Bad Insurance Policies? Blame the Regulator

The regulator is responsible? Yossi Manor thinks so, because the insurance supervisor is the one who let the insurance companies sell policies such as life insurance where 28 percent of the premiums went into the companies' pockets. Or they were allowed to sell nursing care policies that did not cover Alzheimer's disease.

Manor, president of the Association of Insurance Agents, asks a rhetorical question: "If the supervisor approved it, why are they coming to me with complaints that I sold it?"

His question is really begging the question. The supervisor himself recognized the faults of the policies over the years and stopped them. He made the insurance companies stop selling the old life insurance or nursing care policies, and improve the new policies.

The problem is that in none of these cases were the changes retroactive. The regulator stopped the sales of inferior policies, but did nothing to improve the policies already sold.

Does this mean that the insurance supervisor has failed in his job? Senior officials in the supervisor's office over the years have twisted and turned in their seats when asked this question.

That the supervisor should have acted differently isn't the question at all, they say. The fact is that the regulator introduced reforms two years ago, and fixed a low ceiling for profits on life insurance.

From this we can learn that the previous profit levels were not appropriate, they also say. Regulation is an evolutionary process, they explain, and products that were acceptable 10 years ago are obviously not acceptable today.

This sentence is very worrying, because if this is the case, then who will guarantee us in 10 years' time that the products we buy today will not be considered a rip-off?

The supervisor's answer is increasing competition in the insurance sector through direct insurance policies, an easing of insurance licensing and encouraging existing insurance companies to enter new realms of the insurance business. An example of this is the increased competition in healthcare policies, which used to be the realm of only one company, Harel.

Other new policies of the supervisor are clarifying the definitions and criteria used by insurance companies - an area where the consumer has no way of understanding the complex policies he is sold.

This is the case for nursing care policies, where the supervisor dictated terms - after each company chose its own set of rules and definitions. The same also applies to the world of health care policies. Even a seemingly simple question such as "What is an operation?" is not clear when it comes to insurance company rules. And the list is long.

At the beginning of 2006 the supervisor will implement another reform to improve the consumer's ability to compare his policy to others. Insurance firms will be required to increase the transparency on their internet sites - and to publish the information in a manner every customer can read and understand.

But the step that the supervisor believes in more than any other to bring about a change in the insurance market is the Bachar committee reforms. The reforms require insurance agents to provide independent and unbiased advice to customers, even if they work for only a single insurance company.

Insurance agents have always prefered to sell the insurance that is most profitable for them, and not necessarily the insurance that is best for the client.

For example, they sold high life insurance premiums to singles without dependents who did not need the coverage. This will end now, since the agent is required to sell the customer the product that is best for the latter. Een now there is a 25-percent gap between individual and group health policy premiums, with the difference going directly to the agent - and this will have to change in the future.

Does this make us feel better? Is this good enough to prevent us from buying inappropriate policies in the future, even if they have the supervisor's approval?

If only the supervisors were more aggressive 15 years ago, the policies we are buying now would have long ago disappeared. We can only hope that the regulators will be more aggressive in the future.