Insurance Leaders: People Won't Leave Insurers for Pension Funds

Treasury to allow people to move money from insurance schemes, TheMarker revealed

Insurance companies tried to calm customers and affiliates yesterday, in light of the story - reported yesterday in TheMarker in Hebrew and presented here - stating that the treasury will allow people to switch from insurance policies to pension funds.

Senior insurance executives attempted to explain that there is little danger that large sums will be transfered. They said policy holders would not hurry to move their savings, since insurance policies allow a one-time, lump-sum payment upon retirement, unlike pension funds, which only allow a monthly payment.

Another reason cited in favor of insurance policies, in particular older ones, are the actuarial rules used for calculating the level of payments. These are higher in the older policies than in the newer ones - but not necessarily higher than those used by the pension funds in determining their payments.

The executives admitted that while these reasons in themselves may not convince policy holders to remain with their insurance schemes for purely financial reasons, economics isn't everything.

Not everything in this realm is rational, they explained, citing the theories of the Nobel Prize laureate in economics, Daniel Kahneman. There are other considerations at play that are not only economic, but also philosophical and psychological.

In addition, the insurance companies attacked the treasury's regulations from a different angle: They claimed that local financial markets will be harmed by them since Israeli insurance companies invest all their assets in those markets, while the pension funds hold a third of their assets outside of the markets in subsidized, no-negotiable bonds. This is the complete opposite of the treasury's policies in recent years to encourage financial markets and to reduce state subsidies, the sources declared, and this will therefore hurt the Israeli economy in the long term.