At a press conference today at his office in Jerusalem, Minister of Finance Moshe Kahlon and Supervisor of Capital Markets, Insurance and Savings Dorit Salinger announced a reform in the compulsory insurance market.
They stated that they were cutting pool compulsory insurance rates for private vehicles. The pool is a corporation owned jointly by the insurance companies. The pool's premiums are currently the highest in the market for private vehicle compulsory insurance. Two other measures were also taken in compulsory insurance: the insurance companies will be allowed to grant a benefit to careful drivers in the form of a premium reimbursement at the end of the insurance period, and a uniform premium has been set for drivers with the same risk, with discounts of up to 16% on premiums.
These measures will lower the cost of compulsory auto insurance for 850,000 private vehicle owners (about 50% of all private vehicle owners) by substantial amounts, mainly for young drivers and drivers of cars with life-saving safety systems. The measures, which are slated to go into effect gradually, starting in 2016, will bolster competition in the sector, reduce reciprocal subsidizing among policyholders, and adjust the risk to the price of the insurance. Since the reform in the sector in 2003, compulsory insurance premiums for the public have dropped 35%, saving the public a cumulative NIS 15 billion.
"The actions we are taking in the compulsory insurance market are designed to prevent exploitation of the public. We have announced that we will intervene wherever there is market failure," Kahlon stated. "Israel obligates people to buy compulsory auto insurance, and we must therefore make sure that the public receives a fair price and good service. The insurance market annual turnover is NIS 5 billion, while the companies' profit is 20%. We have said yes to a reasonable profit, but no to greed."
Salinger added, "The Capital Markets, Insurance and Savings department continues to promote measures aimed at lowering the cost of insurance and savings for the public, improving the market, and ensuing fairness between consumers and the supervised entities."
Market sources said that the Ministry of Finance intended to cut back the enormous profit made by the insurance companies in compulsory auto insurance - insurance for bodily harm that the state forces all drivers to acquire, which has been a prime source of profit for the insurance companies.
This is not the first time that Kahlon has acted in the auto insurance market. Last month, the ministerial legislative committee approved a proposal by him and Minister of Justice Ayelet Shaked to reimburse compulsory auto insurance policyholders for NIS 1.5 billion accumulated in the “Karnit” Road Accident Victim Compensation Fund, resulting in three years of lower compulsory insurance premiums for three years.
According to this plan, the cut in premiums for the coming year with be 17%, amounting to an average of NIS 250. The cut will be 13% in the second year, an average of NIS 200, and 5%, an average of NIS 50, in the third year.
The money will be reimbursed following a legislative amendment to enable the Supervisor of Capital Markets, Insurance and Savings to instruct Karnit to reimburse money from its Road Accident Victim Compensation Fund for the purpose of reducing compulsory auto insurance premiums. The source of the surpluses accumulated in Karnit that are being distributed to the public is investment profits accumulated in recent years.
Published by Globes [online], Israel business news - www.globes-online.com - on November 22, 2015
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