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					INSURANCE
AGENTS      I
                                                                    CONTENTS



    General Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    1.     Functions of the Insurance Agents and Agencies Licensing and Regulation Department
           (Agents Licensing Department) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    2.     Insurance Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Fitness of Insurance Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Activities of Insurance Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    3.     Examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Subjects of Examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Examination Passing Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Looking Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    4.     Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    5.     Trends in the Market of Insurance Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Agents’ Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           General Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Acquisition or Formation of an Corporate Agent by an Insurance Company . . . . . . . . . . . . .

           Training of Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

           Licensing Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    6.     Exemptions Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



    Appendices

    Appendix 9.1              Intern Licensing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    Appendix 9.2              Licensing of Licensed Agent Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    Appendix 9.3              Licensing of Corporate Agent Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

    Appendix 9.4             Replacement or Addition of Business Manager in Corporate Agent Procedure . . . . .




2
Appendix 9.5         Change of Holdings in Corporate Agent Procedure

Appendix 9.6         Revocation of Agents’ Licenses in 2000

Appendix 9.7         Application for Exemption Procedure



Tables

Table 9.1    Number of Active Insurance Agents (Interns and Licensed), by Lines of Insurance,
             1998–2000

Table 9.2      Active Corporate Agents, by Lines of Insurance, 1998–2000 . . . . . . . . . . . . . . . . . . .

Table 9.3      Passing Rates on Intern Examinations, 1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table 9.4      Passing Rates on Licensing Examinations, 1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . .

Table 9.5      Deletion of Insurance Line from Intern Licenses in 2000 . . . . . . . . . . . . . . . . . . . . .

Table 9.6      Insurance Commissions and Premiums, 1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table 9.7      Commissions and Premiums in Life Insurance, 1998–2000 . . . . . . . . . . . . . . . . . . . . .

Table 9.8      Commission/Premium Ratios in Life Insurance, 1998–2000 . . . . . . . . . . . . . . . . . . . .

Table 9.9      Market Shares of Insurance Companies in Commission Payments and
               Premiums, Life Insurance, 1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table 9.10     Commissions and Premiums in General Insurance, by Insurance Lines, 1998–2000 . . . .

Table 9.11   Rates of Change in Data in Table 9.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table 9.12     Changes in Companies’ Commission Rates, Life Insurance, 1998–2000 . . . . . . . . . .

Table 9.13     Share of Insurance Companies in General-Insurance Commissions and Premiums,
               1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table 9.14     Exemption Applications Submitted to Exemptions Committee . . . . . . . . . . . . . . . . . . .



Figures

Figure 9.1     Number of Active Insurance Agents (Trainees and Licensed), by Lines of
               Insurance, 1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure 9.2     Active Corporate Agents, by Lines of Insurance, 1998–2000 . . . . . . . . . . . . . . . . . . .

Figure 9.3     Passing Rates on Intern Examinations, 1998–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . .




                                                                                                                                                   3
                                         General Remarks


    In 2000, Israel had 792 active insurance agencies (corporate agents) that were licensed in one
    or more lines of insurance (life, property, accidents, marine) and 9,276 insurance agents (interns
    and licensed). The functions and activities of insurance agents are important mainly because
    agents are usually the most efficient vehicles in closing insurance transactions.

    This chapter discusses the examinations that insurance agents must pass to be licensed as
    interns or as licensed agents and discloses the passing rates on these exams. This chapter also
    shows trends in this part of the insurance industry (agents’ commissions, mergers among
    insurance agencies, and agents’ training), and the activities of the Exemptions Committee. It
    also describes actions by the Commissioner of Insurance that pertain to agents’ activities, such
    as the decision to toughen enforcement in regard to criminal records of insurance agents. In
    this context, the Commissioner of Insurance, in consultation with the Advisory Committee,
    revoked the licenses of several insurance agents who had been convicted of criminal offenses
    and/or had been declared bankrupt.

    Another important decision by the Commissioner of Insurance during the reporting year had to
    do with regulation of insurance agents who hold interns’ licenses for a period exceeding that
    stipulated in the law. Over the years, a situation developed in which many insurance agents
    held interns’ licenses in certain lines of insurance for more than the three years that the law
    allows. It was difficult to bring this matter under control due to several clashing considerations
    of principle. On the one hand, the principles of rule of law and sound management require
    enforcement of the law in this regard; on the other hand, the agents at issue had been active
    for a long time and most of them had families. Therefore, the Commissioner concluded an
    arrangement that aimed to reconcile these considerations. The main provisions of the
    arrangement are presented in Part 4 of this chapter (“Enforcement”).

    In 2000, the Commissioner of Insurance authorized several acquisitions and formations of
    corporate agents by insurance companies and approved several mergers of corporate agents. For
    the most part, insurance companies acquire or form corporate agents when they wish to
    establish direct relations with their clients, whereas mergers among corporate agents are usually
    worked out to cut costs.




4
     1. Functions of the Insurance Agents and Agencies Licensing and
          Regulation Department (Agents Licensing Department)


In the discharge of its duties, the Agents Licensing Department:

a)    licenses insurance agents and ensures that they meet their legal obligations;1

b)    licenses insurance agencies (corporate agents) and ensures that they meet their legal
      obligations;

c)    receives and analyzes regular reports from insurance companies on matters concerning the
      Department’s regulatory purview;

d)    takes part in phrasing and designing regulatory policy in matters related to regulation of
      the actions of insurance agents and agencies in Israel.

e)    conducts licensing examinations for insurance agents—manages and revises the pool of test
      questions, coordinates the tests, determines the times and places they will be held, checks
      the tests, and sends the scores to the examinees.




1    Main legislation, secondary legislation, case law, and directives of the Commissioner.




                                                                                                    5
                                             2. Insurance Agents


    Fitness of Insurance Agents

    The conditions of fitness to serve as an insurance agent are set forth in the Control Law and
    the regulations. The purpose of the conditions is to make sure that all persons who practice
    this occupation have the requisite level of skill.




    Activities of Insurance Agents



                                        Table 9.1
           Number of Active Insurance Agents (Interns and Licensed), by Lines of
                                  Insurance, 1998–20001

                                           1998                             1999                            2000
                                Interns           Licensed       Interns           Licensed      Interns      Licensed

        Life                       3,104           881,5           285,2             438,5          070,2          223,6
        General                    409,1           522,4           245,1             647,4          301,1          871,5
        Life+general(2)              788           662,3             386             427,3            064          761,4
        Marine                       862            657              881               858            443            839


        Total                              425,8                           387,8                             672,9

    Source: Database of the Commissioner of Insurance

    (1)        The data in this table and in Table 9.2 pertain to each insurance line separately. In 1998, for example,
               3,104 insurance agents held intern licenses in life insurance, irrespective of whether or not they hold
               intern licenses (or agent licenses) in some other line. Note that some insurance agents hold full licenses
               in one field and intern licenses in others.
    (2)        General = property and accident.




    1     The terms of fitness are listed in the 1999 report of the Commissioner of the Capital Market, Insurance, and
          Savings. The data presented in the 2000 report are significantly different from those in the 1999 report due to
          technical changes in the database.




6
The number of active insurance agents increased by 6 percent between 1999 and 2000, due to
factors external to the insurance industry and to changes and developments within the industry.

In 1998–2000, the number of interns in all fields of insurance except marine insurance declined
perceptibly — by 33.3 percent in life insurance and by 42.1 percent in general insurance. One
reason for the downtrend is that the matter of interns who held interns’ licenses for longer
than the three years stipulated in the law was placed under regulation in 2000, as described in
detail in the section of this chapter on “Enforcement.” Due to the arrangement that was
worked out in this matter, types of insurance were deleted from the licenses of some insurance
agents and the licenses of some other agents were revoked altogether because these agents
either had no interest in making up the missing vocational training or failed to meet the terms
of the training. In the past few years, the Commissioner of Insurance has been adjusting the
subjects of the examinations to changes in the industry. The passing rate on the exams seems
to be declining, as Tables 9.3 and 9.4 show.

Between 1998 and 2000, there was a slight increase in the number of fully licensed agents in
all types of insurance. The reason for the increase evidently has to do with the arrangement3




3   see Part 4 of this chapter.




                                                                                                  7
    For details, that was made in regard to interns who had held their interns’ licenses for longer
    than the law allows. By forcing many interns to take licensing examinations, the number of
    fully licensed agents was increased. Another reason for the increase, of course, is the growth
    of the country’s population.


                                          Table 9.2
                  Active Corporate Agents, by Lines of Insurance, 1998–2000

                                      1998                            1999                          2000

     New agents1                        36                            24                            35
     Life                              347                           447                           957
     General                           727                           327                           027
     Life+general                      196                           886                           786
     Marine                            503                           503                           303


     Total2                            187                           287                           297

    Source: Database of the Commissioner of Insurance
    (1) This refers to insurance agencies that received their first licenses in a given field that year. Notably, this
         figure is included in the other data shown in this table. Therefore, the figure of 782 licensed agencies in
         1999 includes the forty-two new agencies.
    (2) See Note 1 to Table 9.1.




8
                                             3. Examinations


Subjects of Examinations

There are two categories of examinations: for interns (fundamentals and specific type of
insurance

) and for fully licensed agents. In the fundamentals exams, examinees have to show that they
have enough knowledge to begin their internship. Thus, a fundamentals exam focuses on
general subjects related to the insurance market. It includes questions about insurance law (in
particular, the Insurance Control Law and the Insurance Contract Law), basic insurance concepts
(such as replacement value and underinsurance), the underlying principles of insurance contracts
as derived from the law (such as the right to indemnification and due disclosure), insurance
policies, and the legal status of an insurance agent in Israel.

In examinations on specific types of insurance and in final exams, examinees must show
familiarity with and knowledge of the type of insurance in which they wish to deal as licensed
agents. In the life-insurance exams, for example, candidates must be conversant with the
mathematical principles of life insurance (rules of probability, interest), group arrangements, etc.
In the licensed-agent exams, candidates must display a level of knowledge that suffices for
work as insurance agents, so that they can accept the responsibilities and liabilities of this
occupation.




4   The lists given in this chapter are not exhaustive.The full list can be found at the Ministry of Finance Web site,
    www.mof.gov.il
5   The fundamentals test is for everyone applying for an insurance agent’s license; the tests for a specific type of
    insurance depend upon the branch for which the agent wishes to have an intern’s/full license.




                                                                                                                         9
                                              Table 9.3
                          Passing Rates on Intern Examinations, 1998–20001



     Subject of test                 1998                      1999                  2000            Change,
                                                                                                    2000 vs.
                           Persons       Passing Persons              Passing Persons       Passing 1998 (pct.
                            tested       rate(%) tested               rate(%) tested        rate(%) points)

      Fundamentals           1,149           73         1,048           68       135,1        58       -14
      Life                   939             61          833            57       1,480        45       -16
      Property               544             47          429            58        666         48        1
      Accidents              521             59          426            56        695         44       -15
      Marine                  60             73           84            79         70         71        -1

     Source: Database of the Commissioner of Insurance
     (1) The data include persons tested in the same line of insurance more than once.




10
                                       Table 9.4
                 Passing Rates on Licensing Examinations, 1998–2000(1)

Subject of test                          1998                        1999                            2000

                                Persons         Passing    Persons        Passing       Persons         Passing
                                 tested         rate(%)     tested        rate(%)        tested         rate(%)

 Life                              625            81           738            63           1,384            41
 Property                          472            82           579            60           1,083            43
 Accidents                         455            75           596            58           1,038            45
 Marine                             74            70           140            71             166            53

Source: Database of the Commissioner of Insurance
(1) The “persons tested” data include persons tested in the same line of insurance more than once.



Tables 9.3 and 9.4 show that the passing rates have been declining at both levels of testing,
intern and full-license. This is attributable to several factors:

1.    The sophistication of the products that insurance agents sell and the level of knowledge
      required of the examinee. The passing rate has been falling because the requirements are
      becoming tougher.

2.    In the past, the examination questions were not revised and were repeated from year to
      year. In recent years, both the questionnaires and the pool of questions that are used in
      composing the tests have been revised.

3.    In 2000, there was a significant increase in the number of examinees. The reason has to
      do with the arrangement made by the Commissioner of Insurance in regard to interns who
      had held their interns’ licenses longer than the law allows.




                                                                                                                  11
     Looking Ahead

     At the present time, the Agents Licensing Department, with guidance from the Commissioner
     of Insurance, is rewording the examination questionnaires and building up a larger pool of
     questions. The questions are phrased with assistance from a team made up of staff members of
     the Capital Market, Insurance, and Savings Division and experienced and knowledgeable
     insurance people. It is crucial to put this matter in order for two main reasons:

     1.   As stated, the insurance products that agents will sell in the future, as well as some of
          those sold today, are complex financial products that will entail through knowledge of
          insurance and finance. To obtain an agent’s license, a candidate must prove that he/she
          has enough knowledge to do the job. Thus, these tests are a unique professional tool that
          enables a licensed agent to demonstrate his/her skill. Consequently, a special team is
          writing test questions that will measure an agent’s professional ability to market complex
          insurance policies.

     2.   The intern exams and the licensing exams have different goals. Intern exams set out to
          determine whether the candidate has enough basic knowledge to sell insurance policies.
          The licensing exam determines whether the candidate has extensive insurance knowledge
          and the ability to prepare an insurance plan for the insured. Thus, licensing exams are
          more difficult than intern exams.




12
                                           4. Enforcement6


The provisions of the law that deal with enforcement task the Commissioner of Insurance with
making sure that insurance agents obey the law and have appropriate professional training to
sell insurance policies.

Enforcement actions taken in 2000 are described below.

a.    Compulsory Submission of Agent Commission Records

Insurance companies were required to present the Commissioner with data on the commissions
they paid to insurance agents. Examination of these data makes it possible to monitor and
analyze developments in the various types of insurance and to make sure that commissions are
not being paid to persons who are not lawfully licensed, as set forth in Paragraph 41 of the
Control Law.

b.    Revocation or Suspension of Insurance Agent’s License

According to Paragraph 29 of the Control Law, the Commissioner of Insurance, after consulting
with the Advisory Committee,

  may revoke or suspend the license of an insurance agent for one of the reasons set forth in
the aforementioned Paragraph, i.e., if the agent was declared bankrupt (Paragraph 29(a)(2)),
breached one of the material terms of the license (Paragraph 29(a)(3)), or committed another
infraction listed therein. In 2000, the Commissioner of Insurance revoked several agents’
licenses; their names are shown in Appendix 9.6 of this report.

c.    Interns Who Hold Intern Licenses beyond the Term Stipulated in the
      Regulations

According to the law, an intern may hold an intern’s license for no longer than three years. In
the third year, he or she must pass the licensing exams. Over the years, and in contravention
of the provisions of the law, some intern-agents have held interns’ licenses for longer than
three years — in some cases, for decades — without taking the licensing exams in the types




6    The need for a supervision and enforcement system for insurance agents is explained in the report of the
     Commissioner of the Capital Market, Insurance, and Savings for 1999.
7    A committee established under Paragraph 4 of the Control Law.




                                                                                                                13
     of insurance in which they specialize. In recent years, measures have been taken to correct this
     situation, including non-renewal of the licenses of agents who failed to meet the stipulations of
     the law. Even so, the Commissioner of Insurance allowed these agents to retain their licenses
     until June 2000. By that time, they were to pass final exams in the types of insurance in
     which they operate. To lighten the burden on these candidates, additional examination dates
     were provided. Consequently, the relevant provision of the law has been enforced since the
     middle of 2000, i.e., interns must take licensing exams during their third year of internship and
     may take them three times. An intern who fails the exams three times may no longer be
     active in the relevant type of insurance.

     Notably, within this rather large population of interns there was a subgroup of people aged
     fifty or more who had been interns in a given type of insurance for more than fifteen years
     and failed the licensing exam in their field of expertise. In consideration of these agents’
     lengthy professional careers, the Commissioner of Insurance put together an arrangement,
     approved by the Exemptions Committee that operates by force of Regulation 18 of the Control
     of Insurance Transactions (Licensing of Insurance Agent) Regulations, 5729–1969, in which
     such agents may apply to the Commissioner of Insurance for full licensing provided that they:

     1.      took a course, approved by the Commissioner, in the particular type of insurance;

     2.      attended in at least 75 percent of the hours of said course;

     3.      submitted a final project at the end of the course that earned a grade no lower than 60.

     These agents have until March 31, 2001, to meet the terms of the arrangement.



                                                Table 9.5
                         Deletion of Insurance Line from Intern Licenses in 2000

          Insurance line                  Number of agents from whom lines were deleted

          Life                                                  601
          General                                               310
          Life+general                                           96
          Marine                                                198

     Source: Database of the Commissioner of Insurance




14
d.   New License Format
A new format for licenses was set forth in 2000 and implemented in 2001. In the new format,
three separate licenses are issued: intern, agent, and corporation. The main change of
importance concerns the intern’s license. In the past, such a license noted whether the licensee
was an intern in a specific field of insurance only. Today, it also shows the date on which the
internship begins and the deadline for passing the licensing exams. The latter piece of
information pertains to the provision of the law that requires an intern to pass licensing exams
within a year of the end of the two-year internship.

e.   Payment in Cash for License Fee and Challenge-of-Test-Results Fee

Two regulatory stipulations were made in 2000, for implementation in 2001:

1.   Payment of license fees shall be in cash only.

2.   The Control of Insurance Transactions (Fees) Regulations, 5744–1984, were amended to set
     the fee for challenging the results of an examination (intern or full license) at NIS 250.




                                                                                                   15
                           5. Trends in the Market of Insurance Agents


     Agents’ Commissions8


     General Remarks

     Agents are an important mechanism for insurance companies in marketing policies. Changes in
     agents’ income may signal economic changes in the insurance market, growth of the industry,
     and economic changes in the insurance companies themselves. Since commissions are usually
     calculated as a percentage of the premium, they are also an important factor in the price of
     insurance to the consumer.




         Commission rates are set in several ways.

         In life insurance, the rate is fixed according to the Annual Bulletin (a standard table of
         commissions of each insurance company), occasional special promotions, and personal
         contracts.

         In general insurance, the occasional-promotion method is seldom used.

         In addition to standard tables and personal contracts, commissions are paid on the basis
         of insurance companies’ commission tables for each type of insurance. The method used
         to pay commissions also varies from one type of insurance to another. In life insurance,
         commissions are paid for new policies, increases in the face amount of insurance,
         collection fee (which remains constant throughout lifetime of the policy), and for
         management of the insurance portfolio. In general insurance, commissions are paid for
         new policies and renewals only. The method of remuneration also varies from one kind
         of insurance to another. In life insurance, the method is characterized by the way
         payments are spread, taking into account cancellations, the definition of the qualifying
         premium, the time when the commission is paid, etc. In general insurance, the
         remuneration method is distinguished by proportions of the premium according to tables
         based on types of insurance or personal arrangements.




     8   In this chapter, the term “agent” includes an corporate agent.




16
                                      Table 9.6
                   Insurance Commissions and Premiums, 1998–2000(1)

                          (NIS millions, adjusted to December 2000)


                                    General insurance                         Life insurance
 Year                  1998            1999           2000             1998          1999         2000

 Premiums          10,963.2          11,683.0         12,792.7        13,423.0     13,321.0     13,392.9
 Commissions         1,812.0          1,928.7          2,227.9          1,960.2      1,923.1      1,922.7
 Commissions/
 premiums (pct.)        16.5             16.5             17.4             14.6         14.4         14.4

Source: consolidated financial statements of insurance companies.
(1) The 1998 data are different from the corresponding data in Table 9.4 because this table is not based on
     consolidated statements.




Table 9.6 shows that the downtrend in agents’ commissions in general insurance stopped in
2000, after a decrease of NIS 75 million (3.7 percent) in 1997–1999, and that the rate of
commissions in premiums collected also leveled off. In life insurance, in contrast, the increase
observed in 1997–1999 continued, especially in the rate of commissions, which rose by about 1
percentage point, in contrast to the commission rate in general insurance, which was flat at
14.5 percent on average.




                                                                                                              17
     Life Insurance

                                         Table 9.7
                   Commissions and Premiums in Life Insurance, 1998–2000(1)

                                (NIS millions, adjusted to December 2000)


                                                                  Change             Change            Change
                                1998       1999     2000        1998–1999          1999–2000        1998–2000
                                                               Sum        Pct.    Sum       Pct.    Sum Pct.

      Premiums
      Lump-sum                 372.2      417.7       459.1      45.6    12.2%     41.4     9.9%     87.0 23.4%
      Annual (new)           1,014.2    1,232.0     1,547.3    217.9     21.5%    315.3    25.6% 533.1 52.6%
      Annual (other)          9,999.1 10,412.8     11,004.7     413.7     4.1%    591.9     5.7% 1,005.6 10.1%

      Total                 11,385.4 12,062.5      13,011.1    677.1     5.9%     948.6    7.9% 1,625.7 14.3%

       Commissions
      Lump-sum                    5.9        6.5        4.4       0.6     9.5%      -2.1 -32.7%      -1.6 -26.4%
      Annual (new)             839.0      863.0     1,068.8      23.9     2.9%    205.8    23.9% 229.7 27.4%
      Annual (other)          1,115.8   1,146.5     1,180.9      30.7     2.8%     34.4     3.0%     65.1 5.8%

       Total                 1,960.7    2,015.9     2,254.0      55.2    2.8%     238.1 11.8% 293.3 15.0%

       Commission/
      premium ratio
      (pct.)
      Lump-sum                    1.6        1.6        1.0                 0.0              -0.6             -0.6
      Annual (new)               82.7      70.0        69.1               -12.7              -1.0            -13.7
      Annual (other)             11.2       11.0       10.7                -0.1              -0.3             -0.4

       Total                     17.2      16.7        17.3                -0.5               0.6              0.1

     Source: regular annual reports from insurance companies.Source: regular annual reports from insurance
     companies.
     (1) The data were culled from annual financial reports presented by insurance companies to the
          Commissioner of Insurance.




18
Table 9.7 shows that the increase in premiums and commissions in life insurance, including the
share of commissions in premiums, continued in 2000. Agents’ commissions rose by 9.7
percent in 1997–1999 and by 15 percent in 1998–2000, for a real increase of 5.3 percent.
During these years, the nonrecurrent premium paid for new transactions increased by 23.4
percent while commissions paid on account of them declined by 26.4 percent. In premiums, in
contrast, no significant volatility was observed.

Explanations for the increases in premiums and in commissions paid on account of them may
be rooted in the real 27 percent increase in the market share of “preferred”-type executive-
insurance plans. Such policies accounted for 61 percent of the total increase in life insurance
during these years. The increase in the market share of “preferred” policies stems from
provisions in the Economic Arrangements Bill for 2000 that allowed insurance companies to
begin selling lump-sum “preferred” policies, since “preferred” policies given insureds a broader
range of options and greater flexibility than endowment-type executive plans. Additional
explanations may have to do with changes in life-insurance plans during 2000 and an increase
in redemptions. This points to the possibility of an artificial business cycle in this type of
insurance, which affected the level of agents’ commissions.




9   The terms “preferred” and “lump-sum” are explained in Chapter 3 of this report “Life Insurance.”




                                                                                                       19
                                         Table 9.8
                    Commission/Premium Ratios in Life Insurance, 1998–2000

                                (NIS millions, adjusted to December 2000)

                                        1998                             1999                           2000
                             Premiums     Com-     Commis–    Premiums    Com-      Commis– Premiums Com- Commis–

                                        missions    sions/               missions    sions/             missions    sions/

                                                   premiums                         premiums                       premiums

                                                     (pct.)                           (pct.)                         (pct.)




      Clal group             2,510.7     355.9       14.2      2,706.8    383.0       14.2     2,966.8 472.3        15.9
      Migdal group           3,676.9     561.0       15.3      3,832.7    555.9       14.5     4,181.7 669.3        16.0
      Phoenix group          1,812.2     323.9       17.9      1,969.3    338.7       17.2     2,172.9 349.2        16.1
      Harel group            1,103.5     202.1       18.3      1,613.9    305.4       18.9     1,752.8 327.5        18.7
      Menorah group          1,016.7     216.3       21.3      1,059.6    229.8       21.7     1,146.4 243.6        21.2
      Zion                     401.7      67.6       16.8           *          *                    *         *
      Ayalon                   106.7      20.6       19.3       120.9      26.7       22.1      140.6     30.6      21.8
      Eliahu                   151.4      19.7       13.0       167.4      20.4       12.2      177.5     20.5       11.5
      ILDC                     182.3      44.9       24.7       207.5      68.7       33.1      243.1    114.9      47.3
      Direct insurers             1.1                              4.8                           11.0

      Total                 10,963.2 1,812.0         16.5     11,683.0 1,928.7        16.5 12,792.7 2,227.9         17.4

     Source: consolidated financial statements of insurance companies.




20
                                    Table 9.9
        Market Shares of Insurance Companies in Commission Payments and
                       Premiums, Life Insurance, 1998–2000

                                                 (Percent)

                               1998                1999           2000
 Proportion of total Premiums        Com-    Premiums Com- Premiums    Com-
                      missions      missions           missions      missions



 Clal group                     22.9           19.6           23.2         19.9        23.2         21.2
 Migdal group                   33.5           31.0           32.8         28.8        32.7         30.0
 Phoenix group                  16.5           17.9           16.9         17.6        17.0         15.7
 Harel group  (1)
                                10.1            11.2          13.8         15.8        13.7         14.7
 Menorah group                    9.3           11.9           9.1         11.9         9.0         10.9
 Zion                             3.7            3.7
 Ayalon                           1.0            1.1           1.0          1.4         1.1          1.4
 Eliahu(4)                        1.4            1.1           1.4          1.1         1.4          0.9
 ILDC                             1.7            2.5           1.8          3.6         1.9          5.2
 Direct insurers    (2)
                                  0.0                          0.0                      0.1

 Total                         100.0          100.0          100.0        100.0       100.0       100.0

Sources: for groups — consolidated financial statements of insurance companies; for other companies —
regular annual reportsNotes to Tables 9.8 and 9.9:
(1) The Harel group acquired Zion, Ltd., in 1999. Therefore, the 1999 output is recorded under that of the
      Harel group.
(2) The term “direct insurers” refers to two companies: IDI Direct Insurance and A.I.G.
(3) The groups’ data were culled from the consolidated financial statements of the insurance companies.
      Thus, the figures in this report are different from those cited in the “Insurance Agents” chapter of the
      1999 repot of the Commissioner of the Capital Market, Insurance, and Savings.
(4) In these tables only, the record of premiums and commissions for Eliahu, Ltd., is in net terms.
      Therefore, the commission/premium ratio is much smaller for Eliahu than for the other companies in
      1998 and 1999.




                                                                                                                21
     Table 9.8 allows us to adduce the following:

     1.   In 2000, Migdal Insurance Co. raised its commission rate by 1.5 percentage points relative
          to 1999, in contrast to the steady downtrend in 1997–1999.

     2.   The commission rate of the Clal group rose steeply (by 1.7 percentage points) relative to
          1999. This is consistent with upturns in commissions and premiums.

     3.   The data in Paragraphs 1 and 2 shed light on the opposite trend in 1997–1999, in which
          the commission rate may have risen, by and large, at the small companies only.

     4.   ILDC Insurance’s commission rate increased steeply (by 42.9 percent in 2000 vs. 1999
          and by 91.5 percent between 1998 and 2000), after a gentler increase (35.7 percent) in
          1997–1999. This also explains the increase in ILDC’s share in total industry commissions
          to 5.2 percent (see Table 9.9), evidently due to growth of the ILDC insurance portfolio
          for reasons including the acquisition and formation of several insurance agencies (corporate
          agents) during the year.

     5.   Like the data on commission rates in general insurance, Menorah had one of the highest
          commission rates in the market and was joined in this respect by Ayalon and ILDC.

     6.   The large companies (the Clal, Migdal, Phoenix, and Harel groups) paid out 16.7 percent
          in commissions on average in 2000, as against 16.4 percent in 1998. The average for the
          three smallest companies in the market (Ayalon, Eliahu, and ILDC) was 26.9 percent (7.9
          percentage points higher than in 1998, due to the upturn in the commission rate of
          ILDC).10



     As Table 9.9 shows, Migdal maintained its leadership in share of industry-wide commission
     payments in 2000 (with an increase of 1.2 percentage points relative to 1999). The share of
     the Phoenix group in total industry commissions paid to agents declined by 2.2 percentage
     points in 1998–2000 and this group’s share in industry premiums rose by 1.5 percentage point.
     Concurrently, the share in commissions of the Clal group and, more emphatically, of ILDC
     increased while neither company’s absolute level of premiums changed substantially. The other
     companies showed no significant change.




     10 The relevant data for 1997–1999 appear in the “Insurance Agents” chapter of the 1999 Report of the
        Commissioner of the Capital Market, Insurance, and Savings.




22
General Insurance

                                 Table 9.10
      Commissions and Premiums in General Insurance, by Insurance Lines,
                                 1998–2000

                           (NIS millions, adjusted to December 2000)

                                   1998                             1999                           2000
                         Premiums Commissions Premium/ Premiums Commissions Premium/ Premiums Commissions Premium/

                                             commission                      commission                    commission

                                               ratio                           ratio                         ratio

Insurance line                                 (pct.)                          (pct.)                        (pct.)


Property loss          909.9         115.4     12.7        822.4     110.6      13.4       814.1   102.4      12.6
Homeowner’s
comprehensive          971.6         311.2     32.0        953.8     300.4      31.5       992.5   348.3      35.1
Business
comprehensive          304.4          66.1     21.7        278.0      60.1      21.6       278.9 58.6         21.0
Compulsory auto       3,770.8        115.2     3.1        3,697.8    113.5      3.1       3,759.2 107.1       2.8
Property auto         4,678.7        822.6     17.6       4,543.5    779.2      17.2      4,380.2 769.0       17.6
Employer’s liability   258.2          42.9     16.6        254.4      40.9      16.1       245.4 38.0         15.5
Other liability        842.8         135.8     16.1        897.1     139.7      15.6       894.1 134.2        15.0
Personal accidents     221.9          45.7     20.6        215.6      45.9      21.3       202.7 43.3         21.3
Illness and
hospitalization        791.2         177.2     22.4        935.5     197.1      21.1      1,005.1 213.5       21.2
Aircraft and marine
vessels                27.1           5.2      19.2        27.0      4.7        17.3       26.2    4.4        16.6
Cargo in transit       133.5          27.9     20.9        117.4     25.4       21.6       110.8   24.0       21.6
Engineering insurance 250.6           33.5     13.4        301.3     29.0        9.6       284.6   27.1        9.5
Credit insurance        98.3           0.2      0.2        104.8      0.2        0.2        68.9    0.2        0.2
Other risks            356.2          37.2     10.4        430.1     69.3       16.1       476.9   77.1       16.2
Business originating
abroad                  1.2           0.2      17.1         1.0       0.2       15.6        0.6     0.1       23.8

Total business           13,616.5 1,936.2      14.2       13,579.8 1,916.1      14.1      13,540.1 1,947.1 14.4

Data excl. direct
insurers
Compulsory auto          3,664.0     114.9     3.1        3,562.6    113.5      3.2       3,586.0 107.1       3.0
Property auto            4,409.4     822.6     18.7       4,230.7    779.2      18.4      4,050.4 769.0       19.0
Homeowner’s
comprehensive             934.7      310.9     33.3        910.1     300.0      33.0       948.6   348.3      36.7

Source: regular annual reports of insurance companies.




                                                                                                                        23
                                             Table 9.11
                                Rates of Change in Data in Table 9.10

                               (NIS millions, adjusted to December 2000)


                                    1998-1999                        1999-2000                       1998-2000
                             Premiums Commissions Premium/ Premiums Commissions Premium/ Premiums Commissions Premium/

                                                 commission                     commission                     commission

                                                   ratio                          ratio                          ratio

     Insurance line                                (pct.)                         (pct.)                         (pct.)


     Property loss          -87.5         -4.8      0.8        8.3       8.2        0.9      -95.8     -13.0      -0.1
     Homeowner’s
     comprehensive          -17.8        -10.8     -0.5       -38.7     -47.9      -3.6       20.9      37.1      3.1
     Business
     comprehensive          -26.4         -6.0     -0.1        -0.9      1.5        0.6       -25.5     -7.5      -0.7
     Compulsory auto        -73.0         -1.6     0.0        -61.4      6.4       0.2        -11.6     -8.1      -0.2
     Property auto         -135.2        -43.4     -0.4       163.3      10.2      -0.4      -298.5    -53.6       0.0
     Employer’s liability    -3.8         -2.0     -0.5         9.0      2.9        0.6       -12.8     -4.9      -1.1
     Other liability         54.3          3.9     -0.5         3.0      5.5        0.6        51.3     -1.6      -1.1
     Personal accidents      -6.2          0.1      0.7        12.9      2.6       -0.1       -19.2     -2.5       0.7
     Illness and
     hospitalization       144.3          19.8     -1.3       -69.7     -16.5      -0.2      213.9      36.3      -1.2
     Aircraft and marine
     vessels                 -0.1         -0.5     -1.9        0.8       0.3        0.7       -0.9      -0.8      -2.6
     Cargo in transit       -16.1         -2.5      0.8        6.6       1.4        0.0      -22.7      -3.9       0.8
     Engineering insurance 50.6           -4.5     -3.7       16.7       1.9        0.1      33.9       -6.4      -3.9
     Credit insurance         6.4          0.0      0.0        35.9       0.0       0.0      -29.5       0.0       0.1
     Other risks             73.9         32.2      5.7       -46.8      -7.7       0.0      120.7      39.9       5.7
     Business originating
     abroad                  -0.2         0.0      -1.5        0.5       0.0       -8.2       -0.6      -0.1      6.7
     Total business           -36.7      -20.1     -0.1       39.6      -31.0      -0.3      -76.4      11.0      0.2
     Data excl. direct
     insurers
     Compulsory auto          -101.4      -1.3     0.1        -23.4      6.4       0.2        -78.0     -7.8      -0.1
     Property auto            -178.6     -43.4     -0.2       180.3      10.2      -0.6      -358.9    -53.6       0.3
     Homeowner’s
     comprehensive            -24.5      -10.9     -0.3       -38.5     -48.3      -3.8       13.9      37.4      3.5

     Source: regular annual reports of insurance companies.Notes to Tables 9.10 and 9.11:
     (1) The 1998 data are different from the corresponding data in Table 9.4 because the figures were
          reclassified for those years.
     (2) The data were culled from the insurance companies’ annual reports to the Commissioner of Insurance.



     Since general insurance is divided into many insurance lines, this chapter discusses the main




24
lines—comprehensive homeowners’ insurance, property motor-vehicle insurance, health insurance
(personal accidents, illness, and hospitalization), and compulsory motor-vehicle insurance—which
accounted for 75 percent of total commissions paid out in 2000.



     Note: to analyze changes in the rates of commissions in compulsory motor-vehicle, property
     motor-vehicle, and comprehensive homeowners’ insurance, we use data from the “data excl.
     direct insurers” lines of the table in order to eliminate these companies’ data from those of
     the market at large.



Agents’ commissions in comprehensive homeowners’ insurance increased by NIS 47.9 million
in 2000 versus 1999 after having declined by NIS 19.1 million in 1997–1999. The share of
commissions in total premiums collected rose by 3.6 percentage points relative to 1999.
Premiums collected increased in 2000 after having declined in 1997–1999. The increases may
have occurred because quite a few transactions were concluded by means of mortgage banks,
which receive commissions that verge on 50 percent and insure buildings only and not building
contents. Recently, heightened public awareness of this type of insurance has lured new players
into this field. The nature of the sale requires investments and the use of new intermediaries,
and this was reflected in an increase in the commission rate in addition to the effect of lower
premiums on the aforementioned ratio. The slender margins on which the banks operate abetted
the entry of these new intermediaries.

In property motor-vehicle insurance, the downtrend observed in 1997–1999 continued and the
commission rate did not change significantly. This volatility is attributable to several factors
that affect the data in different ways:

1.      Growth of the motor-vehicle fleet — when there are more cars, obviously more
        insurance of this type is written, resulting in more premiums collected and more
        commissions paid on account of them.

2.      Rate of thefts — an increase in car thefts causes insurance premiums to rise. In 1999,
        motor vehicle thefts countrywide declined by 20 percent, and the downturn was translated
        partly into a decrease in premiums.

3.      Competition — the more competition there is, the lower the premiums are. The upturn in
        competition that occurred when direct-insurance companies joined the industry resulted in a
        lower level of prices. This is because competition in the industry prompts insureds to
        press their agents for “better” prices; the agents, in turn, waive part of the sum that the
        insured owes so that the insured remains with the company with which the agent works.
        The sum waived is made up of part of the agent’s commission.

4.      The mechanisms used in setting insurance rates have become much more efficient in




                                                                                                      25
          recent years and include more indicators for determining the level of premiums (e.g., age
          of the driver who drives the insured vehicle, extent of driver’s involvement in accidents in
          the five years before the insurance policy is written, and number of traffic offenses that
          the driver committed during those years). More precise underwriting under changing
          market conditions abets a larger average decrease in premiums due to competition in the
          industry.

     These indicators, as stated, make the data on premiums and commissions volatile in different
     ways, and their effect on this volatility determines the extent of the volatility.

     In compulsory motor-vehicle insurance, commissions paid to agents remained stable and the
     commission rates did not change significantly. Notably, the reform in compulsory motor-vehicle
     insurance, which the Commission of Insurance decided to implement in 2000, will not be
     applied until in April 2001; therefore, its effects are not yet evident.

     In health insurance (personal accidents, illness, and hospitalization), the increase in
     commissions paid out in 1997–1999 continued in 2000 in respect to illness and hospitalization,
     but the rates of commissions did not change significantly. Several factors explain these
     fluctuations and changes:

     1.   The public is increasingly aware of the supplemental illness and hospitalization insurance
          plans that insurance companies offer and of alternative types of insurance that are sold by
          public health-care providers.

     2.   The introduction of national health insurance made supplemental insurance more necessary.




26
                                     Table 9.12
           Changes in Companies’ Commission Rates, Life Insurance, 1998–2000

                           (NIS millions, adjusted to December 2000)


                                    1998                              1999                                   2000
                          Gross      Com-      Commi-       Gross      Com-       Commi-       Gross        Com-       Commi-

                         premiums   missions   sion/pre-   premiums   missions    sion/pre-   premiums     missions    sion/pre-

                                                mium                               mium                                 mium

Company or group                               ratio (%)                          ratio (%)                            ratio (%)


 Clal group             2,580.9      499.0        19.3 2,912.2          553.1        19.0 2,988.7            541.9        18.1
 Migdal group           1,540.0      267.6        17.4 1,296.3          237.6        18.3 1,322.0            231.8        17.5
 Phoenix group          2,107.4      401.9        19.1 2,205.8          396.8        18.0 1,857.6            351.5        18.9
 Harel group)           1,630.4      242.6        14.9 2,153.6          329.6        15.3 2,258.2            341.4        15.1
 Menorah group            714.9      147.8        20.7      688.6       148.0        21.5       732.5        160.4        21.9
 Ayalon                   550.5        81.6       14.8      601.9        88.8        14.8       706.7        100.2        14.2
 Eliahu                   657.0        79.6       13.3      641.9        78.7        13.5       595.9         74.2        13.7
 Agricultural
 Insurance                202.4        21.4       10.6      195.0        23.8        12.2       215.1         24.6         11.4
 ILDC                     415.9        70.7       17.0      376.9        62.6        16.6       478.2         70.5        14.7
 Direct insurers          414.0          0.3        0.1     500.6          0.4         0.1      557.0           0.7         0.1
 Zion     (1)
                          472.9        84.7       17.9           *            *                        *           *
 Ilit
    (2)
                          299.3        60.0       20.1         **          **                      **            **
 Avner                  1,499.8        -0.7         0.0 1,442.8           -0.3         0.0 1,221.0
 Karnit                   182.8                             168.4                               173.5
 Other                    154.8          3.8        2.5     137.0          4.1         3.0      286.6         23.4          8.2

 Total                   13,423      1,960        14.6 13,321           1,923        14.4 13,393             1,920        14.3
 Total excl.
 direct insurers         13,009      1,960        15.1 12,820           1,923        15.0 12,836             1,920        15.0

Source: consolidated financial statements of insurance companies.




                                                                                                                                   27
                                        Table 9.13
            Share of Insurance Companies in General-Insurance Commissions and
                                  Premiums, 1998–2000

                                                      (Percent)

                                         1998                        1999           2000
      Proportion of total        Premiums      Com-            Premiums Com- Premiums    Com-
                                 missions     missions                   missions      missions

      Clal group                     19.2           25.5            21.9        28.8          22.3        28.2
      Migdal group                   11.5           13.6             9.7        12.4           9.9        12.1
      Phoenix group                  15.7           20.5            16.6        20.6          13.9        18.3
      Harel group                    12.1           12.4            16.2        17.1          16.9        17.8
      Menorah group                   5.3            7.5             5.2         7.7           5.5         8.4
      Ayalon                          4.1            4.2             4.5         4.6           5.3         5.2
      Eliahu                          4.9            4.1             4.8         4.1           4.4         3.9
      Agricultural Insurance          1.5            1.1             1.5         1.2           1.6         1.3
      ILDC                            3.1            3.6             2.8         3.3           3.6         3.7
      Direct insurers                 3.1            0.0             3.8         0.0           4.2         0.0
      Zion(1)                         3.5            4.3               *           *             *           *
      Ilit(2)                         2.2            3.1              **          **            **          **
      Avner                          11.2            0.0            10.8         0.0           9.1
      Karnit                          1.4                            1.3                       1.3
      Other                           1.2            0.2             1.0         0.2           2.1         1.2

      Total                         100.0          100.0           100.0      100.0         100.0        100.0

     Source: consolidated financial statements of insurance companies.
     Notes to Tables 9.12 and 9.13:
     (1) In 1999, Zion, Ltd., was acquired by the Harel group; therefore, the data for Zion in 1999 and 2000
          are incorporated into those of the Harel group.
     (2) In 1999, Ilit, Ltd., was acquired by the Clal group; therefore, the data for Ilit in 1999 and 2000 are
          incorporated into those of the Clal group.
     (3) The groups’ data were culled from the consolidated financial statements of the insurance companies.
          Thus, the figures in this report are different from those cited in the “Insurance Agents” chapter of the
          1999 repot of the Commissioner of the Capital Market, Insurance, and Savings.




28
Table 9.12 shows that there is reason to distinguish between the large companies (the Clal,
Migdal, Phoenix, and Harel groups) and the small companies (Ayalon, Eliahu, and ILDC). The
large companies paid an average commission rate of 17.6 percent during these years; the small
companies paid 14.7 percent. Furthermore, in 2000, as in 1997–1999, Menorah had the highest
commission rate among the companies (21.9 percent, 0.4 percentage point greater than in 1999)
because this group sells mainly individual insurance, in which commission at point of sale are
higher than in group-insurance plans. It is noteworthy that ILDC’s commission rate declined in
by a steep 2.3 percentage points 1998–2000 (notwithstanding an NIS 7.9 million increase in
total commissions paid to agents in 2000 as against 1999). This figure is interesting in view of
the rapid increase in ILDC’s commission payments and commission rate in life insurance.

As for the companies’ share total commission payments (Table 9.13), the shares of the large
companies were unchanged or declined slightly whereas the smaller companies’ share rose.
Notably, the proportion of commissions of the Clal group in total commissions paid out by the
industry increased in 1998–2000 by 2.7 percentage points due to the acquisition of Ilit
Insurance Co. in 1999. The Harel group reported an increase of 5.4 percentage points in
1998–2000, but this was evidently due to the acquisition of Zion, Ltd., in 1999. The share of
the Phoenix group in total commissions paid declined by 2.3 percentage points relative to 1999
and this group’s share in total premiums collected fell by 2.7 percentage points. No significant
change occurred at the other companies.


Acquisition or Formation of an Corporate Agent by an Insurance
Company

In recent years, there has been a trend of acquisitions or formation of insurance agencies by
insurance companies. Not long ago, agents and insurance companies interrelated in two ways:

(1) Some agents worked as employees of insurance companies.

(2) Other agents marketed products of insurance companies and were paid on a commission
    basis.

The new trend has developed because insurance companies wish to market to clients on their
own, especially in respect to life insurance. The relationship between insurance companies and
their clients is indirect, i.e., mediated by insurance agents. By acquiring or establishing
insurance agencies, insurance companies create a direct relationship with their clients. This
behavior has led to concern about the possibility that the insurance companies will concentrate
too much of the industry in their hands. The Commissioner of Insurance gave thought to this
in references to these mergers and acquisitions. During the past year, there has also been a
spate of mergers among insurance agencies—a development hardly known in the past. In view
of rising competition in the market and the need to cut costs, this trend will probably gather
momentum in the years to come.




                                                                                                   29
     The following mergers were recorded in 2000:

     1.   Mivtah Shamir Insurance agencies (1998), Ltd., with Binyan Agencies, Ltd.

     2.   Mivtah Shamir Insurance agencies (1998), Ltd., with Simon and Wiesel Insurance
          Agencies, Ltd.

     3.   Betah, Ltd., with Elidov Insurance Agencies, Ltd.

     4.   ILDC Agency Holdings, Ltd., with Doron Pinhas.11

     5.   ILDC Agency Holdings, Ltd., with Sarfati Insurance Agency (1995), Ltd.

     6.   ILDC Agency Holdings, Ltd., with Canaan Insurance Agency, Ltd.

     The Commissioner of Insurance approves such mergers on the basis of legal and economic
     criteria. According to the Antitrust Law, corporate mergers should be opposed or subjected to
     conditions if there is reasonable concern that, as a result of the proposed merger, competition
     in the industry will be impaired significantly or the public will be adversely affected in one of
     the following respects:

     1.   the price level of a good or service;12

     2.   the quality of a good or service;

     3.   the quantity provided of a good or the quality of a service, or the regularity and terms of
          delivery thereof.

     The basic purpose of the law is to assure unhindered economic activity and to protect the
     public from economic distortions that originate in overconcentration in specific markets. The
     underlying value in the law is competition that will assure efficacy and maximum efficiency in
     resource allocation.

     Therefore, an examination is needed in order to determine whether the merger will significantly
     impair competition in the industry of intermediation in life and elementary insurance. As part
     of the inquiry, other insurance companies’ holdings in insurance agencies are examined. Several
     the tests are used to measure the significance of the harm caused:13




     11 Pursuant to this merger, an corporate agent called Doron Insurance Giant Insurance Agency, Ltd., was formed.
     12 Paragraph 1 of the law defines a “good” as including chattels, real estate, and rights; the acquisition of an
        insurance agency apparently meets this definition.
     13 The binding phrasing is that set forth in Civil Appeal 2247/95, Commissioner of Antitrust v. Tnuva, Supreme
        Court Rulings 55, 132.




30
1.   The concentration test — this test looks into the extent of concentration of control in
     the industry by one producer or marketer or by several, as against dispersion of control
     among a relatively large number of rivals, none of which is so dominant as to functioning
     as a monopoly.

           In this issue, two questions come up:

     (1)      the extent of control and concentration (market share) of a given insurance company
             in writing life and elementary insurance policies in Israel.

     (2) the extent of said company’s concentration in and control of insurance agencies in
         Israel. The test is performed both for vertical merger (examining the effect of the
         merger on the company’s control of the insurance industry) and for horizontal merger
         (examining the effect of the merger of competing companies on the level of
         competition in the insurance industry).

2.   The entrance-barrier test — this test asks whether control and concentration are
     preventing or inhibiting potential rivals from entering the relevant industry. This test is
     also meant to balance and moderate monopolistic behavior on the part of firms already in
     the market and to bring the price of the product back to the competitive equilibrium.
     These barriers usually occur due to objective difficulties or hardships that originate in
     monopolistic behavior by firms in the market. For example, a company that holds a
     monopoly in the sale of a given product will inform companies that use its product to
     manufacture another product that it will stop selling them product if they buy it from a
     new competitor that offers it at a lower price than that demanded by the monopoly but in
     smaller quantities than those sold by the company that has held the monopoly until that
     time. An insurance company may threaten to withhold its products from new insurance
     agencies if they also market the products of another insurance company or may lower the
     price of the product in the market by an extent that will make it unprofitable for new
     players to enter the insurance market.

In view of all this, a joint team of the Antitrust Authority and the Commissioner of Insurance
is reexamining the Division’s policy on these issues.



Training of Agents

The Control Law and its attendant regulations do not set threshold conditions for the formal
schooling of prospective insurance agents. Would-be agents do not need to have completed a
minimum number of years of schooling, let alone a matriculation certificate. This state of
affairs is unacceptable in view of the complexity of insurance products. Consequently, and in
consideration of the recommendations of the Spivak Committee, the Commissioner of Insurance
is developing a program in which persons who wish to become insurance brokers will be




                                                                                                    31
     required, among other things, to undergo a period of study that will equip them with the
     knowledge they will need to meet the requirements of the field adequately. The program is
     meant to make sure that future insurance agents will have appropriate schooling that will
     prepare them to tailor insurance plans to their clients optimally.



     Licensing Regulations

     Licensing procedures are procedures for the bestowal of an intern, agent, or corporation license.
     Some licensing procedures are stipulated explicitly in primary and secondary legislation, but
     others are interpretations of the provisions of the law or attempts to achieve the purposes of
     the law. A government authority must operate according to clear, fixed, recognized, and
     egalitarian procedures. Otherwise, there will be uncertainty and vagueness in its area of
     responsibility. It is vital to have clear and known procedures for the licensing of insurance
     agents. Notably, the procedures are revised periodically to make them more efficient and to
     adapt them to changes in legislation and the insurance market. The procedures are presented in
     the appendices to this chapter.




32
                              6. Exemptions Committee


The Exemptions Committee, part of the Office of the Commissioner, operates by force of
Subregulations 18 and 19 of the Control of Insurance Transactions (Licensing of Insurance
Agent) Regulations, 5729–1969. The subregulations empower the Committee to take several
actions, if the Commissioner so proposes:

1.   to exempt a license applicant (intern and full license) from examinations (all or some) if
     the applicant is knowledgeable and experienced in insurance affairs or has been tested on
     the subject matter of the examination at an institution that the Committee has recognized
     as one that teaches material pertaining to insurance.

2.   to authorize the issue of a license even to a person who has not completed an internship
     (or who has been exempted from it) and to one who has been an employee of an
     insurance company in a non-agent capacity.

In the exercise of its powers, the Agents Licensing Department coordinates the processing of
exemption applications, the work of the Committee, and the Committee’s decisions vis-a-vis
applicants. The applicant must attach to the application (for which there is no special form)
documents that demonstrate the terms set forth in the aforementioned Subregulations 18 and 19.
The procedure for submission of the exemption application is presented in Appendix 9.5.




                                                                                                  33
                                           Table 9.14
                   Exemption Applications Submitted to Exemptions Committee

                                                                1998         1999         2000

      Exemption from          Approved                             10             4        42
      intern                  No. of applications submitted        11            14        57
      examinations            Pct. of applications approved      91.0          28.6       73.7
      Exemption from          Approved                              0             2        23
      internship              No. of applications submitted         0             2        26
                              Pct. of applications approved       0.0         100.0       88.5
      Exemption from          Approved                             24             2          9
      license                 No. of applications submitted        47            31        33
      examinations            Pct. of applications approved      51.1           6.5       27.3
      Total applications submitted                                 58            47       116
      Pct. of applications approved                              58.6          17.0       63.8

     Source: Database of the Commissioner of Insurance




     Table 9.14 shows that the Exemptions Committee received many more applications in 2000
     than in 1998–1999. The main reason is enforcement of the arrangement described in Part 4
     (“Enforcement”) of this chapter, pertaining to agents who have held interns’ licenses for more
     than four years. The enforcement action led to an increase in requests for exemption from
     examinations, because these agents’ only other alternative was to pass the tests.




34
INSURANCE
AGENTS      APPENDICES
                                                     Appendix 9.1
                                          ntern Licensing Procedure
     1.   After the Agents’ Licensing Department of the Capital Market, Insurance, and Savings
          Division (hereinafter: the Department) receives a request, it sends the applicant an intern’s
          license application form. The form includes a payment coupon for the examination fee.14

     2.   After the examination fee is paid and the receipt is presented to the Department,
          applicants are sent a letter of invitation to the examination.

     3.   After the examination, the results are sent to the examinees. Those who pass are asked to
          provide the Department with certification from the agent who will train them during their
          internship. Concurrently, the Department asks the Israel Police to provide a printout of
          criminal convictions, so that the examinees’ integrity can be studied.

     4.   If the examinees meet the criteria in Paragraph 25(c)(1)-(2) of the Control Law, they are
          given an intern’s license in the types of insurance on which they have been examined.



                                                     Appendix 9.2
                                Licensing of Licensed Agent Procedure
     1.   At the end of the two-year internship, interns are given a one-year extension during which
          they must pass the licensed agents’ examination. They will automatically—without having
          to apply—be sent a letter of invitation to the licensed agents’ examination (including a
          payment coupon for the examination fee).15

     2.   If the examinees pass the exam and meet the criteria in Paragraph 25(c)(1)-(2) of the
          Control Law, they will be issued with an agent’s license for the types of insurance in
          which they passed the exam. Examinees who fail are automatically invited to two
          additional examinations on the types of insurance that they failed16.    Examinees who fail
          three times must repeat their internship in the respective type of insurance.




     14 A separate fee is charged for each type of insurance.
     15 This assumes, of course, that the examinees paid the intern’s license fee.
     16 Agents are entitled to take the licensed agent’s examination in a particular type of insurance three times.




36
                                              Appendix 9.3
                        Licensing of Corporate Agent Procedure17
There are several stages in authorizing the formation of an corporate agent (insurance agency),
including redefining the purpose of an existing company. In the first stage, the applicant agent
must present the following documents (“Stage One Documents”—they can be obtained from the
Department and in the future will be available at the Ministry of Finance’s Web site):

1.    application form for forming a corporation;

2.    declaration of the business manager’s liabilities;

3.    statement of shareholders in the case of an insurance company or banking corporation;

4.    draft Articles of Incorporation of the company, including the exclusive goal clause and the
      mandatory clauses;

5.    printout of criminal convictions of the company’s business manager/s and shareholders,
      obtained from the police;

6.       If any of the company’s founders (shareholders) are companies, a current printout from
the Registrar of Companies with details of the company/companies and a chart showing the
distribution of holdings in the company being formed;

7.       Any other document that, in the opinion of the Department or the Corporate Licensing
Committee, should be presented to clarify the identity of applicants and the essence of the
application.

The Stage One documents must meet two criteria:

         a)    The proposed business manager of the company cannot hold the same position at
               another agency. If the proposed business manager does hold this position at
               another agency, the company in formation must appoint a different business
               manager or the business manager will have to resign from the position at the
               other agency.




17   The procedures change from time to time; to stay abreast of them, consult the Agents Licensing Department.




                                                                                                                  37
             b)   The types of insurance to which the license application pertains must be identical
                  to those for which the business manager is licensed. (The agency may take on an
                  additional business manager. In other words, if the agency is applying for a
                  license for life insurance and elementary insurance, it may appoint one business
                  manager solely for life insurance and another for elementary insurance).

     After the Stage One documents are presented as stipulated, the application is passed to the
     Corporate Licensing Committee, which decides whether to approve the formation of the
     corporation and the use of the word “insurance” according to Paragraphs 99 and 100 of the
     Control Law. If the application is approved, the following documents (Stage Two documents)
     must be presented:

     1.   the company’s Certificate of Incorporation from the Registrar of Companies;

     2.   a printout from the Registrar of Companies giving the company’s details;

     3.   a copy of the company’s Articles of Incorporation, authorized by the Registrar of
          Companies in a phrasing approved by the committee;

     4.   A contract between the company and every insurance company and/or agency with which
          it will be working. The contract must include the date on which it goes into effect, the
          names and positions of the insurance company’s signatories; a clause obligating the
          company to keep insureds’ money in a separate bank account; a clause obligating the
          company to transfer insureds’ money to insurance companies by the 15th of the month
          following its collection; and an appendix concerning commissions;

     5.   the name of the accountant who will audit the company’s books.

     6.   a list of insurance agents who will be employed by the company (if any).

     7.   If the committee made its approval conditional, the company must meet the conditions
          stipulated.

     After the Stage Two documents are presented as stipulated, the corporate agent license will be
     issued.




38
                                              Appendix 9.4
     Replacement or Addition of Business Manager in Corporate Agent
                               Procedure18
To authorize the replacement of a company’s business manager or the addition of a business
manager, the following documents must be presented:

1.       corporation formation application form—solely for the purpose of updating details.

2.       declaration of the business manager’s liabilities;

3.       legible copy of the business manager’s valid license;

4.      minutes of the meeting of the company’s shareholders or board of directors at which
the appointment was made. A lawyer must certify, as part of the text of the decision, that the
decision was made in accordance with the Articles of Incorporation;

5.       printout of the business manager’s criminal convictions file, obtained from the police.

                                              Appendix 9.5
               Change of Holdings in Corporate Agent Procedure19




If the apportionment of shareholders’ holdings changes, it suffices to bring this to the
knowledge of the Agents Licensing Department for the purpose of keeping the records up to
date. However, if the identity of the company’s shareholders changes, the following documents
must be presented.

1.    corporation formation application form—solely for the purpose of updating details.

2.    statement of shareholders in the case of an insurance company or banking corporation;

3.    minutes of the company’s decision to make the change. A lawyer must certify, as part of
      the text of the decision, that the decision was made in accordance with the Articles of
      Incorporation;

5.    If the new shareholders include corporations, printouts from the Registrar of Companies
      should be submitted.




18 The procedures change from time to time; to stay abreast of them, consult the Agents Licensing Department.
19 The procedures change from time to time; to stay abreast of them, consult the Agents Licensing Department.




                                                                                                                39
                                           Appendix 9.6
                          Revocation of Agents’ Licenses in 2000
     a.   Insurance agents whose licenses were revoked due to bankruptcy as defined in the
          Bankruptcy Ordinance (Revised Version), 5740–1980:

          1.   Shlomo Greenberger, license no. 10885895

     b.   Insurance agents whose licenses were revoked due to criminal conviction:

          1.   Judd Jaaber, license no. 27549609

          2.   Yosef Parhi, license no. 23615511

          3.   Avraham Bar (Buzaglo), license no. 23039183

     c.   Insurance agents whose licenses were revoked at their own request

          1.   Mahshava Atidit Insurance Agency (1993), Ltd., license no. 511753881

          2.   Etzion Insurance Agency, Ltd., license no. 510133010

          3.   Gottvit Insurance Agency, Ltd., license no. 510556046

          4.   Ben-Ari Insurance Agency (1992), Ltd., license no. 511729039

          5.   Aloni Insurance Agency (1993), Ltd., license no. 511795593

          6.   Yuval Landau Insurance Agency (1994), Ltd., license no. 512020306

          7.   Avner (1987) Insurance Agency, Ltd., license no. 511187866

          8.   Amal Insurance Agency (1994), Ltd., license no. 511983223




40
                                       Appendix 9.7
                       Application for Exemption Procedure
1.   The Department provides the applicant with relevant forms; the applicant fills them out
     and attaches the requisite certificates and documents.

2.   The applicant presents diplomas attesting to his/her formal schooling and references from
     division managers or CEOs of insurance companies that attest to his/her professional
     caliber in the insurance field. After the applicant presents all the requisite diplomas and
     documents, the application is forwarded to the Commissioner of Insurance for a
     recommendation.

3.   If the Commissioner of Insurance gives a positive recommendation, the application is
     forwarded to the Exemptions Committee for examination. If the Commissioner of
     Insurance rejects the application, it is not forwarded to the Exemptions Committee and is
     rejected summarily.




                                                                                                   41

				
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