This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Israel.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
The Insurance Contract Law, 1981 (hereinafter: The Contract Law) regulates the content of insurance contracts. In addition, the Commissioner of Insurance issued several regulations which dictate wording of certain private line policies and which refer to condition that should be included or that should not be included in insurance contracts.
In addition According to the Control Over Financial Services (Insurance) Law, 1981 (hereinafter: the Control Law) any new insurance program or any change in the terms of an existing program must be notified in advance to the Commissioner of Insurance. According to the Supervision Over Insurance Business (New Insurance Programs and Changes in Programs) Order, 1981 in several insurance fields (such as life insurance, employers liability insurance etc.), a new insurance program or change in an existing program requires the approval of the Commissioner.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
The law, regulations and circulars are addressed to Israeli Insurance Companies which operate in Life and Non-Life branches. The laws relating to activities of insurance companies i.e. The Contract Law and the Control Law are territorial laws and apply only to companies registered in Israel.
There is no difference between the regulation that applies to life insurance companies and to non –life insurance companies.
Currently there are no reinsurance companies registered in Israel.
Are insurance brokers and other types of market intermediary subject to regulation?
The Control Law and the Contract Law deal also with insurance brokers. According to the Control Law, an insurance broker must be licensed. In addition, the Control Law prohibits brokers from acting as intermediaries in an insurance transaction between an insured and an unlicensed insurer.
The Contract Law deals with the status of the insurance broker in the insurance transaction, and determines that generally the broker will be considered as the agent of the insurer for the purpose of negotiations towards an insurance contract and its conclusion; for the purposes of knowledge of material facts, for the purpose of receiving premium, and for the purpose of receiving notifications.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
According to the Control Law the broker must pass examinations in order to receive a license. After passing the exams, he must work for 2 years at the office of an authorized broker in order to be qualified as a licensed broker.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
According to the Control Law the control of more than 5 per cent of a type of means of control of an insurer is conditional on receiving a permit from the Commissioner. In considering the granting of such permit, the Commissioner takes into consideration a wide variety of factors, including the financial means and business background of the entities requesting the permits, prevention of potential conflict of interest and ensuring the insurer is properly managed. In addition, the Commissioner will not grant a control permit and a permit to hold means of control unless the applicants have personal and business integrity, and professional experience and knowledge.
The definition of "means of control" includes: rights to vote in the General Assembly of the Company and power to nominate a director in the company.
There is no restriction regarding foreign investors, however the identity of the investor will be taken into consideration by the Commissioner before granting the investor a permit for holding means of control.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
A non-admitted insurer can insure Israeli risks provided that the non-admitted insurer is not engaged in insurance business in Israel, i.e. the insurer does not perform acts of solicitation in Israel, does not negotiate the terms of insurance contract from Israel and does not issue the policy in Israel.
What penalty is available for those who operate without appropriate permission?
Performing activities as an insurance company in Israel (i.e. soliciting, marketing, publicizing) is a criminal offence. The punishment can be imprisonment for 3 years and a substantial fine.
How rigorous is the supervisory and enforcement environment?
The Commissioner of Insurance in Israel is very active. He has several teams who perform reviews and unexpected checks of insurance companies and insurance brokers. It investigates all complaints and issues appropriate sanctions, including revoking licenses.
How is the solvency of insurers (and reinsurers where relevant) supervised?
Capital requirements of an Insurer are dealt with by the Control Law. In addition the Commissioner issues from time to time circulars regarding the capital requirements for an insurer. Currently Israeli Insurers must adopt Solvency II requirements.
The Commissioner reviews each company’s adherence to the capital requirements. If a company does not stand by the required capital requirements, it will not be allowed to distribute dividends, and may also have to decrease its level of operation.
What are the minimum capital requirements?
Minimum capital – for non-life activities – NIS 35 million (i.e. about $ 9 million)
For life activities – NIS 50 million (i.e. app. $ 13 million)
Is there a policyholder protection scheme?
The Contract Law is a pro consumer law. The courts adopted the spirit of the law and the tendency of the courts is to prefer the Insured over the Insurer’s interests.
How are groups supervised, if at all?
The Commissioner of Insurance issued circulars protecting the interests of group Insureds (mainly in Life and Health Branches of Insurance).
Do senior managers have to meet fit and proper requirements and/or be approved?
The qualification requirements for directors are detailed in the Control Over Financial Services (Insurance) Regulations (the Board of Directors and its Committees), 2007. We will refer only to the main requirements set therein.
Every member of the board of directors must be a natural person who fulfils at least one of the following:
- holds an academic degree in one of the following: insurance, law, economy, accountancy, statistics, business management, actuary, international auditing or any other field approved by the Commissioner;
- is qualified to serve as an actuary or risk manager in an insurance company;
- has managerial experience as detailed in the regulations; or
- holds a licence as an accountant, pension adviser, investment adviser, portfolio manager or an insurance broker and has been engaged in such field for at least four years.
The Commissioner is entitled to approve the appointment of a qualified director even if he or she does not fulfil any of the above terms.
A person may not be appointed as a director for an insurance company if:
- his or her other business activities do not leave sufficient time to fulfil the duties of a director;
- he or she is an employee of the insurer;
- he or she serves as a director or officer of another institutional body, unless the Commissioner confirms that no conflict of interest exists; or
- he or she has been convicted of a criminal offence as listed in the regulations.
At least one-third of the board members shall be external directors who have no connection with the main shareholders. At least half of the external directors must have clear and proven expertise in the insurance field or three years’ experience as a CEO, or have held another senior officer’s position in a financial institution. In addition, at least half of the external directors must have expertise in accounting and finance.
Prior to the appointment of a director or officer of an insurance company, a notice must be sent to the Commissioner, who may object to the appointment within 60 days.
According to the Control Law, the Commissioner has the right to supervise the nomination of directors and officers of an Insurer. The insurance company must submit annually the list of their D&Os to the Commissioner, specifying the qualifications of such D&Os.
Are there restrictions on outsourcing parts of the business?
Any activity which is defined as an activity of an insurer can only be conducted by an Insurers.
Notwithstanding the above activities which do not require a license can be outsourced, as long as the outsourcing is in accordance with the policy set by the board of directors of the insurer, in accordance with the circular issued by the Commissioner in this respect.
How are sales of insurance supervised or controlled?
The sale of insurance is a major part of an insurer’s activities. As such it is closely supervised by the Commissioner.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
All policies are subject to the Contract Law which is a pro consumer law. The law includes various Restrictions which intend to protect the insured. For example, restrictions and exclusions must be emphasized. If the insurer failed to do so he cannot rely on the Exclusion.
Questions included in the Proposal Form must be specific. Failing to do so will prevent the Insurer from relying on the answers. Only answers to specific questions are relevant. The insured does not have an independent duty of disclosure.
No precedential conditions are allowed. Insurance contracts cannot be voided unless in case of proven fraud. Generally, if the risk was aggravated, the remedy of the insurer is proportional payment of insurance benefits.
Are the courts adept at handling complex commercial claims?
The courts frequently handle complex commercial claims.
Is alternative dispute resolution well established in the jurisdiction?
Alternative dispute resolutions are well established in Israel. More so according to the procedural law, most cases are referred to A.D.R. at their first stage, and only if the A.D.R process fails, they will be reverted to the court.
What are the primary challenges to new market entrants?
Israel is a small country, but with substantial awareness of insurance. There are about 10 existing Insurers and in addition several Lloyds cover holders. The competition is therefore fierce.
To what extent is the market being challenged by digital innovation?
The Insurance Commissioner announced that he will support any new company which will be fully digitalized. This support means, substantial lowering of the initial requirement for Insurers’ licensing. Once such a company will start operating, it will challenge the other Insurers.
Over the next five years what type of business do you see taking a market lead?
As Israel is a leading force in innovations in many areas, we are beginning to see some new ideas in Insurance technology.
In 5 years technology will most likely take over mainly in the commoditized private line areas, and will be the leading insurance business.