Medical & Insurance

As a modern industrialized country, Israel has a very active insurance industry, both in the Public and Private sectors. The Public sector is covered by the National Insurance Institute, a mandatory health care and social security pension fund that was created by the Israeli government in 1954 and financed by compulsory contributions from employers and employees. However, it still relies on government contributions, and one quarter of the State of Israel's annual budget is currently dedicated to health care and social security.

The National Insurance Institute offers a diversified spectrum of coverage for the entire population, including prenatal benefits, family assistance, worker's compensation, unemployment insurance, and retirement pensions. Since 1995, the National Insurance Institute has been responsible for a "sick fund", of the kind formerly administered by workers' unions, that provides for a wide basket of medical services. Most benefits are linked to the Consumer Price Index to compensate for fluctuations in the inflation rates.

Israel also has a very large Private sector insurance industry, with insurance premiums comprising about 6% of the annual Gross National Product. In 1994, there were 5,000 people employed by insurance companies and life insurance premiums totaled 5.8 billion New Israeli Shekels. While there are a few branches of foreign insurance companies in Israel, 95% of the market (and virtually all of the life insurance policies) is handled by domestic firms. The three leading Israeli insurance companies and their subsidiaries control about 75% of the market. Since Israel is a small country, and potential liability is high, reinsurance is a major market among the domestic insurance companies. Under Israeli law, there is no difference between an insurance agent and broker, whom are treated as representatives of the company. Although the same companies handle life and general insurance accounts, they are separated for tax purposes and life insurance premiums are subject to special regulations on their investment.

In order to encourage long-term savings, the Israeli government has issued special bonds partially or wholly linked to the Consumer Price Index. Life insurers, pension funds, and special long term savings programs are entitled to purchase these bonds at preferred real interest with full tax exemption. Many Israelis are involved in these insurance programs. The Histadrut, Israel's largest labor union and formerly one of its largest employers, used to insure nearly 600,000 employees, but has suffered from recent actuarial deficits. Recently, new actuarially balanced pension funds have been introduced in the Israeli market to compete with life insurance companies as the government has exited from the special bonds arena.

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The only form of compulsory private insurance in Israel is a no-fault automobile insurance, introduced in 1976, which must be held by every automobile owner. This covers the driver, passengers, and any pedestrians hit regardless of whom was at fault. Uninsured victims are covered by a special "Karnit" fund, paid for by an "Avner" collective fund established by the insurance agencies. Automobile property damage insurance is not compulsory, although many Israelis purchase it due to the high rates of motor vehicle theft in the occupied territories.

The Israeli insurance industry is subject to the control of the Commissioner of Insurance, an official in the Ministry of Finance, whom operates according to the 1981 Insurance Regulation Law. The Commissioner's office is responsible for the licensing and control of insurance companies and their agents, all of whom must submit annual reports. The Commissioner's office is also responsible for the savings and money markets of the insurance companies, although despite their best efforts, eight insurance companies (seven domestic and one foreign) have collapsed since 1981. Naturally, insurance companies are subject to internal revenue service review and regulations.

Until the passage of the 1981 Insurance Contracts Law and Supervision of Insurance Law, the legal aspects of the Israeli Insurance field were a chaotic mixture of Ottoman and English legislation. The passage of these laws modernized the Insurance system, and gave additional protection to the consumer, with five major changes. Forty provisions of the insurance laws, beneficial to the insured, were made mandatory and were no longer subject to "freedom of contract" principles. The duty of full disclosure was mitigated, with the insured not required to reveal anything more than an honest answer to questions from the insurance company, barring cases of fraud. The principle of "proportional liability" was introduced, in which the insurer may no longer escape all liability if the insured was in breach, although it will be proportionally reduced. The insurance agent was officially declared to be an agent of the insurer, acting for the company on its behalf, but may still be liable to the company in cases of misrepresentation. The "insurable interest" is no longer the foundation of the contract, and the insured must have suffered a loss to collect on liability insurance and submit a written authorization to collect on life insurance. Gaming and gambling contracts are unenforceable and constitute a criminal offense.

This law also provided benefits to the insurance company, reducing the "breach of contract" limitations of actions period from seven year to three years, except when the cause of action remains alive. The law recognizes the principle of "under insurance" and allows the insurers to proportionally reduce their liability. Insurance contracts of a commercial nature are covered, except for marine, aviation, and precious metals, which are covered by pre-existing English and Ottoman laws, and reinsurance, which does not need government regulation. The 1976 no-fault automobile insurance laws were unaffected.

Many of the policies of this law have not yet been put to a judicial test, and others have been challenged by the insurance companies. This law granted the Commissioner of Insurance extensive powers over the insurance industry, including the ability to issue mandatory provisions for insurance companies. Currently, there is still no "safety net" to protect insurance policy holders whose firm becomes bankrupt, although the law was recently amended to allow creditors to reach special arrangements with insolvent insurers.

Since the rapid inflation of the early 1980s, most insurance policies are linked to the consumer price index or the rate of exchange with the United States Dollar. Many large commercial policies are co-insured by several insurers, which employ consultants who specialize in commercial and industrial insurance. Israel is considered to be a mild earthquake risk, although large firms cannot purchase unlimited earthquake insurance due to supply and demand problems. However, most Israelis live in apartments they own, and earthquake insurance is part of the standard homeowner policy. The professional liability crisis is growing in Israel, with dramatic increases in medical malpractice suits and class actions taken against firms, although it has not yet reached the North American level.

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