confirming that “any proposal to set insurance proceeds … will be based on principles set
forth in Appendix B to your letter.”
Appendix B of Avner’s letter to the Minister of Finance stipulated the following guiding
principle for the adjustment of insurance proceeds:
“The guiding principle in setting insurance premiums for any underwriting year will be that
insurance transactions must cover their costs. If Avner’s business results in any underwriting
year indicate earnings or losses in insurance transactions, the insurance proceeds will be
adjusted in such a way as to absorb the profit or to give fitting compensation for the loss
19
engendered and in order to prevent the future accumulation of earnings or losses, as the case
may be.”
Professor Yehuda Kahane’s studies as of February 27, 2000, and the financial reports of
Avner and the insurance companies show that the industry at large had an accrued actuarial
surplus of NIS 300 million for “closed” years (years for which final earnings appeared - by
the end of 1996) and an expected actuarial surplus of NIS 700 million for “open” years (years
for which final earnings have not yet appeared—1997–1999). This is based on an appraisal
that included standard deviation (positive only), which accounts for approximately an
additional NIS 500 million. Notably, as of December 21, 1999, Avner’s equity was NIS 236
million (based on a 3 percent discounting rate), indicating earnings of NIS 300 million in the
industry as a whole.
The rate reduction concerns “closed” underwriting years only, for which earnings of NIS 300
million were imputed to Avner and the insurance companies, as stated. To be conservative,
only half the amount will be absorbed at the industry level in 2000, on an annual basis of
NIS 50 million for the four remaining months of the current year (NIS 35 million from Avner
and NIS 15 million from the insurance companies). In the years at issue, the ratio of insurance
liability between Avner and the insurance companies was 70 percent and 30 percent,
respectively (except Eliahu—50 percent). Accordingly, the total rate reduction will be divided
as the case may be, respectively.
Practically speaking, the past earnings will be absorbed by means of a similar system to that
in which insurance companies were compensated for past losses, i.e., each insurer absorbed a
portion of the reduced rate commensurate with its share in the insurance industry in 1996,
with the earnings imputed in accordance with each insurer’s share in 1999. The 1996
underwriting year was the first year for which the past earnings were imputed, and that was
because all previous underwriting years were in actuarial balance after the allocation of
surpluses on account of premiums collected by the industry at large.9
9
For a presentation on the subject, see the Web site of the General (Elementary) Insurance Department:
http://www.mof.gov.il/hon/4_3.htm
20
2. PROPOSALS FOR A MORE FLEXIBLE
STANDARD MOTOR-VEHICLE (PROPERTY)
POLICY
The standard property motor-vehicle insurance policy provides the insured with the minimum
package of coverage stipulated in the Regulation of Insurance Transactions (Terms of
Contract for Private Vehicle), 5746–1986. According to these regulations, coverage in the
standard policy may be expanded to the advantage of the insured only. Given the need to
make several changes in this policy, the Commissioner of Insurance made public several
proposed changes, the main one being to separate a number of the coverages that the insured
may choose.
Today the insured have little flexibility in choosing the types of coverage they want. Vehicle
owners may purchase comprehensive insurance policies for their vehicles (which include
coverage for third-party damage) or a policy for third-party damage only.
Comprehensive motor-vehicle insurance comprises a package of coverages, principally
coverage against theft of the vehicle and for damage caused to the insured’s vehicle in an
accident. The risk of theft of the vehicle is a key component of the insurance coverage and
adds a hefty amount to the premium. However, some insured are not interested in this type of
coverage. Similarly, the risk of accident-induced damage to the car accounts for another large
component of the premium; thus, some insured (for example, particularly cautious drivers)
prefer not to purchase this coverage.
Accordingly, the Commissioner of Insurance has made public proposals to amend the
standard motor-vehicle policy, mainly to create a more flexible structure of the policy in order
to separate the coverage into the following types:
1.
comprehensive insurance;
2.
comprehensive insurance without theft coverage;
3.
comprehensive insurance without accident coverage;
4.
third-party insurance.
21
3. HEALTH INSURANCE
A. INTRODUCTION
The growth trend in the private health-insurance market, which began after the State Health
Insurance Law went into effect at the beginning of 1995, has led to the development of a
variety of new insurance products. This process has continued and gathered momentum as
new companies have entered the field and as some existing insurance companies have
updated their line of health-insurance products. The industry’s business performance, as
shown below, corroborates this trend. Examples of plans introduced in the past year are
policies covering the cost of medicines not included in the basic package of state-insured
health services (the “basket”) and policies that emphasize special coverage for children.
In view of the increase in the variety of products, coupled with greater public awareness of
health insurance, regulatory directives for appropriate disclosure to the insured when they
take out policies and a format for annual reporting to the insured have been established. The
need for greater transparency derives, inter alia, from the existence of several levels of
insurance given by different service and insurance providers:
1.
Health funds provide a basic level of coverage—a package of services that the law
requires them to provide.
2.
Insurance companies augment the basic package with private plans that they alone
provide, such as long-term care insurance.
3.
Health funds and insurance companies provide expansionary, supplemental, and
alternative levels of service to the basic services, such as expensive organ transplants and
choice of surgeon.
Due to Israel’s multi-tiered structure of health insurance, some insured who take out private
policies sometimes acquire duplication of coverage. The clearer the insured’s rights and terms
at various levels become, the more necessary it will be to integrate the various levels.
Pursuant to the draft directives for long-term care insurance, as described in the 1998 Report,
one of the main conclusions in the regulatory process is the need for separate directives for
individual and group insurance and for additional clauses to increase the transparency and
specialization of long-term care insurance products.
One of the unique features of health insurance is related to its premium structure:
22
For lack of available, reliable data to determine the current premium and the uncertainty
regarding future developments that may affect the level of risks, it is difficult for insurers to
commit themselves in health-insurance policies, especially those involving long-term care, to
a foreknown premium structure that will remain constant in the long term. Therefore, insurers
are given some flexibility in raising premiums if the Commissioner of Insurance approves
such action in advance.
B. DISCLOSURE REQUIREMENTS AND REPORTING TO
THE INSURED
During the year, a set of draft directives was written in a uniform format to determine the key
data that insurance companies should pass on to the insured upon the purchase of healthinsurance policies. Additional directives created a compulsory format for annual reporting to
the insured. The directives were written in view of the need to strengthen transparency and
disclosure to the insured, especially considering the complexity of health-insurance policies.
These directives will make the insured better able to select policies that fit their needs, will
contribute to greater fairness in transactions between insurer and insured, and will help to
eliminate market imperfections.
BACKGROUND
The purpose of health-insurance plans is to insure individuals against possible health
impairment. These plans are important for individual customers because they are designed to
cover individual risk as opposed to business risk. Such plans provide individuals with the
financial protection they need, as and when it is needed, to obtain necessary medical care, and
are generally sold on a long-term basis.
PRIVATE INSURERS’ INTERFACE WITH THE PUBLIC
HEALTH SYSTEM
Private health-insurance plans in Israel are characterized as belonging to the second or third
tier of insurance, following the national health insurance that covers all Israeli citizens. To
purchase insurance that is supplemental, alternative, or complementary to the coverage
provided to citizens by law, one needs to know the added value that private insurance
provides relative to national health insurance or other forms of insurance. Israel’s multi-tiered
23
structure of health insurance has led to a situation in which some insured purchase private
coverage that, in some cases, creates duplication of coverage. Such purchases occur partly
because the insured are unaware of their rights and terms at different levels. The need to
provide insured with an explanation of their rights is particularly acute in regard to policies
that make the provision of insurance benefits conditional on the existence of other coverage
(health funds’ supplemental health services or the basic “basket”).
SPECIFIC FEATURES OF HEALTH INSURANCE
Health insurance has additional features that bring into focus the need for appropriate
disclosure of the terms of the transaction before the insured takes out a policy.
1.
Because it is long-term insurance, the insured needs to make an intelligent decision when
signing the deal.
2.
The policies are generally sold as packages of different types of coverage that are not
always tailored to individual customer’s needs.
3.
The policies are not standard; their wide variety makes them difficult to compare.
4.
The policies include different types of insurance benefits (compensation or
indemnification) that have a bearing on the nature of the benefits and the possibility of
creating offsets among them.
ESSENCE OF THE DIRECTIVES
For the reasons described above, it is very important to develop a transparent sales process in
all marketing channels. The rights conferred by the insurance policy will be made clear to
customers by standardizing the information given to them, including emphasis on the core
provisions of the policy. Details of the types and costs of coverage offered in the policy will
enable customers to compare policies effectively and tailor their expectations to the policies
they purchase—an adjustment that may also be useful when the time comes to handle claims.
The directives stipulate that appropriate disclosure to insured when they take out policies
must include condensed general data about the policy and its appendices, such as the
insurance period, qualification period, waiting period, etc. Insurers must also provide a
summary of the types of coverage and their features, including the way the policy interfaces
with the basic package, supplemental health services, or other types of insurance. The annual
24
report to the insured must include basic information about premiums and claims paid during
the reporting year and a glossary of basic health insurance terms.10
C. DISCLOSURE REQUIREMENTS IN DENTAL INSURANCE
In the course of 1999, the Commissioner of Insurance issued a circular (2000/8) with
directives concerning disclosure requirements when lists of dentists and clinics are presented
in agreements with insurers in dental insurance policies. The directives in the circular apply to
all (existing and new) dental insurance plans that are sold or operated on the basis of such a
list. The main points of the circular follow:
In most dental insurance policies, insurance companies form an arrangement with dentists or
dental clinics. In such plans, the insured receive a list of dentists and clinics that participate in
the agreement with the insurer.
Following complaints to the Ministry of Health, it was brought to our attention that there are
lists of dentists who do not have degrees in dental medicine. Thus, it is not possible to
distinguish between dentists who do not have degrees and those who have legally recognized
degrees. In addition, corporations that appear to be unlicensed were found on the lists of
dental clinics, in contravention of the Dentists (Clinics or Corporations) Regulations, 57531993, which require corporate-owned clinics to have a license and to renew it once every
three years.
In view of the foregoing, the Commissioner’s directives are as follows:
1.
An insurer who gives the insured lists of dentists with whom there is an agreement must
show the doctors’ titles (D.D.S., professor, etc.).
2.
From time to time—at least once a year—insurers will verify that the doctors and clinics
on their lists have a valid and legal license.
10
For the full text of the draft circular, see the Web site of the General (Elementary) Insurance Department:
http://www.mof.gov.il/hon/4_3.htm
25
D. QUANTITATIVE ANALYSIS OF ILLNESS AND
HOSPITALIZATION INSURANCE
GENERAL REMARKS
The following is an analytical survey of developments in illness and hospitalization insurance
in 1993–1999. Since the early 1990s, after a national commission of inquiry11 released the
conclusions of its investigation of the functioning and efficiency of the health system and, in
particular, after the State Health Insurance Act was passed, significant developments have
occurred in Israel’s supplemental health-insurance market. Notably, in addition to commercial
health insurance sold by insurance companies, the health funds also operate in this field,
offering supplemental health services that complement and augment the basic package. The
health funds’ programs, including supplemental health services, are regulated by the Ministry
of Health.12 Since the Regulation of Insurance Transactions Law does not apply to health
funds and supplemental health services,13 this section of the Report will review the activity of
insurance companies in this field and not include the health funds’ role in health insurance.
MAIN TYPES OF COVERAGE IN COMMERCIAL HEALTH
INSURANCE
Private health insurance covers various events, foremost:
1.
private surgery in Israel and/or abroad—choice of surgeon, expenses of the operation,
consultation before the operation, expenses of inpatient care, etc.;
2.
organ transplants and special treatments abroad;
3.
long-term care insurance;
4.
disability (loss of working capacity) insurance;
5.
major-medical insurance.
Health-insurance policies that cover private surgery in Israel and abroad are a basic
component of commercial health insurance and are sold by most health insurers. Insurance for
11
12
13
Chaired by Justice Shoshana Netanyahu.
Notably, 50 percent of Israelis subscribe to supplemental health services today, and these plans account for
a significant share of national health expenditure (JDC-Brookdale Institute).
The exclusion is in Paragraph 95 of the law.
26
organ transplants and special treatments abroad aims to respond to the most “catastrophic”
insurance event—an organ transplant or special treatment abroad, which seldom occurs but is
exorbitantly expensive—in the hundreds of thousands of dollars or more. This insurance is
usually of the indemnification type and enables the insured to afford medical procedures that
are generally beyond their means. Notably, a basic provision in the State Health Insurance
Law covers organ transplants and special treatments abroad, under specific conditions, as part
of the basic package.
Long-term care insurance gives financial support to people who cannot perform Activities in
Daily Living and need constant supervision—mostly the elderly. These policies, including the
duration of payment of insurance benefits, are long-term.
Disability (loss of working capacity) insurance insures mainly against the results of a medical
condition and is meant to allow the insured to maintain their former standard of living until
they can return to work.
Serious-illness insurance is generally sold along with life-insurance policies and is paid out in
advance form on account of the death-risk benefit. Recently, policies of this type have been
sold separately. Furthermore, the number of illnesses covered is rising and sometimes comes
to as many as eighteen.
ADDITIONAL TYPES OF HEALTH INSURANCE
1.
Ambulatory—medical services given without hospitalization, such as consultations with
a specialist and physiotherapy, radiotherapy, or chemotherapy.
2.
Complementary (alternative) medicine.
3.
Miscellaneous tests—periodical check-ups, pregnancy tests, pediatric examinations,
imaging, etc.
4.
Second opinion.
5.
Medication.
6.
Dental insurance.
These types of insurance, except for the last-mentioned, are generally sold as appendices to
health-insurance policies or as part of a basic health insurance policy. For the most part, they
pay for medical services that are complementary to the basic package or have been added to
it—as if they were not included in it—but are not of catastrophic magnitudes.
27
Dental insurance covers dental care that is not included in the basic package and is generally
sold in the form of separate policies to groups.
HEALTH INSURANCE DATA
In the past, insurance companies recorded some health-insurance policies—illness, accident,
and disability—as permanent appendices to life-insurance policies and categorized them as
“life insurance.” After the industry became more competitive and began to sell separate health
policies, these data were recorded under the “illnesses and hospitalization” line. At that time,
the reporting regulations stipulated that long-term policies for long-term care and loss of
working capacity should be recorded as life insurance transactions. In fact, anything not
recorded as life insurance is reported on the illness and hospitalization line. Thus, the analysis
of business performance in illness and hospitalization insurance reflects only part of the
health-insurance market.
MARKET ANALYSIS: BUSINESS PERFORMANCE OF COMMERCIAL
ILLNESS AND HOSPITALIZATION INSURANCE, 1993-1999
Background
Below are several clarifications about the analysis of the financial results that follows:
(a) The category of illness and hospitalization insurance does not reflect all health-insurance
activity, some of which is reported under life insurance.
(b) Earnings from insurance transactions in this field are generally recognized after three
years.
(c) The data in the tables are based on insurance companies’ reports to the Commissioner of
Insurance.
(d) The expense ratio is the ratio of total gross expenses (agents’ commissions,
administration, and general expenses) to total gross insurance proceeds.
(e) The loss ratio—the ratio of gross claims (claims paid and change in claims pending) to
total gross insurance proceeds—shows the insurance portfolio and its results from the
insurance point of view. A low loss ratio indicates that premium revenue has been strong
relative to claims.
28
(f) Earnings ratio—the ratio of gross earnings (before reinsurance) to total gross insurance
proceeds.
(g) The data in the tables relate to gross expenditure, excluding reserves and reinsurance.
Table D-2
Main Business Results—Illness and Hospitalization Insurance
(NIS thousands, December 1999 prices)
Total
1997
1998
1999
Insurance Proceeds
699,413
791,197
935,450
Claims
426,684
465,407
585,356
Expenses
212,840
288,243
309,413
62,324
59,291
41,437
Earnings (gross)
Table D-3
Trend in Business Results—Illness and Hospitalization Insurance
(NIS thousands, December 1999 prices)
Total
1993
1994
1995
1996
1997
1998
1999
Insurance
Proceeds
389,944
469,829
575,282
610,445
699,413
791,197
935,450
Claims
248,864
287,787
314,780
298,736
426,684
465,407
585,356
97,389
128,652
170,179
173,492
212,840
288,243
309,413
Expenses
29
Table D-4
Main Financial Ratios—Illness and Hospitalization Insurance
(Percent)
1997
1998
1999
Expenses
30.43
36.43
33.08
Damages
61.01
58.82
62.57
Earnings
8.91
7.49
4.43
Table D-5
Main Financial Ratios in Past Seven Years
1993
1994
1995
1996
1997
1998
1999
Expenses
24.98
27.38
29.58
28.42
30.43
36.43
33.08
Damages
63.82
61.25
54.72
48.94
61.01
58.82
62.57
30
Analysis of the Results
The most impressive statistic is the growth rate of insurance proceeds in this line of
business—140 percent in six years, an average of 16 percent per year—as against 50 percent
growth in total insurance transactions during that period.
Total claims increased by 135 percent, almost in tandem with insurance proceeds. Total
expenditure also rose gradually, but this should be examined in relation to the insurance
proceeds, as explained below.
Another important piece of information concerns the entry of new insurers into the market:
Compared with the situation in 1993, when two companies out of twelve were working in this
area, today most of the twenty active insurance companies sell health insurance. Along with
the rising number of companies in the market, there has been a significant increase in the
range of plans offered, as plans are adapted to the health needs of modern society and the
multi-tiered structure of Israel’s health system.
Analysis of the financial ratios indicates a rising expense ratio that, on average, constitutes
about 30 percent of the gross insurance proceeds. Additionally, the loss ratio has been
60 percent on average for years (with the exception of 1996). Notably, the claims ratio in new
policies is relatively low in the first years due to the qualification period; the claims ratio and
the loss ratio are expected to rise over time.
The earnings ratio has also been declining, possibly due to the entry of additional companies
and heightened competition.
Summary
During the period at issue, illness and hospitalization insurance showed conspicuous growth,
in comparison both with other insurance lines and with earlier periods. The share of this line
in total domestic insurance rose from 2.4 percent in 1993 to 3.8 percent in 1999.14
This uptrend began after the State Health Insurance Law, 5754-1994, went into effect and is a
result of factors including the entry of additional companies into the market, the increase and
added variety of products sold, the rising penetration rate of commercial insurance among the
population, and two developments—the public’s increased health consciousness and its rising
standard of living—that have bolstered interest in health insurance. The analysis of earnings
14
Notably, this is an underestimate since some kinds of health insurance are reported on the life-insurance
line.
31
in this line of business is more complicated, especially when it concerns types of health
insurance that are, for the most part, long-term in nature, while most of the policies are new.
We repeat that these findings provide only a partial picture of the health-insurance market, as
explained above in regard to reporting on business performance. Moreover, the period at issue
comprises relatively few years, while most types of health insurance are long-term in nature
and are significantly affected by technological developments in medicine.
E. QUANTITATIVE ANALYSIS OF INDIVIDUAL-ACCIDENT
INSURANCE
GENERAL REMARKS
Personal-accident insurance concerns only events that happen to an insured due to an accident
and for no other reason. The insurance benefits are of the compensation kind, as opposed to
the indemnification benefits provided by most health-insurance plans of the illness and
hospitalization type. The main types of coverage offered in these policies are:
accidental death;
permanent disability occasioned by an accident;
temporary disability occasioned by accident or illness—weekly compensation payments
are generally for fifty-two weeks if caused by illness and 104 weeks if caused by
accident.
Personal-accident insurance provides short-term coverage (for one year with the possibility of
renewal). It is somewhat flexible when it covers insured who have health problems and is not
intended to be a permanent investment plan, as is the accepted practice with life insurance.
From this perspective, individual-accident insurance is a complementary product to life
insurance, e.g., covering temporary, short-term disability without a lengthy waiting period.
Additionally, the disability coverage built into life-insurance policies has been expanding
recently; one can purchase complementary coverage that pays benefits retroactively from the
eighth day of the disability event (franchise insurance).
One of the reasons for the current downtrend in the share of individual-accident insurance in
total insurance transactions, as the following data show, may be the entry of new companies
and increased competition among them—in addition to developments in the market of health
insurance, which may constitute a substitute product.
32
MARKET ANALYSIS: BUSINESS PERFORMANCE OF COMMERCIAL
INDIVIDUAL-ACCIDENT INSURANCE, 1993–1999
Table D-6
Main Business Results—Individual-Accident Insurance
(NIS thousands, December 1999 prices)
1997
1998
1999
Insurance proceeds
242,126
221,870
215,622
Claims
177,512
172,307
182,044
Expenses
75,709
73,314
73,335
Earnings
4,218
–10,895
–34,178
Table D-7
Trends in Business Results—Individual-Accident Insurance
(NIS thousands, December 1999 prices)
Total
1993
1994
1995
1996
1997
1998
1999
Insurance
proceeds
322,606
270,426
254,215
242,430
242,126
221,870
215,622
Claims
225,796
203,582
149,032
182,550
177,512
172,307
182,044
Expenses
121,940
93,781
83,125
75,178
75,709
73,314
73,335
33
Table D-8
Main Financial Ratios—Individual-Accident Insurance
(Percent)
1997
1998
1999
Expenses
31.27
33.04
34.01
Damages
73.31
77.66
84.43
Earnings
1.74
–4.91
–15.85
Table D-9
Main Financial Ratios—1993–1999
(Percent)
Total
1993
1994
1995
1996
1997
1998
1999
Expenses
37.80
34.68
32.70
31.01
31.27
33.04
34.01
Damages
69.99
75.28
58.62
75.30
73.31
77.66
84.43
34
The foregoing data show that individual-accident insurance proceeds have been declining
over the past six years, a fact that is also reflected in a slight increase in the loss ratio. This is
partly the result of a more gentle decrease in total claims than in total insurance proceeds.
Table D-10
Share of Individual-Accident Insurance in Total Insurance Transactions in
Israel
(Percent)
1993
2.0
1994
1.5
1995
1.3
1996
1.2
1997
1.1
1998
0.9
1999
0.9
35
APPENDICES
36
Appendix D-1
The National Automobile Fleet
37
Appendix D-2
Distribution of Insurance Premiums
38
Appendix D-3
Frequency of Accidents in Israel and the United States by Age
Cohort
39
Appendix D-4
Frequency of Accidents in Israel by Years of Driving Experience
40
Appendix D-5
Frequency of Claims for Drivers with Previous Claims
41
Appendix D-6
Changes in Risk Cost Ratio in Airbags-Equipped Vehicles
42
Appendix D-7
Changes in Risk Cost for Motor Vehicle by Engine Displacement
43