To their surprise, Mr. and Ms. P., a couple in their 50s living in central Israel, discovered that between the two of them they held no fewer than 33 health and nursing care insurance policies.
Ten of them were for workplace accidents, nine for nursing care, seven were for term life insurance policies (they pay out benefits only after death), four health insurance policies and three for major illnesses.
“That’s an extreme case of the duplicate coverage we discovered during in our consultation work,” said Shai Melamed, CEO of Melamed Consultants, which advises consumers on insurance. “We recommended they cancel 25 of the policies and save themselves 5,000 shekels [$1,390] a month.”
Mr. and Ms. P. are by no means the only case of needless duplication of coverage in Israel. The six members of the S. family has between them 36 policies – 10 for health coverage, 10 for nursing care, six for serious illness, six for life and four for workman’s compensation. More than half were found to be unnecessary, according to Melamed.
In another case, was a Haifa man in his seventies: Even though all his children were independent adults, he continued paying term insurance premiums of 2,700 shekels a month for coverage worth 500,000 shekels. “There’s no economic logic to it,” said Melamed.
In the last two-and-a-half years, Melamed says he’s encountered scores of cases of people with duplicate and triplicate coverage, and in some cases even more. About half the policies he looked at were unnecessary wither because the policyholder already had coverage or didn’t need the coverage at all.
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The problem comes at a high cost to consumer. The Finance Ministry’s Capital Markets, Insurance and Savings Authority estimates that there are 476,000 people needless paying premiums for drug insurance they already have.
Some 393,000 are paying for duplicate surgery coverage, 219,000 for duplicate coverage for major illnesses and 87,000 for duplicate organ-transplant polices. The biggest category of needless coverage is workplace accidents, where 633,000 Israelis have policies offering the same coverage.
The Knesset Finance Committee heard estimates that Israeli were frittering away no less than 3.5 billion shekels ($974 million) a year on duplicate insurance when they discussed the problem and explored ways to reduce it nearly a year ago.
Having duplicate insurance does not necessarily mean that the policyholder will get twice as much compensation. There are two types of insurance -- one based on indemnity and another on compensation.
The first kind, which is typical of health and workman’s compensation coverage, is structured to cover the insureds' costs. The policyholder can only claim the costs once even if he or she has multiple policies, so holding more than one is a waste of money.
Insurance for serious illness and nursing care policies is paid as out as compensation, so theoretically the holder can rightfully claim compensation on all his or her policies. But there’s a good chance than since the premiums and payout for any one policy is designed to provide complete coverage, the value-added of holding additional policies is small.
The problem of over-insurance stems from two phenomena – one is that consumers often don’t want to say no to an agent, especially when he or she is offering what’s said to be a good deal. The other is the agents themselves, which often use fear tactics to sell policies. “Who will be taking care of your kids if you dies,” is a standard part of the sale pitch.
To fight this, the Capital Markets Authority last July barred insurance companies and agents from selling policies identical to one the buyer already has except if the buyer explicitly declares in writing that he wants duplicate coverage and understands the implications. The directive requires agents to conduct a search on the treasury website that aggregates all Israelis’ policies to make sure there is no misunderstanding.
The problem remains that agents have a deep conflict of interest because their fee income depends on selling more policies.
Another example of a conflict of interest is in long-term nursing care insurance.
These policies are structured in a way that a certain percentage of the premiums paid in is accrued to the insured. After 20-30 years of payments, this component can reach about 70% of the coverage so that if the policyholder stops paying the premiums, he or she will still receive a payout equal to the percentage already accumulated.
However, insurance agents will rarely point this out to clients.