Israeli Treasury Unveils Plan to Cut Compulsory Car Insurance Costs

Reforms would reduce premiums by as much as 50% for some young drivers.

Cars on a highway in Tel Aviv, December 17, 2013.
Reuters

Young drivers may be getting discounts of as much as half on their compulsory auto insurance under a plan announced by the Finance Ministry this week.

At a press conference Sunday, Finance Minister Moshe Kahlon and Dorit Salinger, the commissioner for capital markets, insurance and savings, said rates would drop by as much as 50% for young women and 40% for young men if they installed collision-prevention devices.

The plan will affect about 850,000 drivers, or about half the total, including young people and anyone who installs the collision technology. It will gradually go into effect starting next year, increasing competition in the insurance industry and linking premiums more closely to risk, Kahlon and Salinger said.

“The compulsory-insurance industry has turnover of 5 billion shekels [$1.3 billion] a year and enjoys profits of 20%. We’re in favor of profits but not piggish profits,” Kahlon said.

“In recent days, during hearings on the matter, many insurance companies voiced complaints, but I’m determined to bring this to a conclusion.”

The mechanism for bringing down rates is so-called pool insurance, which is used by the industry to reduce the risks of insuring the riskiest categories of drivers such as motorcyclists. Premiums for those covered by pool insurance are the highest in the market and constitute a ceiling for other premiums.

The treasury said it would now order pool rates to be lowered and order two other measures. It would give insurers the option of rewards to safe drivers, like a premium rebate at the end of the coverage period and a uniform premium for drivers in the same risk categories with discounts up to 16%.

All told, the premium savings could add up to 350 million shekels a year, much of which would come out of insurers’ profits. But it would boost sales for companies making collision-preventing technology, notably Mobileye and Awacs.

A typical Mobileye device costs about 3,300 shekels, but the finance and transportation ministries have discussed a program to subsidize the devices for drivers.

Compulsory-insurance premiums have fallen by more than a third since reforms were introduced in 2003, saving policyholders some 15 billion shekels. Under the new reforms, an 18-year-old driving a car without electronic stability control equipment would see his premium fall to 3,091 shekels from 3,771 and to 2,673 with collision technology.