GENERAL INSURANCE

Annual Report 2000

CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Analysis of Business Results in Property Motor-Vehicle and Comprehensive . . . . . . . . . Homeowners Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 The Compulsory Motor-Vehicle Insurance Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Memorandum of Understanding between the Ministry of Finance and the Insurance Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Amendment to the Motor-Vehicle Insurance Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 April 2001 Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Regulation of Compulsory Motor-Vehicle Insurance Rates through January 2003 . . . . . . .13 Crossover Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Analysis of Illness and Hospitalization Insurance Business Results . . . . . . . . . . . . . . . . . . .16 New Types of Health-Insurance Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Dental Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Purchase of Private Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Group Health Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

2. A. B. C. D. E. 3. A. B. C. D. E. F.

Appendices Appendix 4.1 Appendix 4.2 Appendix 4.3 Appendix 4.4 Memorandum of Understanding, November 13, 2000 . . . . . . . . . . . . . . . . . . . .26 Aids to the Consumer in Buying Health Insurance . . . . . . . . . . . . . . . . . . . . .30 Shopping for Health Insurance: Comparison of Plans . . . . . . . . . . . . . . . . . . . .40 Shopping for Nursing-Care Insurance: Comparison of Plans . . . . . . . . . . . . . .41

Tables Table 4.1 Table 4.2 Distribution of Insurance Premiums, by Insurance Lines . . . . . . . . . . . . . . . . . . . . .5 Risk Rates in Compulsory Motor-Vehicle Insurance, April 2001 . . . . . . . . . . . . . . .6

Figures Figure 4.1 Figure 4.2 Figure 4.3 Figure 4.4 Figure 4.5 Figure 4.6 Figure 4.7 Figure 4.8 Figure 4.8 Figure 4.9 Figure 4.10 Distribution of General Insurance Premiums, by Insurance Lines, 2000 . . . . . . . . .4 Annual Earnings in Property Motor-Vehicle Insurance, 19972000 . . . . . . . . . . . . .6 Total Premiums in Property Motor-Vehicle Insurance, 19972000 . . . . . . . . . . . . .7 National Automobile Fleet, 19972000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Motor-Vehicle Thefts, 19972000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Annual Earnings in Comprehensive Homeowners Insurance, 19972000 . . . . . . . .8 Total Premiums in Comprehensive Homeowners Insurance, 19972000 . . . . . . . . .9 Loss Ratios in Property Motor-Vehicle and Comprehensive Homeowners Insurance, 1997-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Business Results in Illness and Hospitalization Insurance, 19992000 . . . . . . . . .17 Market Shares in Illness and Hospitalization Insurance, 2000 . . . . . . . . . . . . . . .18

INTRODUCTION

The General Insurance Department phrases policy and applies regulation and ongoing supervision in all lines of insurance except for life insurance, and its goal is to ensure a proper market structure based on fair competition. General-insurance lines include property insurance, compulsory and comprehensive motor-vehicle insurance, liability insurance, financial insurance (credit, sales guarantees, etc.), and health insurance (illness and hospitalization, individual accidents)

Total premiums collected in 2000 were NIS 13.5 billion, All sums in this chapter are adjusted to December 2000 prices. of which motor-vehicle insurance accounted for approximately 60 percent. As Figure 4.1 shows, between 1997 and 2000 there was a an average annual decline of 0.7 percent in insurance premiums collected in general insurance, with most of the decline in premiums, 1.5 percent, between 1997 and 1998. Between 1998 and 2000, the annual decrease was 0.3 percent.

All sums in this chapter are adjusted to December 2000 prices.

Table 4-1 Distribution of General Insurance Premiums, by Insurance Lines

(Percent)

Type of insurance / Year

1997

1998

1999

2000

change General Insurance Premiums 1999-2000 (pcg.)

Business property loss\and comprehensive Comprehensive homeowners Compulsory motor-vehicle Property motor vehicle Employers liability Other liability lines Individual accident Illness and hospitalization Aircraft and marine vessels Cargo in transit Engineering insurance Credit insurance Other risks Business originating abroad Total 1,413,878 966,167 3,575,149 4,830,772 293,466 882,515 242,126 699,413 34,073 151,805 274,171 89,805 367,119 2,816 13,823,275 1,214,319 971,579 3,770,831 4,678,734 258,198 842,785 221,870 791,197 27,094 133,508 250,649 98,348 356,218 1,189 13,616,519 1,100,374 953,780 3,697,825 4,543,498 254,446 897,098 215,622 935,450 27,037 117,398 301,284 104,772 430,147 1,038 13,579,769 1,092,982 992,462 3,759,236 4,380,224 245,441 894,067 202,703 1,005,114 26,211 110,766 284,574 68,869 476,904 579 13,540,132 -0.7 4.1 1.7 -3.6 -3.5 -0.3 -6.0 7.4 -3.1 -5.6 -5.5 -34.3 10.9 -44.2 -0.3

Source: Data from insurance companies annual reports, processed by the Capital Market, Insurance, and Savings Division

1. Analysis of Business Results in Property Motor-Vehicle and Comprehensive Homeowners Insurance

Property Motor-Vehicle Insurance

Property motor-vehicle insurance covers property damage sustained by the insureds motor vehicle or property damage caused by the insured to a third party. The profitability of property motor-vehicle insurance increased between 1997 and 2000 (Figure 4.2), despite an average annual decline of 3 percent in premiums (Figure 4.3). Several factors affected premiums and profitability in property motor-vehicle insurance in different ways. Competitiveness in the industry motivates insurance companies to lower insurance rates. However, the growth of the national automobile fleet (Figure 4.4) may contribute to an increase in insurance premiums collected by the industry, while the decrease in vehicle thefts (Figure 4.5) reduces the payout of insurance proceeds and, consequently, helps to lower premiums. As the following figures show, earnings from this form of insurance business rose between 1997 and 2000 even as premiums collected decreased. Concurrently, the vehicle fleet expanded by 13 percent, from 1.62 million vehicles in 1997 to 1.83 million in 2000, and thefts declined by 37 percent, from 46,018 vehicles per annum to 29,038 per annum, respectively.

Comprehensive Homeowners Insurance

Comprehensive homeowners insurance covers buildings and their contents against damages such as those caused by fire, theft, water, and earthquake. Insurance taken out by means of the mortgage banks, as a security that the banks require against the loan, accounts for a large proportion of homeowners insurance. Earnings slipped from NIS 221 million to NIS 146 million (34 percent) in 1998 but have been stable since then.

Loss Ratio in Property Motor-Vehicle and Homeowners Comprehensive Insurance The loss ratio is the ratio of claims (claims paid during the year plus changes in pending claims) to net premiums earned (total premiums plus changes in the residual risk reserve). Figure 4.8 shows that the ratio is 76 percent on average in property motor-vehicle insurance and 41 percent in homeowners comprehensive insurance. The ratio in property motor-vehicle insurance corresponds to international norms, but the ratio in homeowners comprehensive insurance is much lower than that standard. This is an indication of market inefficiency, caused mainly by the way mortgage banks sell this insurance as a side-product in the issuance of housing loans. The Capital Market, Insurance, and Savings Division is working on regulations that will increase competition in this insurance line.

2. The Compulsory Motor-Vehicle Insurance Reform2

In July 1997, the Motor-Vehicle Insurance (Insurance under Conditions of Managed Competition, Transitional Arrangements, and Directives regarding Avner) Law, 1997 (hereinafter: the Managed Competition Law), opened the compulsory motor-vehicle insurance industry to competition. At the core of the model is the transfer of full insurance responsibility (risks in the industry alongside the likelihood of earnings) from the public to the insurance companies. The existing premium-adjustment mechanism foists all risk on the insured at large, whereas after the industry is opened up to competition, the insurance companies will themselves be responsible for setting premiums on the basis of statistical information, under the supervision of the Commissioner of Insurance. This managed competition will be reflected foremost in the abolishment of the standard rate and competition for customers business in the compulsory motor-vehicle insurance market. The premium will be determined in accordance to a series of explanatory parameters that will more accurately reect the insurance risk of each insured. Main Objectives of the Reform 1. To establish a competitive structure in compulsory motor-vehicle insurance in order to enhance economic efciency and reduce insurance premiums. 2. To encourage careful driving by using parameters that reflect insurance risk in order to set insurance premiums and prevent subsidization, so that all insureds pay their own risk premiums. A. Memorandum of Understanding between the Ministry of Finance and the Insurance Companies In view of apprehensions expressed in the Knesset about claims by insurers and other parties regarding the industrys readiness to implement the provisions of the law in full, the Ministry of Finance and representatives of the insurers reached an agreement concerning phased implementation of the Managed Competition Law. A Memorandum of Understanding between representatives of the Commissioner of Insurance and representatives of the insurance companies was drafted (see Appendix 4.1) and was approved under the signatures of all insurance companies that offer compulsory motor-vehicle insurance. The Memorandum of Understanding was based on the following principles: 1. On April 1, 2001, the first stage of the reform will begin with the repeal of Paragraph 17 of the Compensation for Traffic Accident Casualties Law, 1975, and the provisions of the Erlich letter will lapse. As of that date, the standard rate set by the Minister of Finance will no longer be in effect and insurers will be allowed to set rates within 10 percent of the average rate that is determined on the basis of data in the database. Thus, as of that date, the insurers will assume full responsibility for insurance rates and will have no mechanism to

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compensate them for loss. From September 2000 on, the companies sold at a loss in order to reimburse the public for excess profits. Henceforth, it will also be necessary to adjust the rate so as to reect the average risk in the industry, as based on the recommendations of the database operator, while ceasing to absorb past earnings.3 2. On January 1, 2003, the reform will be implemented in full and the compulsory motorvehicle insurance industry will be open to managed competition. Insurers will bear the full insurance risk and premiums will be set in accordance with a series of explanatory parameters that will reect the insurance risk of each insured. 3. The division of responsibility between the insurance companies and Avner, to be applied as part of a coinsurance arrangement, is set at 70 percent for insurers and 30 percent for Avner in 2001 and 80 percent vs. 20 percent, respectively, in 2002. On January 1, 2003, the coinsurance arrangement with Avner will come to an end and every insurer will bear the full insurance risk on the policies it issues. On that day, Avner will cease functioning as a coinsurer and its only function will be to settle run-off claims on policies that were issued to that time. 4. Avners outstanding liabilities or surplus assets will be transferred to Karnit, which will assume said liabilities or assets as if it were Avner. This entails solvency and regulatory mechanisms to ensure appropriate, sound management of the process of settling claims while preserving Avners assets for the public good. These mechanisms include the appointment of a supervisory accountant for Avner, who will supervise the companys income and expenditures starting in January 2001, the appointment of most members of the board of directors by the Ministry of Finance during 2001, and the appointment of a special manager who will have the authority of an authorized manager as stipulated in the Regulation of Insurance Transactions Law, 1981. This will take place in January 2003. B. Amendment to the Motor-Vehicle Insurance Law Pursuant to the Memorandum of Understanding between the Ministry of Finance and the insurers, the Motor-Vehicle Insurance (Insurance under Conditions of Managed Competition and Transitional Arrangements) Law (Amendment 2), 2000, was passed in December 2000. Its purpose is to apply the understandings reached between the Ministry of Finance and the insurers.

For full details about the need for reform in compulsory motor-vehicle insurance, the structure of this insurance line, the meaning of Paragraph 17, Erlich letter, the absorption of past profits, and transactions carried out during the transfer period, see the Report of the Commissioner of the Capital Market for 1999, <htto://www.mof.gov.il/hon/doch99/eng/ozar400.doc>

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C. April 2001 Rates In February 2001, in the wake of the aforementioned understandings and legislation, the Minister of Finance issued the Regulation of Insurance Transactions (Insurance Premiums that Insurer May Charge Motor-Vehicle Insureds) Regulations, 2001 (hereinafter: the Regulations). The Regulations amended the previous regulations in the following ways: 1. By changing the method of setting rates and transferring responsibility for this action to the insurance companiesin the course of which the former losses-and profits-mechanism was abolishedit became necessary to set a rate that reflects the average risk in the industry. The change was reflected in a 4.5 percent overall increase in the rate, due to the cessation of absorption of past profits starting on September 1, 2002, and termination of the mechanism of compensation for past losses, should there be any. 2. The transfer of responsibility for setting rates to the insurers, as well as the principles of reform in the industry, made it necessary to set rates that reect, as far as possible, the risk for each type of vehicle. Since the rates applied until April 2001 did not reect variable risk components deriving from the particular vehicle insured, high-risk vehicles were subsidized by lower-risk vehicles. The rates set forth in the regulations reflect a gradual changeover to rational rates that reflect the risk. This was in accordance with the recommendations of the database operator, which were based, among other things, on the report by the actuaries Coutts and Gath. For example, a standard rate was set for private vehicles, irrespective of engine displacement (a factor that had previously been taken into account), and the rates for commercial vehicles, buses, and taxis were adjusted as warranted. The rates for motorcycles take into account crossover agreements that took effect on April 1, 2001, between motor cycles and all other vehicles. These agreements reflect the appreciable differences between motorcycles and all other vehicles in terms of damage caused. The main changes in the risk rates, as shown in Table 4.2, were the following: standardization of rate for all private vehicles regardless of engine displacement, raising the effective rate for motorcycles by 37 percent, and reducing the rate for private buses (up to twenty passengers) and minibuses by 49 percent. 3. The maximum rate of management fees, including agents commission, profit, and so forth that an insurer may charge was raised from 12.94 percent to 13.5 percent (since the Karnit component was removed from the insurance premium, the increase is 14.23 percent).

For details, see the 1999 Report.

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4. The standard rate was abolished; each insurance company may set rates within a 10 percent range below or above the average benchmark rate stipulated in the Regulations. Finally, the Regulations enshrined the arrangement between the Commissioner of Insurance and the insurers that had been in effect since 1993. According to the arrangement, the insurers transfer to Avner an amount equivalent to 0.547 percent of net premiums to cover Avners expenses.

D. Regulation of Compulsory Motor-Vehicle Insurance Rates through January 2003 As stated, the Regulations set an average risk rate for each type of vehicle, from which each insurance company may deviate by up to 10 percent in either direction, based on parameters that the company chooses from a closed internal list. In February 2001, the Commissioner of Insurance issue a circular entitled Procedure for Submitting Rates for Approval in the Compulsory Motor-Vehicle Industry, which stipulates the method of regulation of the compulsory insurance rates from April 2001 to December 2002. Among other things, the circular rules that insurers may use the following variables in setting premiums: engine displacement, drivers age, number of years the driver has been licensed, use of vehicle, number of previous accidents, number of license revocations, and airbags in vehicle. The circular instructs insurance companies to submit the rates they wish to charge to the Commissioner for approval. Companies may choose parameters from the list and determine their weight on the basis of actuarial rationale, provided that the final rate for each insurer remains within a 10 percent range of the rate set in the Regulations and that one risk rate is set for all insureds who have the same characteristics.

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Table 4-2 Compulsory Motoer-Vehicle Insurance Risk Rates, April 2001

(NIS)

Type of vehicle

Subgroupv

no. of vehicles

Previous New rate Change Change rate (without (NIS) (pct.) (incl. absorption asborption) of of past past prots prots 1,302 1,414 1,484 1,770 923 1,749 1,952 1,952 4,356 1,528 1,528 1,528 1,528 1,264 2,394 2,673 2,673 2,242 226 114 44 -242 340 645 720 720 -2,114 17 8 3 -14 37 37 37 37 -49 2 -2 14 10 4 10 -14

Private car

Up to and incl. 1,050 cc Up to and incl. 1,550 cc Up to and incl. 2,050 cc Over 2,050 cc Motor-cycles Up to and incl. 50 cc Up to and incl. 250 cc Up to and incl. 500 cc Over 500 cc Buses Private up to and incl. 20 passengers Private, over 20 passengers Taxis Up to 6 seats Over 6 seats Commercial Up to and incl. 1.6 tonnes vehicles Up to and incl. 4.0 tonnes Over 4.0 tonnes Trains Ports and Railroads Authoritypassengers Ports and Railroads Authorityfreight

84,566 446,993 616,125 60,405 33,401 24,993 6,497 6,204 9,135 649 8,703 2,389 80,467 156,793 31,715

4,414 4,482 68 4,254 4,159 -95 6,380 7,273 893 1,738 1,906 170 1,834 1,906 72 3,515 3,859 344 4,830,557 4,139,254 -691,303

1,216,260 3,255,574 2,039,314 168

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E. Crossover Order When the Compensation for Traffic Accident Casualties Law, 1975, was first applied, and in view of the no-fault principle, the Minister of Finance implemented arrangements to divide the burden of compensation among insurers in the event of an accident involving multiple vehicles with different degrees of damage. The principle of the arrangement was that in a road accident involving a heavy vehicle and a light vehicle, the insurer of the heavy vehicle would furnish half the compensation for which the insurer of the light vehicle is liable. The Compensation for Victims of Road Accidents (Arrangements to Divide the Burden of Compensation among Insurers) Order, 2001 (hereinafter: the Crossover Order) broadened these arrangements. The Crossover Order, issued at the start of 2001, was largely based on the order previously in effect, with the addition of an arrangement for dividing the burden of compensation is the event of an accident involving a motorcycle and another vehicle. The cost of compensation to motorcyclists is NIS 380 million, as against an expected NIS 130 million in motorcycle insurance premiums. In the estimation of the database operator (as expressed in his recommendation for April 2001 rates), the implementation of the Crossover agreement for motorcycles will reduce the liability of motorcycles for compensation for roadaccident injuries by some NIS 116 million, so that after the crossover arrangements are implemented, the expected cost on account of compulsory insurance for motorcycles is projected at NIS 270 million.

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3. Health Insurance A. Introduction

The growth trend in the private health-insurance market, which began after the State Health Insurance Law was passed at the beginning of 1995,4 has led to the development of a variety of new insurance products. This process is reflected in the industrys business results, which point to continued growth in total premiums from illness and hospitalization insurance. In view of the diversification of products, coupled with greater public awareness of health insurance, we describe consumer guides devised by the Commissioner of Insurance that aim to help insureds make enlightened decisions when they purchase health insurance policies.

B. Illness and Hospitalization Insurance Business Results

1. The Industry in 2000: Main Indicators Activity in illness and hospitalization insurance in 2000, as reflected in the level of premiums, indicates that the growth observed in recent years (as reviewed in the 1999 Report) is continuing. Along with the diversification of products marketed in the industry, as reviewed in this chapter, gross premiums increased by 7.4 percent over premiums 19995 and came to about NIS 1 billion. Notably, growth was slower than in 1999, when premiums expanded by 18 percent. The figures also show that the scope of illness and hospitalization premiums is much greater than the growth rate in all elementary insurance lines0.5 percent, but lower than the growth rate in life insurance9.5 percent. Notably, illness and hospitalization insurance does not cover all activities in the field of health insurance; some activities, such as long-term care insurance, are reported under life insurance. Expenditure ratio: The expenditure ratiothe ratio of total gross expenditure (agents commissions, administration, and general) to total gross premiumswas 33 percent in 2000, similar to the gure for the previous year. Loss ratio: The loss ratio is the ratio of gross claims (paid claims and change in pending claims) to total gross premiums. According to the results, the loss ratio fell by more than 2 percentage points, from 65.8 percent in 1999 to 63.6 percent in 2000. This made the industry more protable.

4 5 6

See the 1999 Report. The health insurance reported for the illness and hospitalization industry does not include long-term care insurance. Claims during the period divided by premiums received during the period.

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Figure 4.9 shows the main components of the nancial results in this type of insurance.2.2.

2. Market Shares in Illness and Hospitalization Insurance As the industry has grown in recent years, more and more companies have been active in it and their market shares have changed.7 Between 1997 and 2000, the cumulative growth rate was 44 percent over three years (annual growth of almost 13 percent) and much of the growth was attained by companies new to the industry. Figure 4.10 shows the insurance groups market shares in 2000.

7
q q q q

Insurance companies in the industry in each group: Harel Group: Shiloah, Sahar-Zion, Dikla Phoenix Group: Phoenix, Hadar Migdal Group: Migdal, Hamagen Clal Group: Clal, Aryeh, Ilit

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Figure 4.10 shows a concentrated industry, in which about half the premiums derive from one group, Harel, and the three large groups have an 81 percent market share. Notably, concentration in the industry has been falling in recent years. For example, the market share of the three largest insurance groups in the industry was 95 percent in 1997 and that of the Harel Group exceeded 60 percent. In fact, new companies in the industry and small companies enjoyed greater growth than that of the industry as a whole. The downtrend in concentration may be to the consumers advantage in several ways, mainly greater variety of insurance plans.

C. New Health-Insurance Plans

One of the characteristics of the growth in the health-insurance market is the diversification of types of policies available to consumers, as the market strives to provide insurance solutions for existing and new needs of the population and to adjust types of coverage to consumers specic needsin contrast to the past, when plans were more rigid in terms of coverage8. This chapter reviews some of the new policies that have been added over the past two years to the health market insurance as independent policies or riders, e.g., health insurance for Israelis abroad, childrens insurance, and medication insurance.

Such as surgery, transplants, hospitalization, and long-term care. For a more comprehensive review, see the 1999 Report.

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1. Insurance for Children In the past two years, there has been a clear trend of development in all aspects of insurance plans for children. Most insurance companies offer such policies today, either as standard ones standing or as riders, and provide a variety of types of coverage. The coverage compensates or indemnifies for health-insurance events such as developmental problems in childhood and problems characteristic of adolescence, hospitalization or a prolonged stay at home, disability caused by accident or the discovery of a serious illness, and psychotherapy following a death in the family. The policies cover diverse risks that are typical of certain age groups, as opposed to a particular type of risk. Some plans allow insureds to transfer, without underwriting,9 to a health plan that the company offers at the time after they have completed military service or reached the age of 18. 2. Insurance for Israelis Abroad Local and global economic growth in the past decade has led to an increase in the number of Israelis, such as employees of high-tech companies, government representatives, businesspeople, and students, who spend extended periods abroadfrom several weeks a year to several years. Overseas health-insurance plans that provide a wider range of health service than that offered by overseas travel insurance (which mainly provides emergency medical coverage only) or standard personal insurance, and include coverage such as medical hospitalization and surgery, purchase of medication, ob-gyn care, psychological care, and more, have recently been marketed to this target population. These plans are meant as alternatives both to the basic medical coverage that many Western countries provide for their citizens only and to private health-insurance plans in those countries. The plans are intended chiey for Israelis who live abroad on a permanent basis, and they offer limited continuity of coverage when the insureds return to Israel. These plans cost much more than private health-insurance plans in Israel, mainly because they do not rely on public health insurance that states provide for their citizens.

Generally speaking, an insured who wishes to join a health-insurance plan must be underwritten, an act that requires the submission of a health statement. {}

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3. Medication Insurance Total household expenditure on medication in Israel is NIS 1.7 million per annum, 5.5 percent of national health expenditure.10 The State Health Insurance Law includes a list of medicines that are covered by the basic health package. Since these medicines are stipulated, those not included, which therefore must be purchased privately without any state participation, are also defined. The insurance plans are intended to cover the purchase of medicines that are not provided by the health funds as part of the basic package or supplemental health services. Medication insurance is now offered by most insurance companies, usually as a rider in medical expense insurance plans or as an integral part of an insurance plan.

D. Dental Insurance
1. Background Dental insurance covers the cost of dental care and is not included in national health insurance. Most dental insurance policies are sold in group form or as freely standing policies. The insurance period in these policies is usually three to five years; sometimes it is longer. The insured commits to a predetermined insurance period and undertakes to pay the premium for all of that time. Notably, insurance companies conclude agreements with dentists and dental clinics in regard to most policies. 2. Examination of Criteria for the Regulation of Dental Insurance A Health Ministry committee that examined criteria for the regulation of dental insuranceon which a representative of the Commissioner of Insurance was a memberpresented its recommendations in December 2000. The committee looked into problems in the dental-insurance market and examined the performance of the policies. The crux of the committees recommendations pertain to issues such as prevention of excessive intervention by insurers in the medical care process, exploring the possibility of allowing insureds to choose their service provider, and appropriate disclosure of details of the insurance transaction, including group policies.

E. Purchase of Private Health Insurance

Health-insurance plans cover impairment to the insureds health by paying for medical care in addition to that assured by national health insurance, when necessary. Israel has a multilayered system of health-care coveragethe State Health Insurance Law,11 supplemental health services

10

Central Bureau of Statistics, Statistical Abstract of Israel 2000, Table 24.1.

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that are offered by health funds (roughly akin to HMOs), and private health insurance. Additionally, private insurance plans are differentiated and are typically quite complex because they are complicated financial products that cover health risks. Usually, too, they entail greater understanding than the average consumer has. Thus, consumers who wish to buy private health insurance need assistance. The rst part of this survey provides background information about Israels health-insurance arrangements with emphasis on private coverage, and the second part stresses four phases of action that prospective purchasers of private health insurance should carry out before they go ahead with the purchase. The appendix to this chapter explains the phases in detail, including reference to specific types of coverage. Importantly, this breakdown is not meant to be a substitute for professional advice; its only purpose is to equip consumers with an additional tool that may help them. Below is an abstract of the topics covered in detail in Appendix 2.2: 1. Structure of Health Insurance in Israel Health insurance in Israel is made up of several layers that are differentiated by types of service and insurance providers (see details in the Annual Report of the Commissioner of the Capital Market for 1998): National health insurance is the basic layera basket of services provided by the health funds under the State Health Insurance Law. According to the provisions of the law, the health services in the basket are to be delivered on the basis of medical discretion, at a reasonable level of quality, within a reasonable period of time, and at a reasonable distance from the insureds place of residence. Health funds expand the basic package of services and offer additional layers of service, such as transplants at high cost and choice of surgeon. The funds supplemental health-service plans include various forms of coverage that are limited in extent and in insurance amounts, and most services pertain to elective types of care and are implemented by service providers that have agreements with the funds. The funds are required to offer the supplemental plan to any member who wants it, irrespective of his/her state of health or economic situation. Insurance companies expand the basic package of services, offer additional layers, and provide a level of service that the basic package omitsexclusively private health services, such as long-term care. The companies activity in this regard is regulated by the Regulation of

11 Which sets forth the basic health-care services to which all Israel citizens are entitled.

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Insurance Transactions Law, 1981, which stresses their obligation to meet future commitments to insureds, and by the Insurance Contract Law, which regulates relations between insurers and insureds. 2. Points of Emphasis in the Process of Buying Health Insurance Below are suggested stages in the process of buying health insurance: a. Defining needs: The first step in buying private health insurance is to define the needs that the insurance is supposed to meetin respect to coverage of general medical services, such as private surgery or transplant, and to coverage of specific needs, such as medications or alternative medicine. b. Comparison of types of coverage: After the needs are defined, the consumer should examine several different programs and compare them in view of the needs defined. It is also important to check out the restrictions in the policy. c. Examination of costs: Since most individual health-insurance policies are long-term, their premiums are also spread over a lengthy periodoften for all of ones life. The consumer should examine the cost of the policy, including the deductible, limits of insurers liability, etc., in consideration of his/her sources of household income. d. Comparison and purchase of the insurance, on the basis of the table in the Appendix. As stated, the Appendix describes the stages in full and discusses specic forms of coverage.

F. Group Health Insurance

Group insurance designed for a group of individuals who have specic features in common. One reason to conclude a collective insurance contract for a groups is to cut costs, e.g., by reducing the cost of collecting premiums and dealing with claims. In this form of insurance, the policyholder draws up the contract with the insurer and negotiates the terms of insurance for all insureds. The policyholder in a group insurance arrangement plays several roles: providing enrollment forms, collecting premiums, keeping the list of insureds up-to-date, etc. The en bloc joining of group members also affects the medical underwriting process, which is usually different from the underwriting process in individual insurance, as we explained below. Notably, 60 percent of group insurance arrangements are made by employers who conclude them in order to insure their employees. The group health insurance field has been developing in recent years. Below is a survey of types of coverage in group health insurance, based on insurance companies reports to the Commissioner of Insurance about group health-insurance policies that were issued up to the end of 1999. Notably, the data provide only a partial picture of the group insurance business because a new reporting format was used.

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Underwriting When people join a group insurance plan, the extent of medical underwriting is usually held to a minimumif it takes place at allsince the members of the group join en bloc and are not examined by the insurance company. Restrictions that absolve the insurer of responsibility for pre-existing medical conditions exist in 40 percent of group policies. The others carry no such restriction and individualized underwriting in group policies is very rare. Insurance Term and Insurability The insurance term in group insurance is stipulated in the agreement between the policyholder and the insurance company and is time-limited. This distinguishes between group policies and individual policies, in which the insurance term usually lasts for the lifetime of the insured, the insured does not have to meet any conditions for renewal, and the insurer cannot cancel the policy unless the insured fails to pay premiums, where the law permits this. The insurance term in group health-insurance policies (i.e., the initial period of the agreement) ranges from two years to ten years, with three to five years as the most typical range. About half of policies allow the insured to buy individual insurance from the insurance company without new underwriting in the event that he/she leaves the group, and in a few cases the insured may acquire individual insurance if the group does not renew the insurance or moves to a different insurer. Qualication Period Health insurers use an underwriting tool in addition to the stipulation concerning pre-existing medical conditions: the qualification period, during which the insured pays premiums in regular fashion but is ineligible for coverage. Any medical condition discovered during the qualification period is considered pre-existing and insurance benefits are not paid on its account. The qualification period is usually three months from the beginning of coverage, in both individual and group policies. Extemt pf Cpverage About 600 group health-insurance agreements are in effect in Israel. include coverage for surgery in Israel and abroad and transplants and and more than one-third cover long-term care. Major medical coverage disability are covered in 10 percent of the agreements and dental care of policies. More than half of them special treatment abroad, and accidental death and is covered in 35 percent

Analysis of the group arrangements in terms of numbers of persons insured shows that 25 percent of members of group health-insurance plans are covered for surgery in Israel and abroad and for transplants and special treatments abroad. Most insureds are covered for long-term care.

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In sum, the reports received indicate that, evidently, most group health-insurance policies are drawn up for groups of workers and cover surgery, transplants, and long-term care. The continuity of coverage, an important condition in health insurance, is limited in group policies to a period stipulated in the agreement between the policyholder and the insurance company. These plans provide no solution for cases in which the insurance runs out and the policyholder does not renew it with another insurer. The Commissioner of Insurance is looking into this problem at present time in order to devise an appropriate structural way to meet the needs of participants in group health-insurance arrangements.

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GENERAL INSURANCE

APPENDICES

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Appendix 4.1 Memorandum of Understanding, November 13, 2000 Arrangement in Effect from January 1, 2003: 1. The insurers shall carry the full insurance risk in the industry, without coinsurance with Avner. 2. Differential rates shall be employed in accordance with rules that will be phrased after consultation with the insurance companies in professional panels that will be run by the information database operator under the rules of antitrust. The database manager shall publish benchmark rates for pure risk that are based on the results of the industry at large, including those of the pool, with detailed presentation of all components of the rate and the professional methodology used in determining it. The benchmark rates shall be determined on the basis of accepted actuarial principles. The supervisory regulations for the differential rates will go into effect on January 1, 2003. 3. The database regulations, including the date on which the database operator will begin to receive payments, will go into effect at once (on January 1, 2001) and the date on which the insurance companies must begin forwarding data to the database shall be deferred to no later than July 1, 2001. The cost of the database shall be included in the insurers loading limit. The maximum permissible load shall be raised from 16 percent to 16.55 percent per year in 2003 and shall be recalculated in accordance with actual costs in 2004 and subsequent years (on the basis of an estimate of 16.25 percent). 4. The database operators financial statements shall be forwarded to the insurers. Any decision about exercising option periods or inviting new applications for the post of database operator, as the case may be, shall be made only after consultation with the insurers. Insofar as a decision to invite new applications is made, the insurers shall be given an opportunity to express their views about improvements relative to the previous invitation. 5. A professional team under the Commissioner of Insurance, in conjunction with representatives of the insurers and the database, shall be established at once. Its purpose is recommend to the Commissioner of Insurance a method of updating the pool rate in accordance with the results of the industry and the pool. The goals of such an adjustment, among other things, are to keep the losses or the size of the pool from growing and to cope with unforeseen deviations in estimating the results of the pool. In this activity, the material function of the pool in making insurance available to the public is to be preserved. For this purpose, the team shall consider the use and integration of various complementary arrangements, including updating the pool rate, improving the correspondence between the rate and risk in the voluntary market, and introducing efficiencies in the rate structure. If the team does not complete its work by January 1, 2001, the regulations shall be enacted without an adjustment method, which shall be enacted at some subsequent time.

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Avner 6. During the extra transition period, Avner will function as a coinsurer and will be entitled to provide all services that it delivers today. Concurrently, the insurers will prepare for the deactivation of Avner on January 1, 2003, in all elds at issue. 7. From January 1, 2003, Avner shall no longer engage in any activity that is not related to management of the R/O portfolio. Claims during the R/O period shall be handled in accordance with existing agreements between Avner and the companies. 8. Avners method of R/O management, under state regulation, shall be enshrined in law. It shall be stipulated that Avner will manage the R/O process for the purpose of attaining the goals of the law and that the companys assets should sufce to cover its liabilities. 9. Avner shall be absolved of the capital requirements set forth in directives of the Commissioner of Insurance and the insurers shall be absolved of the need to make up shortfalls in Avners insurance reserves, if any. Concurrently, the insurers (the shareholders in Avner) shall waive all entitlement to Avners assets and any residual surpluses or rights in receivership. In the event of a surplus or shortfall as stated, the balance, as the case may be, shall be dealt with by Karnit. The provisions of Paragraph 5 of the Controlled Competition Law, concerning division of responsibility between the insurers and Avner in coinsurance, shall also be applied to payments during the R/O period, insofar as this is necessary. Since the shareholders in Avner will have waived their assets in Avner, as stated, Avner will have neither claims nor entitlements of any kind vis-a-vis its shareholders in regard to their being members of Avner. 10. To implement the provisions of this memorandum: a. From April 1, 2001, the Avner Board of Directors will be downsized and shall include only ten directors, six of whom, including the Chair, shall be appointed or replaced by the Commissioner of Insurance per approval of the Minister of Finance (hereinafter: public directors). The Commissioner shall employ directors with appropriate credentials and background. The directors will assure sound ongoing management and sound transition of the company to R/O. b. From January 1, 2001, Avner shall employ (at its expense) a supervisory accountant representing the state. Said accountant shall be empowered to supervise the corporations income and expenditure system and, for this purpose, shall be entitled to receive any relevant information or document; to demand that the Board of Directors discuss such topics that he/she feels appropriate; and to take part in the discussions of the Board of Directors and its committees as an observer. The corporation shall make any financial undertaking larger than NIS 40,000 that is not a payment to settle a claim under the coinsurance agreement, without the accountants approval.

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c. From April 1, 2001, any agreement, arrangement, or undertaking, or any change therein, that has a material effect on the business results of Avner shall be brought to the Board of Directors for its prior approval. Approval of said material affairs, including the realization of assets, stipulation of terms of employment or resignation of workers, or changes in their terms of employment, shall require a special majority of 60 percent of members of the board, including at least four public directors. Amendment of the company statutes or of agreements in the sense of the Controlled Competition Law shall also require the approval of the Commissioner of Insurance. In any event, no dividend shall be distributed in any matter whatsoever. Without derogating from the provisions of this Subparagraph, from the day on which the insurers endorse this Memorandum of Understanding to the time the public directors mentioned in Subparagraph (a) are appointed, any matter of this nature shall be brought to the Commissioner of Insurance for prior approval. d. From January 1, 2003, a special manager acting under the auspices of the Commissioner of Insurance shall be appointed for the company, and said manager shall be authorized to act in a manner similar to an authorized manager under the Regulation Law. 11. Avner shall not be involved in running the database that was set forth in the law. Transition Period 12. During the period between January 1 and December 31, 2001 (underwriting year), the insurers shall assume 70 percent of the insurance risk in compulsory motor-vehicle activity and Avner shall assume 30 percent. 13. During the period between January 1 and December 31, 2002 (underwriting year), the insurers shall assume 80 percent of the insurance risk in compulsory motor-vehicle activity and Avner shall assume 20 percent. 14. On April 1, 2001, the Erlich Letter and Paragraph 17, in respect to the insurers share in the coinsurance, shall become invalid. Insurers will be entitled to set rates within a band of 10 percent above and 10 percent below the average rate to be stipulated, as stated, in Paragraph 15. On that day, the insurers maximum permissible load shall be raised from 12.94 percent to 13.5 percent. 15. On the data the Erlich Letter becomes invalid, as stated, the rate shall be adjusted by 0.5 percent relative to the rate preceding September 1, 2000. From then on, adjustments will be made in accordance with recommendations of the database operator, with neither a component of absorption of past profits nor one that adds past losses. Concurrently, the rate correction effective as of September 1, 2000, in respect to some insurers, shall be repealed. Until the end of the transition period, the rate shall be adjusted in a manner that will reflect the average risk in the industry, in accordance with the database operators recommendations, within a structure similar to that the existing rate.

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Further Actions 16. The Commissioner of Insurance shall take action, in conjunction with the insurers, for progress in the following matters: a. obtaining access to main relevant databases, such as the database of traffic offenses and the database of drivers licenses, to facilitate the underwriting process; b. contending with insurance fraud, including by means of the database operator; for this purpose, the database operators power to obtain relevant personal information shall be broadened; c. efficient reckoning with and auditing of service providers, including implementation by hiring outside auditors who will act in the service of insurers who wish this to be done; d. The foregoing will comply with the provisions of any law and will take place after coordination with the relevant players. 17. Avner shall forward all historical information in its position to the database operator. General Remarks 18. A joint team, including representatives of the insurers and of the Commissioner of Insurance, shall be established to monitor the implementation of the reform. Matters of interest and recommendations shall be presented to the Commissioner of Insurance. 19. After all relevant players signal their approval, the agreements shall be enshrined in legal arrangements, each in the manner best suited to it. The insurers, as shareholders in Avner, undertake to act toward the implementation by Avner of the provisions of this Memorandum. The binding version of the Memorandum is the Hebrew one.

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Appendix 4.2 Aids to the Consumer in Buying Health Insurance Background 1. Health Insurance in Israel Health insurance in Israel is composed of several layers, divided on the basis of service providers and insurers (as surveyed in the Report of the Commissioner of the Capital Market for 1998). National health insurance furnishes the basic layer of health insurance, a basket of services delivered by health funds under the State Health Insurance Law. Health funds broaden the basic package of services and offer additional layers of service, such as transplants at high cost and choice of surgeon. Insurance companies expand the basic package of services, offer additional layers, and provide a level of service that the basic package omitsexclusively private health services such as longterm care. The basic layerthe health services included in the basket is delivered by health funds in accordance with the State Health Insurance Law on the basis of medical discretion, at a reasonable level of quality, within a reasonable period of time, and at a reasonable distance from the insureds place of residence. Any citizen who wishes to obtain extra services, such as personal choice of surgeon, greater availability and convenience of service, and full coverage of expenses for treatments in Israel and abroad, has to purchase them separately by buying supplemental insurancea layer on top of the basket that health funds and insurance companies offer at an extra charge. Supplemental health services by health fundsthe funds supplemental programs include a variety of coverages that are limited in extent and in benet levels. Most services of these kinds pertain to elective types of care and are implemented by service providers that have agreements with the funds. The funds must offer the supplemental plan to any member who wants it, irrespective of his/her state of health or economic situation. Private insurance by means of insurance companiesthis activity is regulated by the Regulation of Insurance Transactions Law, 1981, which stresses the insurers obligation to meet future commitments to insureds, and by the Insurance Contract Law, which regulates relations between insurers and insureds. A characteristic feature of private health insurance is the need for underwriting, in which the insurance company examines risky characteristics of the potential

12

The binding version of the Memorandum is the Hebrew one.

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insured, e.g., by demanding a health statement. As a result of the underwriting process, the policy may become more expensive for a specific insured; it may also include restrictions of coverage. Importantly, when the affidavit is filled out, the applicant must apply appropriate disclosure. Failure to do so may result in severely impaired insurance coverage when it is most needed. Notably, insurance companies private health-insurance plans in Israel usually provide second and/or third layers of coverage, i.e., are supplemental to the national health insurance that all citizens hold and to the health funds own extra services. Additional Characteristics of Insurance Companies Private Health Plans The wide variety of products makes comparison and choice difcult. Medical and professional underwriting is applied when people join the plan. Private policies are long-term insurance arrangements that entail a wise decision by the insured when he/she signs the contract. Policies are usually sold in the form of packages of various types of coverage that are not always fully adjusted to the customers needs. Policies include different kinds of insurance benefits (compensation or indemnification); the differences have implications for the nature of benefits and the possibility of setting one off against the other. Types of Private Health-Insurance Products Private health insurance covers various kinds of insurance events, chiey:
q

q q q q

private surgery in Israel and/or abroadchoice of surgeon, expenses for surgery, pre-operative consultation, hospitalization expenses, etc.; transplants and special treatments abroad; long-term care; major medical; loss of working capacity.

(For explanation of these types of coverage, see Report of the Commissioner of the Capital Market for 1999.)

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Additional Types of Health Insurance 1. Ambulatorymedical services given without hospitalization, such as consultations with a specialist, physiotherapy, radiotherapy, and chemotherapy. 2. Alternative medicine. 3. Miscellaneous testsperiodical check-ups, pregnancy tests, pediatric examinations, imaging, etc. 4. Second opinionconsultation with an additional physician before surgery, including an expert abroad. 5. Medicationexpenses for medications that are not covered by national health insurance. 6. Dental insurancecoverage that pays for dental care (which is totally excluded from national health insurance), usually sold in the form of freely standing policies and marketed on a group basis. This survey deals mainly with health insurance that covers medical expenses, e.g., surgery, transplants, care abroad, and long-term care. Consumers may also find these points useful when they shop for other kinds of insurance, such as major medical and loss of working capacity. 2. Points to Emphasize in Shopping for Insurance The following phases are proposed: a. b. c. d. Dene your needs. Examine the types of coverage available. Examine the costs. Compare the plans and buy the insurance.

Phase ADene Your Needs The first step in buying private health insurance is to define the needs that the insurance is supposed to meet. Many insurance plans cover general health services such as private surgery or transplants but do not always cover specific needs such as surgery abroad, medications, or alternative medicine. Below are several main points that may help you define your specific insurance needs:

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An individual policy is one purchased by the insured for him/herself and/or for his/her family. The process of issuing the policy includes medical underwriting in which the insured fills out a health statement. {} A group policy is one taken out for a group of insureds, such as members of a labor union, by a policyholder who is not necessarily an insured.

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What health insurance do you and your family already have, either through health funds or in the private market, in individual or group policies? Do you or anyone in your family have special health needs? Are there children in the family? Do they need special care? Does anyone in the family need to see a specialist regularly? How much insurance can you afford in the long term?

Phase BExamining Types of Coverage Available After you define your needs, determine which plan meets them best. You should examine two or three different plans and compare them with the real needs that you have identified. Make sure that you understand the coverage and that it is spelled out in the policy. It is also important to determine what events the policy covers and what restrictions apply to the coverage. You may nd the following points useful in examining a policy: Coverage: a list of the main types of coverage in the policy and expansions offered on top of the basic policy. Duration of insurance term: is the insurance term measured in terms of a number of years or until the insured reaches a certain age? In most health policies, the insurance term is for life and the insurer may cancel the policy only if you fail to pay the premiums. Qualification period: the amount of time at the beginning of the insurance term, expressed in days or monthsninety days in most casesduring which the insured is not covered for various events. Waiting period: the period of time, expressed in days or monthsninety days in most cases during which the insured must wait, after an insurance event, for eligibility for benefits under the various types of coverage. Deductible: an itemization of deductibles for different types of coverage and, possibly, a deductible limit. Change of policy terms during the insurance term: the time from which the plan may be modied, as well as the conditions for such modication. Type of insurance proceeds: compensation, a predetermined sum for which the insured need not present receipts, or indemnification, meaning coverage of actual outlays for a medical procedure, against receipts. Notably, in the case of indemnication, benets are given only up to actual expenditure even if the insured owns two similar policies.

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Joining the plan: an underwriting procedure that the insurer stipulates, such as filling out a health statement and waiving medical condentiality. Price Level of premiums: separate and detailed presentation of the price of the basic policy and its riders. Structure of premiums: Is the premium constant or does it change as you grow older? In the latter case, find out how and by how much the premium will change in each age bracket during the insurance term. Change in premium during the insurance term: The date from which changes may be made, as well as the conditions for such changes. Bear in mind that this change pertains to the entire premium scale; therefore, a change affects the cost of the policy in cumulative terms and not only in response to change in the insureds age. Terms of policy cancellation by insured: a breakdown of the premium refund in the event of cancellation by the insured, and the proportion of the total premium paid that will be credited to the insured. Restrictions Terms of policy cancellation by insurer: a detailed presentation of the conditions under which the insurer is entitled to cancel the policy. Exclusion due to pre-existing medical condition: most policies have a condition that absolves the insurance company from liability for a pre-existing medical condition, such as illness or initial development of an illness that existed before the insurance went into effect or was discovered during the qualification period. The consumer should study the definition of a preexisting medical condition for which the policy will withhold coverage and pay attention to the details of coverage that will be excluded for this reason. Is the pre-existing medical condition exclusion time-limited? Restrictions to insurers liability: refer to the clauses in the policy that pertain to restrictions and exclusions. Does the policy cover medications that are not included in the basic package of health services? Is my doctor, or some other caregiver or other medical institution with which you or someone in your household have a caregiving relationship, included in an agreement with the insurer in such a way as to be covered by the policy?

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Private Surgery Policy Insurance for medical expenses on account of private surgery in Israel and abroad is a basic component of commercial health insurance and is offered by most insurance companies that sell health insurance. This is actually the most sought-after form of coverage; it entitles the insured to choose his or her surgeon and jump the queue for the surgery he/she needs. Surgery policies fall into several categories: Coverage for all forms of surgeryrelatively broad coverage. Coverage for all surgery to insureds who carry supplemental insurance from their health fundscoverage that makes up the difference between total actual expenses and those covered by additional health providers. Coverage for all surgery, with a deductiblea relatively low premium. Coverage for a selected list of operationscoverage for major operations. Rider concerning coverage of surgery abroad In a policy that covers medical expenses in the course of private surgery, several additional matters are worth examining: Does the policy cover all operations or a small list? Can the surgery be performed abroad, and under what conditions? Can the surgery be performed by a service provider that has no agreement with the insurer? Is compensation given for surgery by a public service provider when there is no claim against the policy? Is the funding of coverage conditioned or dependent on entitlements of the insured under the State Health Insurance Law?

Policies that cover transplants and special treatments abroad: Insurance that covers transplants and special treatments abroad attempts to respond to the most severe insurance event, one that occurs infrequently but carries exorbitant costs that can run into hundreds of thousands of sheqalim if not more. Must such policies provide benefits in the form of indemnification and entitle the insured to funding of medical procedures or reimbursement of expenses. Notably, major medical policies offer the option of nonrecurrent compensation when a transplant is performed. Notably, too, the insurance event is deemed to have occurred upon the diagnosis of the medical condition due to which the insured needs a transplant and/or special treatment that cannot be offered in Israel.

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In policies that cover expenses for transplants and/or special treatments abroad, the following points in addition to those mentioned above should be examined: a. Which transplants does the policy cover? b. Is there a post-operative convalescent benet? c. Is payment given for medical activity that is needed to obtain an organ for transplant? d. Is the funding of coverage conditioned or dependent on entitlements of the insured under the State Health Insurance Law and/or a health funds supplemental health services? Long-term care policies Insurance against the need for long-term care is meant to provide financial support for a person who cannot carry out Activities of Daily Living (ADL) and needs continual carea need most common among the elderly. These are long-term policies, in which the payout of proceeds ranges from three years to time-unlimited. One who considers buying long-term care insurance should look into the following additional points: a. Types of coverage Does the policy pay benets for life? How is the insurance event dened? How many ADLs does it take to define the insurance event? In most cases, the qualifying situation is the inability to perform three or four ADLs. Are mental frailty and Alzheimers included in the denition of the insurance event? What is the level of the monthly benet? Can the monthly benet be enlarged? Is the insured excused from paying premiums while receiving monthly benets? How long can benefits be paid? Possible periods are three years, five years, and unlimited. The duration has an effect on the level of premium.

14 ADLs are six basic daily activities, among which the inability to perform several usually constitutes a long-term care insurance event. The activities are standing up and lying down, dressing and undressing, bathing, eating and drinking, walking, and continence.

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Does the level of insurance benets depend on the insureds age? Are the insurance benefits given in the form of indemnification (against actual expenses) or of compensation? Does the policy cover nursing care in the insureds home? Are the premiums for at-home care different from those upon admission to a nursing institution Are receipts required in the case of at-home care? b. Prices Is the insurer allowed to change the premium for insureds at large (in contrast to a declared change in premium that is adjusted to the age of each insured), and under what conditions? Detailed presentation of the premium scale up to age 95. The consumer should consider whether the monthly premium at old age (such as 80+) is consistent with the nancial capabilities that he or she will have at that age. Is it possible to buy a policy in which the premium does not change as the insured ages? Does the policy have a nonforfeiture benet, i.e., an entitlement to partial benets even if the insurance is terminated? What rights does the insured have in the event of an increase in premiums? According to some policies, if the premium scale is raised the insured may pay the old price for reduced benets and/or become eligible for a nonforfeiture benet. Phase CExamine the Costs Once you have defined your needs, examine the costs of the coverage that you want. Most individual policies in health insurance are long-term plans, and their premiums are also spread over a lengthy periodoften an entire lifetime. It is recommended to examine the cost of the policy in consideration of your familys sources of income. Below are several basic points to consider in examining the total cost of health insurance: Deductiblethe level of the deductible is an indicator of your ability to affect the price of the plan, on the one hand, and the total cost of the insurance and the medical services, on the other hand. The deductible may be reflected several distinct ways: the total sum up to which the insurer does not participate in the cost of medical care, a percentage of the cost of care (as in the case of surgery), and a lump sum that is deducted from the price of the service or product (as in the case of medicines).

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Discounts it is sometimes possible to get a discount on a policy or a policy that offers similar coverage at a lower price. For example, there is a policy for Jerusalem residents that refers patients to Jerusalem hospitals only. Consult an agent or an insurer to find out about such benets. Another point to examine is the limitation of the insurers liability or the maximum amount of coverage. Many policies limit the insurers liability for various medical treatments, either in financial terms or in terms of a given number of treatments. The consumer has to determine in which form of coverage the proposed limit will suffice for comprehensive medical care in most cases, and in what cases the limit will place substantive limits on the availability of the medical treatment that is sought. In many cases, various expansions and riders are offered in addition to the basic policy. Here the consumer should ask whether these expansions meet his/her insurance needs and should examine their effect on the cost-benefit relationship of the plan. In any case, the consumer should find out which components of the policy are voluntary and which belong to the basic package. Phase DCompare the Plans and Buy the Insurance To use the information and compare the plans, consult the table in Appendix 4.3. Buying insurance Before you buy an insurance policy, it is best to gather relevant information from several sources. You may contact an insurance agent who sells products of one company or several companies and ask him/her to review the plan, give advice, answer questions, and help out in the event of a claim. Another source of information is the insurance company. A third possibility is by contacting friends and acquaintances who have private health insurance; they may give you an impression of the terms of the plan, prices, restrictions, and quality of service that they have received from their insurance agent or company. The wide variety of policies available and the many differences among them make it necessary to examine and compare the plans in which you are interested. Do not compare rates only. Correct shopping should be based on additional indicators, especially in health insurance, since policies in this field may vary widely from one company to the next. It is best to compare types of coverage, exclusions and restrictions, waiting and qualification periods, correspondence in matters of service, extra benets, and price, to make sure that the total package is tailored to your needs and to your nancial resources.

15 Every insurance agent requires a license from the Commissioner of Insurance.

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A few nal tips Use a licensed agent only. You may examine agents licenses by visiting the Web site of the Commissioner of Insurance, http://www.mof.gov.il/hon/bituach.htm, clicking to Insurance Agents and Agencies (available in Hebrew only). Before you buy a policy, you are entitled to view it and to examine its details. Do not rush to buy a policy that you do not understand from all angles. It is better to ask for information, view the policy, and receive explanations to any extent required. Before making the purchase, make sure that you understand the process of filing a claimthe forms you will need to fill out and/or submit, the address, and cases in which the insurers prior approval is needed. In addition to the basic policy, you may usually expand the coverage by paying an extra premium. It is recommended that you ask how necessary these expansions are, in a manner similar to your examination of the basic plan.

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Appendix 4.3 Shopping for Health Insurance: Comparison of Plans Plan A Plan B Basic package / supplemental health service

Name of insurance plan Name of company and address for inquiries Name of agent and address for inquiries Is coverage conditioned or dependent on entitlements of the insured under the State Health Insurance Law and/or a health funds supplemental health services? Are all types of surgery covered or only those on a list? What operations / illnesses does the plan include? Can surgery be performed abroad? Which transplants does the plan include? Does the policy include ambulatory services? Does the policy cover are medications that are not on the basic list? Does your doctor have an agreement with the plan? What procedure is used to contact a specialist? Are your specic medical needs covered? What medical conditions are not covered? How is a pre-existing medical condition excluded? What premium is charged for the basic plan? What premium is charged for Rider A? What premium is charged for Rider B? Rates of deductible, by types of coverage Limits of insurers liability

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Appendix 4.4 Shopping for Long-Term (Nursing) Care Insurance: Comparison of Plans

Plan A

Plan B

How many Activities of Daily Living are used to dene the insurance event? Are mental frailty and Alzheimers included in the denition of an insurance event? Level of monthly benet For how long are benets paid? Correspondence between insurance benets and insureds age Is the benet given in the form of indem-nication or of compensation? Is at-home nursing care covered? Does the policy have a nonforfeiture benet? Detailed presentation of premium scale in all age brackets

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