Topic proposed by: Royanne Doi, Corporate Chief Ethics Officer, Prudential Holdings of Japan Inc
The International Association of Insurance Supervisors and the Organisation for Economic Cooperation and Development have both recognised the role that policyholder protection funds can play in maintaining consumer confidence in the insurance sector – something which has assumed even greater importance post-financial crisis. Experiences from countries where such schemes have already been tested can help to inform initiatives to strengthen policyholder protection elsewhere.
Does your country have a policy protection fund (PPF) system?
Israel does not have a protection fund system for banks or insurance companies.
What alternative arrangements are in place for the protection of policyholders?
According to Clause 54 of the Supervision of Financial Services Law (1981), an insurer must handle its life insurance business – including reinsurance, investment and accounts – separately from its general insurance business. As a result, long-term insurance business is held separately. When Israeli insurers have entered into liquidation in the past, this separation has facilitated the sale of their life insurance business to other insurers. As a result, holders of life insurance policies did not suffer from the collapse of an insurer.
Additional protection for the rights of insureds is found in the provision of the law that deals with the liquidation of an insurer. According to Clause 70 of the law, if an insurer enters into liquidation or receivership, the insurance commissioner can appoint a special administrator to the insurer in liquidation. The special administrator has the right to present a programme for the court's approval, according to which he or she may defer to individual insureds over entities and prioritise insureds over other creditors.
When Hassneh Insurance Co collapsed in 1992 – at the time, the largest insurer in Israel – the law's provisions were applied. As a result, the liquidator preferred the rights of insureds over other creditors; thus, insureds received between 80% and 95% of the amount due to them.
What role does the insurance regulator play in this framework? Can the regulator be held liable for failing to protect the insureds in the event of an insurer being declared insolvent?
The insurance commissioner is the regulatory body with the right to declare an insurer insolvent and the power to appoint a special administrator to run the insurer's affairs. The special administrator's activities, especially the allocation of assets, is subject to district court approval.
Has there been any debate on the potential introduction of PPFs?
As the Supervision of Financial Services Law dealt with the interests of insureds in the case of the insolvency of an insurer and its directives were implemented successfully in several cases (eg, Hassneh Insurance Co and Continental Insurance Co), no discussion about the introduction of PPFs has thus far taken place.
For further information on this topic please contact Rachel Levitan at Levitan, Sharon & Co by telephone (+972 3 688 6768) or email ([email protected]). The Levitan, Sharon & Co website may be accessed at www.levitansharon.co.il.
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