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The cabinet and Finance Ministry's hasty decision to nationalize NIS 1.2 billion accumulated by insurance corporation Avner to plug holes in the 2004 state budget, has run into a high and unexpected hurdle. Dr. Peretz Segal, the Justice Ministry's consulting division head, prepared a legal opinion that harshly criticizes the treasury decision and even determines it is illegal.

The moneys on the vehicle liability insurer's balance sheet are supposed to return to drivers who paid too-high premiums in the past. The mechanism of the accident victims compensation law was based on a break-even point: If the company profits, premiums drop, and if the company's books bleed red, premiums rise. As fate would have it, now as the company is closing down, it has a NIS 1.2 billion surplus, while Karnit - which compensates accident victims not covered by any other source - is sitting on NIS 600 million.

According to the reform in the liability insurance sector led by the treasury's Supervision of Insurance division, the surpluses should be returned to the public in the form of lower premiums.

However, treasury officials were looking for financing sources for the budget and coveted the cash, so they nationalized it - a sort of easy way to dot the i's in the budget books without confronting any lobbies. But it isn't just easy, it's sleazy, as Segal's lethal document reveals.

Segal determines that this damages the property of policyholders, as the insurance companies and the treasury signed agreements that were anchored in legislation that determined these surplus moneys would go back whence they came, the insured public. "The insured public has a right to that money and now, the law expropriates it and makes it into state revenue. The state's authority to expropriate is limited to matters related to the reason the assets are expropriated. For instance, lands cannot be expropriated except to pave roads or other public needs related to the location of the land," the opinion says.

According to Segal, this also constitutes injury to the insurance companies' property as they are Avner shareholders, while the treasury, which was a party to understandings with them regarding returning the money to the insured, is violating their rights. Segal states that the treasury decision to nationalize the Avner money constitutes retroactive taxation.

The economic policy-makers apparently expected legal problems of this sort and state that if legal comments are brought to the cabinet that do not enable implementation of any of the decisions, the policy would be redebated by the cabinet.

Dr. Segal's opinion leaves no room for doubt regarding the legality of the decision to nationalize the Avner profits that belong to car insurance policy holders. All the treasury has to do now, is locate a new budgetary resource of NIS 1.2 billion that will allow the cabinet to plug the hole in the 2004 budget.

That may involve difficult decisions and confrontations with all sorts of lobbies, but the government must operate legally and not infringe on the property rights of citizens just because they are not struggling or demonstrating in the streets.