Ministry of Finance

State of Israel Ministry of Finance Capital Markets, Insurance and Savings Division Tender for the Establishment of a Data Bank for Automobile Compulsory Liability Insurance in Israel "Compulsory Automobile Liability Insurance - 2000" Tender No. SH - 1 - 1999 February 1999 This document is the property of the State of Israel The information contained herein shall not be published, shall not be duplicated, and shall not be used, in whole or in part, for any purpose whatsoever other than in response to this Request For Proposal Request for Proposal Compulsory Automobile Liability Insurance TABLE OF CONTENTS .............................. 2 ................................................................................................ ............................. ................................................................................................ 3 ................................................................................................................................ ...... 4 ................................................................................................ ......... 5 .................... ................................................................................................ 20 .................. ................................................................................................ 23 ................. ................................................................................................ 30 ................................................................................................ ........ 32 ................................................................................................................................ 47 .. TABLE OF CONTENTS EXECUTIVE SUMMARY RELEVANT DATES CHAPTER 0 - ADMINISTRATION CHAPTER 1 - OBJECTIVES CHAPTER 2 - APPLICATION CHAPTER 3 - TECHNOLOGY CHAPTER 4 - IMPLEMENTATION CHAPTER 5 - COST ANNEXES .....................................................................................................................................................53 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -2- Request for Proposal Compulsory Automobile Liability Insurance EXECUTIVE SUMMARY The State of Israel hereby requests proposals for participating in a tender for establishing and operating a data bank for the compulsory automobile liability insurance sector in Israel, pursuant to the Automobile Insurance Law (Insurance Under Controlled Competitive Conditions and Arrangements for a Transition Period), 5757-1997. As part of the reform of the compulsory automobile insurance sector in Israel, it was decided to cancel the uniform tariff and open it up to competition among the companies. This will require the insurance companies to prepare strategically, particularly in their computerization. The information infrastructure is a vital part in the proper operation of a competitive model. A data bank coordinating the information in the industry will enable the pure insurance risks to be priced, and will serve as a tool in ensuring the stability of the insurance companies on the one hand, and setting a fair tariff for insureds on the other. The data bank will assist both the insurance companies in their pricing and the regulatory entities in their duties. This tender is designed to select a vendor who will be responsible for establishing the data bank and for its current operation, for characterizing the statistical plan and the risk classification plan, the requisite actuarial processing, and the production of reports to clients of the system. In the course of current operations of the data bank, the vendor will be responsible for contacts with the insurance companies and the receipt and verification of statistical data from them. The vendor's staff will include actuaries, statisticians and insurance and data processing professionals, whose job it will be, among other things, to measure the pure insurance risks in the sector, make recommendations to the Commissioner of Insurance for final premium rates for the Pool, and to monitor the statistical plan and risk classification plan. The services requested by the tender includes mandatory services such as the preparation of a statistical plan and a risk classification plan for compulsory automobile liability insurance sector, periodic statistical reports of the pure insurance risks in the voluntary insurance market, quarterly reports of recommended premium rates for the Pool, and quarterly reports on the size and distribution of the Pool. In addition to the mandatory services, the vendor may offer the companies additional actuarial services and statistical processing for other areas of insurance, based on the specific data of each company separately, subject to the limitations of any law and with the prior approval of the Commissioner. Establishment of the data bank will be financed by the winning vendor (the operator). During the set-up period, the operator will have no income of any kind from the State or from the insurance companies. Once the data bank is in operation (the operational stage), payments will be transferred to the Operator by each of the insurance companies in the sector, where the amount of the payments will be fixed, inter alia, taking into account the proportional share of the company in the sector. Additional income will accrue if and to the extent that the Operator provides additional services as mentioned above. The compensation charged by the Operator for his services will be subject to regulation. The commitment between the State of Israel and the winning vendor will be for a period of three years from the end of the Data Bank set-up period, with an option for additional periods (up to 5 years cumulative), at the exclusive discretion of the State. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -3- Request for Proposal Compulsory Automobile Liability Insurance RELEVANT DATES Activity Publication of tender Receipt of tender specifications Date 28.2.99 By 21.3.99 Notes Between 09:00 and 16:00 Vendors' questions for the vendors By 15.3.99 forum Vendors forum 22.3.99 In the Conference Room (Halls 1 and 2), third floor, Ministry of Finance, Jerusalem, at 08:30 a.m. Distribution of minutes of the vendors forum Further questions of vendors Final answers to vendors' questions Delivery of proposals By 31.3.99 By 15.4.99 By 29.4.99 By 9.5.99, 12:00 noon In the box placed in the Records Department, Accountant General’s Division, fifth floor, Room 523, Ministry of Finance, Jerusalem Approval of Tenders Committee Signature of contract with the winning vendor By 17.6.99 By 1.7.99 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -4- Request for Proposal Compulsory Automobile Liability Insurance CHAPTER 0 - ADMINISTRATION GENERAL 0.1 The State of Israel hereby requests proposals in the framework of this tender for establishing and operating a data bank for the compulsory automobile liability insurance sector in Israel, pursuant to the Automobile Insurance law (Insurance Under Controlled Competitive Conditions and Arrangements for a Transition Period), 5757-1997. The establishment and operation of the data bank will be carried out on the basis of a commitment with the State, and will be supervised by the Commissioner of Insurance at the Ministry of Finance. The period of the commitment will be three years from the end of the set-up stage, which will be likely to be extended for further periods (up to 5 years cumulative), from time to time, at the exclusive discretion of the State. The requested application should meet the requirements described in this specification, as well as general standard requirements which prevail on the data processing sector. Selection of the vendor will be made by the State according to considerations of the quality of the proposal, the impression from the presentations, and cost. The State may abort the project at any time, at any stage, at his absolute discretion.       0.2 DEFINITIONS Bidder / Vendor A registered corporation or number of entities (individual or corporation) which have joined together prior to submission of the proposal, for the purpose of this tender; The Commissioner of Insurance at the Ministry of Finance; An agreement which will be signed between the Winner of the tender and the State; The State's estimate of the financial consideration appropriate for setting up and operating the Data Bank for providing the Mandatory Services in the first three years; As defined in the Law for the Supervision of Insurance Business, 5741-1981; The services listed in Section 2.5; The date on which the interfacing of the System with all Insurers, with the Pool, with Karnit and with the Commissioner will be completed A company registered in Israel, wholly owned by the Winner, with shareholders' equity as stated in Section 4.1.4.4 below, with which a Contract will be signed for the establishment and operation of the Data Bank in the Capital Markets, Insurance & Savings Division Commissioner Contract Estimate Insurer Mandatory services Operation Operator Tender No. SH-1-1999 -5- Request for Proposal Compulsory Automobile Liability Insurance Pure Risk the Commitment Period the Controlled Competition Conditions Law the State the Data Bank the Ordinance the Protection of Privacy Law the Sector the Securities Law the Set-up Period the Specifications the System the Tenders Committee the Tenders Regulations Winner Commitment Period; The cost of settling claims and payment of claims per unit of exposure, and that does not include loads for other expenses (such as agents' commissions, general and administrative expenses) or for profit; The period of time which encompasses the Set-up Period and up to three years from the end of the Set-up Period. The State may extend this period by additional periods (up to 5 years cumulative), from time to time, at his absolute discretion; Automobile Insurance Law (Insurance in Controlled Competition Conditions and Arrangements for a Transition Period), 5757-1997; The State of Israel; The Data Bank requested in this tender; The Automobile Insurance Ordinance [New Version], 57301970; The Law for the Protection of Privacy, 5741-1981; The compulsory automobile liability insurance sector in Israel; Securities Law, 5728-1968; The period of time from the date that the winner of the tender is declared until 1 December, 1999, or until the start of Operation of the Data Bank, whichever is the earlier; This document of the Request for Proposals, including the Administration section (chapter 0), the professional sections (chapters 1-4), the costing part (chapter 5), the Annexes and as many clarifying documents as may be; The dedicated system which will be proposed by the Vendor for implementation of the requirements of the tender; A special Tenders Committee which was set up for selecting the Winner of the tender; Regulations for the Duty to Publish a Tender;, 5753-1993; The Vendor whose proposal will be declared winner of the tender, as determined by the Tenders Committee. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -6- Request for Proposal Compulsory Automobile Liability Insurance ADMINISTRATION 0.3 How to acquire the documents of the tender 0.3.1 The cost of purchasing the documents of the tender is NIS 2,500. Payment should be made to the order of the Ministry of Finance, Account No. 0-24876-3 at branches of the Postal Bank, using the form which can be obtained at branches of the Postal Bank. This sum is non-refundable. The sections of the Specifications excluding the Annexes and the Contract can be downloaded free of charge from the Internet at http://www.mof.gov.il, under "Tenders". Downloading the Specifications from the Internet or copying it in any other way from the Internet shall not create any ownership thereof. In any case the binding version of the tender is the physical documents of the tender in Hebrew. To obtain the complete documents of the tender, apply to the following address by 21.3.99, Monday to Thursday between the hours of 09:00 and 16:00: Ministry of Finance, Capital Market Department, Room 813 1 Kaplan Street, Jerusalem. Fax: 972-02-6521857 Vendors' forum 0.3.2 A Vendors' forum will be held on 22.3.99 at 08:30 a.m. in the Conference Room on the third floor of the Ministry of Finance building. Participation in the forum is a condition of participation in the tender. Each Vendor or his representative will sign the list of participants which will be passed among the participants in the forum (hereinafter - the Tender Participation List). Participation in the Vendors meeting is contingent upon having purchased the documents of the tender as stated in Section 0.3.1 by the date of the forum. The information and the comments disseminated during the forum may lead to a change in the terms of the tender. Procedure for submitting questions and explanations 0.3.3 Vendors who wish to raise questions at the Vendors forum must send them in writing by registered mail or by fax so that they will be received not later than 15:00 on the date 15.3.99 at the address written above, addressed to the Commissioner of Insurance, Re: "Compulsory Automobile Liability Insurance Tender - 2000". Replies to Vendors' questions which are collected up to one week prior to the Vendors forum will be read out at the forum. Questions which are asked at the forum will be answered in writing and sent to all participants within a week of the date of the forum. Replies to questions and explanations which are received by 15.4.99 will be sent to all participants not later than one week prior to the date for submitting proposals. No questions will be accepted beyond the above date. All the answers to all the questions will be collected into numbered clarifying documents and sent by fax to all participants in the Vendors forum. All answers will be given in writing. Only written answers shall be binding upon the State. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -7- Request for Proposal Compulsory Automobile Liability Insurance Submitting proposals (M) 0.3.4 Proposals should be submitted as described in Section 0.5.2 below by 9.5.99 at 12:00 noon. Validity of proposals (M) 0.3.5 The proposals shall be valid for 150 days from the date of submission. In case of violation of the terms of the tender by the Vendor, the State may make forfeit the guarantee conveyed to him pursuant to Section 0.6.1. After that date, if the examination processes of the tender have not been completed and if the Vendor agrees, the term of the proposal shall be extended for a further 90 days. In such case, the Vendor shall extend the validity of the guarantee by 90 days or submit another in its stead on the same terms. After completion of the processes of the tender and approval of the results, the guarantee shall be returned to each Vendor who did not win the tender. THE SPECIFICATIONS This Request for Proposals consists of: This Administration part, marked as Chapter 0. Professional parts, marked as Chapters 1 -4. A costing part, marked as Chapter 5 Annexes, including a contract of commitment, and all clarifying documents, if any. 0.4     CLASSIFICATION OF COMPONENTS OF THE SPECIFICATIONS 0.5 Method 0.5.1 The components of the Specification are classified by the following symbols: INFORMATION (I) - This item in the Specification is for the Vendor's information only and does not require a response. The absence of a response will be understood as "Read and understood". Any comments which the Vendor has should nevertheless be made. GENERAL (G) - A component in the Specification requiring a general response without details. In all items marked G the response should state whether it exists or not and note important points only. The length of the replies in these sections should in most cases be between one line and half a page. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -8- Request for Proposal Compulsory Automobile Liability Insurance SPECIFIC (S) - A component requiring a detailed response and an accurate description of the way in which the requirement is met in the Vendor's proposal. In all items marked S the response should be full, detailed and precise. The State reserves the right to disqualify a proposal in which three responses to an S item merely quote the item in the Specifications, or three responses which are unclear and do not permit evaluation. The structure of the responses will be as follows: Next to the item number the Vendor will state Yes/Exists or No/Does-not-exist/Partiallyexists. In a new paragraph, the Vendor will give the detailed response, in clear and unequivocal text. Possible responses are: Yes/Exists, plus a precise and detailed description of the solution. 1. No/Does-not-exist/Partially-exists, with a timetable and resources for implementation of 2. the solution as an integral part of the System. No/Does not exist and will not be provided by the Vendor, with a description of the 3. reasons therefor. MANDATORY (M) - An item in the Specification with which compliance is an absolute requirement for acceptance of the proposal. The level of detail in the response should be as in S items. The tender distinguishes between M and MF in the following manner: M - Mandatory MF - Mandatory Future. The Vendor should note the distinction between M MF items. The present non-existence of an item classified as MF does not disqualify the proposal, but the Vendor undertakes to include the item in the implementation. If the Vendor is unable to reply at the S level to these items, he should not submit a proposal, in order to save the time and resources of both parties. In responding to items classified MF, the Vendor is required to undertake to implement the requirement, describe the method of implementation and give an estimated date for implementation. The Vendor may add comments and proposals of his own by adding a paragraph headed "Other". Such an item should be marked "99". For example - At the end of sub-section XX, sub-section XX-99 will be added. The object of this method of adding an item is to enable Vendors to adhere to the structure of the Specifications while leaving room for the insertion of any information which the Vendor believes is required for presenting his proposal. The Vendor’s proposal should include manufacturer’s specifications for each principal software item proposed. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division -9- Request for Proposal Compulsory Automobile Liability Insurance Structure of the proposal 0.5.2 The proposal should be submitted in Hebrew, and include a summary of major points from Chapters 1, 2, 3 and 4 only. The structure of the proposal will match the structure of the Specification and will be submitted in one envelope, in a number of copies as specified below: Chapter 0 - Administration and its annexes will be submitted in 4 identical copies in a separate inner envelope. Chapters 1 - 4 and their annexes, including the summary will be submitted in 8 identical copies and in a separate inner envelope. Chapter 5 - Cost and its annexes will be submitted in 4 identical copies in a separate inner envelope, clearly marked "Quotation". One copy of all the above chapters and annexes will be stamped on every page with the official stamp of the Vendor and defined as "Original". The proposal must refer to the entire Data Bank System and to all the chapters and sections. The State may disqualify a proposal for lack of detailed response to any of the sections of the tender which, in the State's opinion, precludes proper assessment of the proposal. Response to every section is mandatory. For example - Section 2.1 in the proposal will contain a response to Section 2.1 in the Specifications, Section 2.2 in the proposal will contain a response to Section 2.2 in the Specifications, etc. For a section for which there is no response, the Vendor will write "No response" and the next section will retain its original number as in the Specifications. The content and structure of the precise response in each section and sub-section will correspond to its classification - I, G, S or M. The classification of a section heading will apply to all its sub-sections unless a subsection states otherwise. In other words, the classification of a section heading is binding. For a sub-section with no classification, refer to its section heading. The sections of the Administration chapter (this chapter) are all classified M. The response will be "Read and Understood - Accepted", a broad response, auxiliary approvals or an undertaking for a future requirement, all according to the subject-matter and content of the section.     UNDERTAKINGS AND APPROVALS FOR SUBMITTING PROPOSALS (M) 0.6 Bank guarantee relating to submission of the proposal 0.6.1 Together with his proposal, the Vendor is required to provide an autonomous bank guarantee in the amount of NIS 500,000 to the order of the Accountant General at the Ministry of Finance, linked to the Consumer Price Index, validated by the Bank of Israel, for 150 days, worded as attached hereto and marked Annex 0.6.2 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 10 - Request for Proposal Compulsory Automobile Liability Insurance A foreign Vendor can make available, instead of the bank guarantee, an irrevocable stand-by letter of credit on these terms: The letter of credit will be confirmed by a confirming bank abroad of senior status (i.e., from a country with at least an A credit rating by S&P, Moody's or ICBA). The confirming bank will submit official notice of the authority of the signatories to the letter of credit. The submission of an alternative to the bank guarantee as aforesaid requires the prior approval (before submitting the proposal) of the Accountant General for the specific guarantee. The Vendor will extend the validity of the guarantee at the request of the State, until a final decision is made on the outcome of this tender. After completion of the processes of the tender and confirmation of its results, the guarantee will be returned to each Vendor who did not win the tender. The State may make the guarantee forfeit, in whole or in part, if the Winner of the tender fails to fulfill the terms in Section 0.7 or if the Vendor conveys, during the tender, misleading or inaccurate information or if the Vendor acts during the tender not in good faith or not in the accepted manner. Confirmation of bookkeeping 0.6.2 The Vendor must comply with the provisions of the Law for Transactions of Public Bodies a. (Enforcement of Bookkeeping and Payment of Tax Obligations), 5736-1976 (hereinafter Law for Transactions of Public Bodies). The Vendor will submit a valid confirmation of bookkeeping, VAT and records in accordance with the Law for Transactions of Public Bodies, as issued by the Income Tax and VAT Authorities. If the proposal is submitted by a corporation, the relevant approvals in respect of b. registration of the corporation, the signatory rights in the corporation's name and their authority to bind the corporation by their signature, including to bind the corporation with the undertakings subject of this tender, in the text appearing in Annex 0.6.2.    Proprietary rights 0.6.3 The Vendor declares that he is the owner of the copyright, the patent rights and any proprietary, contractual or other rights inherent in the proposed system and that he is entitled to distribute them, or that he holds all the requisite approvals on behalf of the owner/s of such rights to distribute them and to enter into an agreement pursuant to his tender. The Vendor declares that nothing in his entering into an agreement as a result of winning this tender will prejudice any copyright, commercial secrets, intellectual property rights, patent rights or any other right of any third party, and that no claim of violation of such rights has been filed. In cases where the proprietary rights in part or all of the proposed Data Bank System are owned by a third party, the Vendor will provide details in an explanatory addendum, of the source of his right to propose a system directly to the State rather than through an additional commitment with a third party. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 11 - Request for Proposal Compulsory Automobile Liability Insurance The Vendor will also state that he will indemnify the State in any case of a third party claim connected with the rights in the proposed solution, as provided in the Contract. The Vendor declares that all the proposed components of the system are currently maintained, and that he has no information of any planned interruption of their production or maintenance; nor, to the best of his knowledge, is there any obstacle or problem to continue to supply versions and updates in the five year subsequent to the date of submitting the proposal. Independence 0.6.4 To ensure the realization of the objectives of the Data Bank according to the Controlled a. Competition Conditions Law, it is imperative that there be relations of complete trust between the Operator - as an entity indirectly in the service of the public - and the State and the Insurance Companies. To this end, full independence must be maintained between the Operator and the entities which operate in the insurance industry. Accordingly, it is necessary to ascertain that there are no relations of ownership, business relations or other relations in the Operator, any of his units or his senior employees, which are liable to create a situation of potential conflicts of interest, relationships which create concern as to dependence or concern as to possible prejudice in the implementation of the objectives of the Data Bank in accordance with the Controlled Competition Conditions Law. The Vendor and all of his units, as well as persons who are designated to fill senior b. positions in the Vendor, are required to fill out an information disclosure form as shown in Annexes 0.6.4 B and C respectively, giving complete information. The correctness of the information in these Annexes is a material condition of the Contract which will be signed with the Vendor. In this matter, senior personnel will be all of these: Director, General Manager, Chief Business Manager, Deputy General Manager, 1. other manager directly subordinate to the General Manager, and any such officer even if his title be different. Actuaries. 2. A person who is part of the professional personnel referred to in Section 4.1.4.3, at 3. the senior managerial level of the operation in his field. Sub-contractors who fill the functions referred to above are required to meet the same criteria. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 12 - Request for Proposal Compulsory Automobile Liability Insurance The Tenders Committee may decide not to accept a proposal if it finds that owing to relations of the Vendor or any of his units, or of senior officers as aforesaid, there is concern as to conflict of interests, concern as to dependence or concern as to possible prejudice in the implementation of the objectives of the Data Bank pursuant to the Controlled Competition Conditions Law. Without derogating from the aforesaid, a Vendor in whom one of the units or senior c. officers meets conditions below (as the case may be), may not submit a proposal. An insurer operating in Israel, including a foreign insurer, or Lloyd's representative 1. (hereinafter - Insurer); A licensed agent in Israel; 2. A reinsurer operating in Israel; 3. Anyone holding means of control of 10% or more in one of those listed in items 1 - 3 4. above, directly or indirectly; Anyone in whom one of those listed in items 1 - 3 above holds means of control 5. therein, itself or with others as aforesaid, of 10% or more; Anyone in whom the holder of 10% or more of the means of control, directly or 6. indirectly, also holds 10% or more of the means of control in one of those listed in items 1 - 3 above, directly or indirectly; A Vendor whose proposed actuary or an officer as referred to in item 3 above does 7. not undertake not to work for one of those listed in items 1 - 6 above during the period of his employment in the Data Bank and for one year thereafter. For this matter, "means of control" is each of the following: The right to vote at the annual general meeting of a company or parallel entity of another 1. corporation. The right to appoint directors of the corporation or the General Manager. 2. The Operator will be required to report to the State immediately upon any change in an d. item of information from the sections of the signed questionnaires which he submitted in relation to his section, and may be required to fill-out questionnaires periodically to ensure the prevention of situations of potential conflict of interest or situations which are liable to prejudice the implementation of the objectives of the Data Bank pursuant to the Controlled Competition Conditions Law. Persons accepted for employment by the Operator and who met the criteria of section b. e. above, and employees who have access to the information in the Data Bank, will be required to fill-out a questionnaire in the wording attached hereto or another version submitted by the State to the Operator from time to time. The Operator will convey the completed questionnaire, together with a declaration of confidentiality as provided in the Contract. The State may determine that conditions exist which preclude the acceptance of the employee and accordingly, the Operator will not employ him. The Operator's employees will be required to report on any change in the data in the questionnaires, and may be required to fill-out questionnaires periodically, for the purposes referred to above. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 13 - Request for Proposal Compulsory Automobile Liability Insurance Void 0.6.5 Form for participation in the tender 0.6.6 Only those whose representatives participated in the Vendors' forum and signed up, will be permitted to participate in the tender. Contract of commitment 0.6.7 The text of a contract of commitment is attached to this tender. The Vendor is required to undertake that he will sign the Contract in the text attached to the tender if and when he wins the tender. This tender, its Annexes and the proposal submitted by the Vendor and its annexes, shall constitute an integral part of the Contract when signed. UNDERTAKINGS AND APPROVALS FOR WINNING THE TENDER (M) Compliance with requirements 0.7.0 Compliance with all the requirements set forth in this section is a pre-condition for the validity of the Contract and for concluding the tender process. Contract 0.7.1 The Winner shall submit a duly-stamped Contract signed by those authorized by him, within 10 days of receipt of the Contract, initialed by the authorized signatories of the State. The stamp will be procured by the Winner at his own expense. Performance guarantee 0.7.2 The Winner of the tender will submit an autonomous performance guarantee of a bank in the wording attached hereto as Annex 0.7.2. The CPI-linked bank guarantee will be in the amount of NIS 4,000,000 and shall be valid throughout the Period of Commitment. The guarantee shall be linked 100% to the Consumer Price Index. The base index for this purpose shall be the index known on the date of signing the Contract. The State will examine the possibility, after one year from the end of the Set-up Period, at his sole discretion, of partially reducing the amount of the guarantee. Overall responsibility 0.7.3 The Winner takes upon himself full responsibility for performance of the requirements of the Specifications. This responsibility includes all components of implementing the requirements of this tender, whether implemented directly by him or through sub-contractors. 0.7 Professional liability insurance 0.7.4 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 14 - Request for Proposal Compulsory Automobile Liability Insurance The winning Vendor will submit a valid copy of appropriate insurance policies whose scope and language must be approved by the State, as set forth in the Contract. Professional staff 0.7.5 The Winner undertakes, as part of his proposal, to provide a skilled workforce that is appropriate, with regards to size and training, for implementing the Data Bank System and for the services required of it, in the time frame defined for providing the required services. RIGHTS OF THE STATE Cancellation of the tender 0.8.1 The State may cancel this tender or issue a new tender at his absolute discretion without obligation to compensate or indemnify vendors therefor. 0.8 Change of terms of tender 0.8.2 The State may at any time, by way of published notice or in a letter to vendors, postpone the last date for submitting proposals, and may change other dates and conditions relating to the tender, at his sole discretion. OWNERSHIP OF THE INFORMATION, USE OF THE SYSTEM AND TRANSFERABILITY 0.9 The source code and all the programs which will be developed by the Operator in the a. framework of the Mandatory services, including formulae, calculations and coefficients and including their documentation and the raw data in the Data Bank and the products of the statistical processing of those services (hereinafter - the System Components), shall be the property of the State, and any use thereof shall be in accordance with the terms of the Contract. Nevertheless, the Operator may use the System Components, except for the raw data accumulated in the Data Bank, outside of Israel only, such that they will not be used by the Operator, directly or indirectly, or by any third party, in a manner connected with the activities of the insurance market in Israel, and provided that the Commissioner gives his prior consent to such use. "Source code" refers to the modules, programs, libraries, documents, files, documentation and operating instructions which the principal Vendor and sub-vendors produced for the Data Bank System, in the source programming language. At the end of the Period of Commitment, the Operator shall make all System Components available to the State or whoever the State may designate. To assure fulfillment of the requirements in sub-paragraph a. above, and to enable b. continuous and proper operation of the Data Bank, the Operator shall make regular deposits during the Period of Commitment, of a back-up copy of all System Components, stored in an appropriate medium, with a trustee who will be designated by the State, who will be named on the date of signing the Contract and who will act in accordance with the provisions of the Contract. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 15 - Request for Proposal Compulsory Automobile Liability Insurance The Operator undertakes to deposit the source code files from time to time with the trustee, c. including any change and any new version or new edition in use by Data Bank clients (hereinafter - “the Source"), as well as an up-to-date copy of a developer's manual and a user's manual. The deposit shall be made within 30 days of the date of installation of the first version and the installation of any updated version at client sites. The function of the trustee is to safeguard the material deposited for the use of the State in the following circumstances: The Operator is in the process of voluntary or involuntary liquidation. a. A temporary or permanent receiver has been appointed for the Operator. b. Inability to provide clients with services in accordance with the Contract. c. OWNERSHIP OF THE SPECIFICATIONS AND THE PROPOSAL Ownership and use of the Specifications 0.10 0.10.1 This Specifications are the intellectual property of the State, that are conveyed to the Vendor for the sole purpose of submitting a proposal. No use shall be made of the Specifications other than for preparation of the proposal. Ownership of the proposal 0.10.2 The proposal shall be the property of the Vendor, but the State may at any time make any use of the proposal, the documents and any other products of the proposal, thorugh his employees and through outside entities. Third party 0.10.3 Under the Tenders Regulations, vendors who do not win a tender may request to read the proposal of the winning vendor. A Vendor may state in advance (in his response to this section), which sections of his proposal may not be presented to competitors. Nevertheless, the Tenders Committee may, at its discretion, present to vendors who did not win the tender, any document which, in its professional opinion, does not constitute a commercial or professional secret and is necessary for compliance with the Tenders Law Regulations. COMPLETENESS OF THE PROPOSAL AND OVERALL RESPONSIBILITY 0.11 0.11.1 The proposal submitted by the Vendor shall be complete and prepared as a single integrated and operational unit. The Vendor shall be deemed to be the main contractor, and shall be responsible for all the activities and products of the sub-contractors or of any third party which is integrated into the project with the State's approval. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 16 - Request for Proposal Compulsory Automobile Liability Insurance 0.11.2 The Vendor shall declare and attach the consent of the other sub-contractors in the text attached as Annex 0.11.2, that all System Components are acceptable to him in relation to the products and services he is offering, and that they undertake to act in accordance with the requirements of this tender. Nothing in these consents shall derogate from the obligations of the Vendor. In any case of discrepancy, the Contract shall prevail over any agreement which the Vendor may have with his sub-contractors. SELECTING THE WINNING VENDOR 0.12 State's discretion 0.12.1 The State is not bound to select the least expensive proposal nor any proposal. The State has the right not to consider any proposal that is unreasonable in view of price by comparison to the substance and terms of the proposal, or owing to the absence of detailed attention to any of the sections of the tender which, in the opinion of the Ministry, precludes proper assessment of the proposal. Estimate 0.12.2 The State may reject a proposal which exceeds the estimate by 20% for that reason only. The estimate shall be deposited in a closed envelope in the tenders box prior to the last date for submitting proposals. Meeting essential requirements 0.12.3 In the initial stage of examining the proposals, all the envelopes for Chapters 0 - 4 will be opened and the vendors' compliance with the preconditions will be examined. A proposal which does not comply with one of more of these conditions will be disqualified. The proposals which comply with the preconditions will be passed to the next stage. Envelopes containing proposed costs (Chapter 5) will be opened only in the 2 nd Stage. Selecting the winning proposal 0.12.4 Selection of the winning proposal will be effected in three stages. Stage 1: Quality evaluation Each of the chapters 2, 3 and 4 will be given a relative weight, in percentages, as follows: 25% Chapter 2 - Application 10% Chapter 3 - Technology 60% Chapter 4 - Implementation 5% General impression 100% Total Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 17 - Request for Proposal Compulsory Automobile Liability Insurance As a condition for being passed to the next stage (cost evaluation), the Vendor must attain at least a score of 75% in the quality evaluation. Stage 2: Cost evaluation The cost assessment is based on the total amount of compensation sought by the Vendor for the first three years of Data Bank operation, as detailed in the cost envelope and as set forth in Chapter 5. Stage 3: Cost/benefit evaluation For the overall cost/quality evaluation of the proposals, the following proportions have been determined: Quality - 60% Cost - 40% JURISDICTION 0.13 Legal jurisdiction in everything concerned in the subjects and matters of this tender, or in any claim whose cause lies in the management process of this tender, shall be in the competent courts in Tel Aviv. SUMMARY OF ESSENTIAL CONDITIONS 0.14 For the convenience of Vendors, the table below summarizes the essential conditions of the tender. In any case of discrepancy between this list and the contents of the Specifications, the contents of the Specifications shall prevail. No response is required here to the items listed in the table. Responses should be given where the items appear in the Specifications. SECTION BRIEF DESCRIPTION SUBSTANCE OF REQUESTED RESPONSE Physical participation by Vendor 's Representative Validity of proposal Bank guarantee Approvals Declaration of "Read and understood, accepted" "Read and understood, accepted" declaration and response to questionnaires Declaration of "Read and understood, accepted" Declaration of "Read and understood, accepted" Declaration of "Read and understood, accepted" Capital Markets, Insurance & Savings Division 0.3.2 Participation in Vendors forum 0.3.4 Date and time for submitting proposal 0.6.1 Bank guarantee in respect of submitting the proposal. 0.6.2 Certification of bookkeeping, registration with the VAT and income tax authorities 0.6.3 Vendor's declaration as to his rights in the proposed system 0.6.4 Independence 0.6.6 Contract 0.7.0-0.7.6 Obligations and approvals which will be required of the Winner 0.7.2 Performance guarantee Tender No. SH-1-1999 - 18 - Request for Proposal Compulsory Automobile Liability Insurance SECTION BRIEF DESCRIPTION REQUESTED RESPONSE 0.7.3 General Responsibility 0.7.4 Liability insurance 0.75 Professional workforce 2.0 Preparation of software for transition to the year 2000 2.4 Full support user interface in Hebrew 2.5 Mandatory services 3.0 Preparation of hardware and products for transition to the year 2000 3.11 Platform for Data Processing 4.1.4.1.6 Detailed information about the Operator 4.1.4.3 Proven experience + details of staff qualifications 4.1.4.4 Financial robustness 4.1.4.5 b. Project manager shall not be replaced without prior approval 4.2.2.2 Stages of implementation Declaration of "Read and understood, accepted" Declaration of "Read and understood, accepted" Declaration of "Read and understood, accepted" Commitment Declaration Detailed response Commitment Commitment for system support Registration as Israeli company Description, declaration, recommendations and examples Audited financial statements of the last three years Declaration Undertaking to meet the required timetable for setting up the Data Bank and for its operation in activities which are the responsibility of the Vendor Commitment Commitment and execution Commitment and execution Detailed response Undertaking to finance activities of supervisory entity 4.4.2 Permanent office 4.5 Documentation 4.6 Maintenance 5 Costs 5.0 Supervisory entity on behalf of the State Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 19 - Request for Proposal Compulsory Automobile Liability Insurance CHAPTER 1 - OBJECTIVES GENERAL (I) During 1997 the Commissioner of Insurance made a comprehensive examination of the desired arrangements for the operation of the compulsory automobile liability insurance sector in Israel. It was decided that one of the most important areas needing reorganization was the premium rate for compulsory automobile insurance. Today, a uniform rate is fixed in the Regulations by means of the Compensation Law and not by the insurance companies. As part of the reform, it was decided that the uniform rate would be cancelled and competition permitted among the companies under the supervision of the Commissioner of Insurance. The premium rate mechanism for the Pool will be set out in the Regulations pursuant to the Ordinance. The insurance companies must prepare themselves strategically, and in the field of computerization in particular. The information infrastructure is a vital part of the proper operation of a competitive model. A data base coordinating the information in the industry will enable evaluation of the insurance risks, and will serve as a tool in ensuring the stability of the insurance companies on the one hand, and setting a fair rate for insurees on the other. The data base will assist both the insurance companies in their pricing and the regulatory authorities in their duties. The Commissioner of Insurance is also required to make similar preparations, among other things, for the proper evaluation of the insurance risks in the sector, and particularly as regards setting the premium rate for the Pool. Accordingly, as part of the preparation of the regulatory authorities, Sections 7(c) and (d) and Section 11A, which deal with the Pool mechanism and rates and with the establishment of the Data Base, were added to the Ordinance (in the framework of the Controlled Competition Conditions Law), and state as follows: "7(c) Authorization pursuant to this section shall be treated as contingent also on an Insurer who received the authorization and acts thereby, acting also in accordance with the arrangement for insurance of every automobile user who failed to acquire a policy directly from an Insurer, as the Minister of Finance shall determine, with the approval of the Finance Committee of the Knesset, and all under the terms and according to the rates which shall be fixed according to this section." "7(d) The mechanism for fixing the insurance rates for an automobile user who failed to acquire a policy directly from an Insurer in the Pool framework, as defined in the Automobile Insurance Law (Temporary Provision), 5757-1996, or as part of an arrangement in accordance with the provisions of sub-section (c), shall be determined by the Minister of Finance, based on information in respect of the risks in the automobile insurance sector and in accordance with rules which shall be promulgated with the approval of the Finance Committee of the Knesset." 1.0 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 20 - Request for Proposal Compulsory Automobile Liability Insurance "11A The Minister of Finance, in consultation with the Minister of Transport and the Minister of Justice, may determine provisions concerning the establishment and management of a data bank which will be used for assessing the cost of risks in the automobile insurance sector; information under this section will also be conveyed to the regulatory authority upon its demand. Regulations pursuant to this section shall include, inter alia, instructions concerning 1) The duty of an insurer to convey information to the data bank, provided that such information does not contain identifying details about the insureds or information about their religion, nationality or origin; 2) Instructions concerning the details of the information which an insured will convey to an insurer for fulfillment of the insured's duty pursuant to this section." By virtue of the power vested by this section, the State seeks to establish and operate the Data Base. CLIENTS (PRINCIPAL USERS) (I) The data bank is designed to serve the following principal users: The Insurance Companies. The Pool - insures automobiles which have been rejected by the other insurance companies. Karnit - fund for the compensation of road accident victims. The Commissioner of Insurance. 1.1     GOALS OF THE DATA BANK SYSTEM (I) The main object of the Data Bank is to collect essential, practical and precise data, and to analyze them for the needs of the sector and the regulatory authority and for the objectives of the Controlled Competition Conditions Law. The Data Bank should assist the insurance companies and the regulatory authority in evaluating the risks inherent in compulsory automobile insurance as defined by various parameters. The data that is collected will enable the Insurance Companies to price their policies appropriately, thereby helping them to maintain their stability. The Data Bank will also serve in the setting of the premium rates for the Pool. The products of the Data Bank will enable the maintenance of fair competition in the sector while contributing to the stability of the Insurance Companies, increasing the effectiveness of the regulation and assisting in the evaluation of insurance risks of the insurers. 1.2 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 21 - Request for Proposal Compulsory Automobile Liability Insurance The Data Bank will also enable the development of tools which will enable inspection of the fairness of the insurers' insurance rates while ensuring their adequacy, the prevention of discrimination among insurees, and the prevention of collection of surplus tariffs. The main targets of the Data Bank are these: To provide statistical information for evaluating the Pure Risks inherent in compulsory automobile insurance. To assist the Commissioner in setting the premium rates for the Pool. Costing of special risks. To estimate the proportion of uninsured motorists in the sector. To examine trends in the compulsory automobile insurance sector, particularly as regards the influence of various parameters on Pure Risks. To provide a range of statistical information to the Commissioner. For a general description of the sector and the relevant legislation - see Annexes 1.2, 1.2A and 1.2B respectively.       1.3 - 1.6 VOID TIME HORIZON The Controlled Competition Conditions Law states that starting from 1.1.2000, the uniform premium rate in place today in compulsory automobile liability insurance will be cancelled, and premium rates will be set by the Insurance Companies themselves on competitive terms (subject to regulation), except for the Pool premium rate mechanism, which will continue to be set in the Regulations pursuant to the Ordinance. For this purpose, immediate preparations are required to enable the Data Bank to operate fully by not later than 1 December, 1999. The period of commitment will be three years from the end of the Set-up Period, with an option of an additional two years up to 5 years cumulative, at the sole discretion of the State. 1.7 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 22 - Request for Proposal Compulsory Automobile Liability Insurance CHAPTER 2 - APPLICATION GENERAL (I) The requested application is the establishment and operation of a data bank for the compulsory automobile insurance sector in Israel. The application will include mandatory services such as developing a statistical plan and a risk classification plan for the compulsory automobile insurance, recommending premium rates for the Pool, and reports as described below. Characterization and design of services, information needs, data structure, statistical plans, reports, etc., will be done by the Vendor in coordination with the State. In addition to the mandatory services, the Vendor may propose additional services to the Insurance Companies, subject to any law and to the prior approval of the Commissioner of Insurance. The Operator will develop a mechanism for assuring the quality of the data maintained in the Data Bank. The data bank Operator will not store information and will not make recommendations as to final insurance rates which include expenses (except for expenses for claim settlement) or profits, except for information which relates to setting the Pool rates. The Data Bank Operator shall not refuse to provide any service for which he has received approval as part of his activities pursuant to this tender, for any authorized insurer against fair and regulated payment. The Data Bank Operator will serve as the representative of the Commissioner in collecting, examining and processing the information he requires from the Insurance Companies. The Data Bank will be subject to the provisions of the Protection of Privacy Law. The Data Bank System will be ready for the new century, i.e. for transition to the year 2000. A year field in the System will be defined, stored, dealt with and presented in four digits 1999 or 2000. (M) 2.1           Vendors please note: The response to this chapter should be detailed and precise, including a description of the proposed solution for each section. 2.1 - 2.3 VOID Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 23 - Request for Proposal Compulsory Automobile Liability Insurance USER INTERFACE (S) The user interface will provide full support for the Hebrew language. (M) The stored textual information will be in Hebrew. The reporting of the Insurance Companies will be in Hebrew. All output (hard copies) and reports supplied to the Insurance Companies and to the Commissioner will be in Hebrew. (M) Versions in other languages may be added to these reports. 2.4 1. 2. 3. 4. MANDATORY SERVICES (M) The Data Bank Operator will be required to provide the services listed below in this paragraph. In his proposal, the Vendor will provide full details, to the extent possible, of the nature and the content of the requisite mandatory services, including the manner and methods of implementation, the structure of the programs, methods of operation, specimens of each of the requested reports and how they will be provided, and including timetables. Programs and tasks (S) 2.5.1 Development of a statistical plan The statistical plan is a detailed document defining the way in which the insurer must code and transfer the information concerning premiums and claims (with reference to characteristics of the automobile and the driver) to the Data Bank. The statistical plan defines the details of the information, its form, the quality requirements and timetables for reporting by each insurer. An example of the minimum amount of information to be included in the statistical plan can be seen in Appendix 2.5.1.1. The Data Bank Operator will propose a statistical plan which will be presented for the approval of the Commissioner. The plan will be inspected at least once a year, and will be updated by the Operator as necessary and with the Commissioner's approval. Development of a risk classification plan 2. 2.5 1. A risk classification plan includes instructions for classifying insurance risks into homogeneous categories (such as age and sex of driver, driving experience, type of automobile and its manner of use). Each risk definition will refer to one classification only. Classification of the risks shall not be based on the origin, religion or nationality of the insured. The Data Bank Operator will propose a preliminary classification plan (based on information, analyses and actuarial findings in his possession) which will reflect the risk components connected both with the automobile and with the insured drivers, and will also effect a regular assessment and update of the plan once a year according to the information accumulated in the Data Bank. The classification plan and its updates will be brought for the approval of the Commissioner. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 24 - Request for Proposal Compulsory Automobile Liability Insurance Development of formulae, coefficients and calculations 3. Development of the coefficients, formulae and calculations that are required for the production of the mandatory periodic reports. The coefficients and detailed description of the data processing methodology will be submitted to the Commissioner and to the Insurance Companies as part of the report. The proposal should give details of the intended methods of analysis. Data entry and conversion 4.   The Operator will acquire data from the insurers as follows: From the Operation Date and not later than the end of the Set-up Period, the Operator shall acquire, at least once a month, current data according to the approved statistical plan as provided in "Logical files" (2.5.2). By not later than the end of the Set-up Period, the Operator shall acquire historical data in respect of the periods 1995 to 30.9.99 and convert then so as to enable their use for implementation of the mandatory services. Quality control 5. The Data Bank Operator will conduct tests and actions for assuring the accuracy, completeness and availability of statistical data, including statistical sampling, and tests of reasonability and completeness. The Vendor will propose a mechanism designed to encourage insurers to: report reliable data to the Operator in the form and means described in the statistical plan; thoroughly check and correct data prior to their transmission to the Operator. Collect particular items of information as necessary 6.   The Commissioner may from time to time require Insurance Companies to submit additional data not previously included in the statistical plan, through the Data Bank Operator. Conducting regular statistical investigations 7. Regular statistical investigations will be carried out on the Operator's initiative or upon the demand of the Commissioner, to identify factors which affect insurance claims or for assessing the effects of legislative changes, if any, on the Pure Risk of insurance. Assimilation 8. The Operator will ensure the assimilation of the System at the premises of the various users, including detailed documentation, instruction and support as set forth in the chapter "Application ". Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 25 - Request for Proposal Compulsory Automobile Liability Insurance Information for the public 9. The Data Bank Operator will make information available to the public in accordance with principles that will be established with the approval of the Commissioner, including via the Internet. Logical files 2.5.2 Statistical data will be provided to the Operator on a unit transaction basis at the level of the individual automobile. In this regard, "unit transaction" - one or more records for each transaction of issuing a policy or payment of a claim, meaning - a record for each transaction relating to premium in case of issuing, changing or cancelling a policy, as well as a record of each transaction related to the payment of claims for each automobile separately. The Data Bank system should be flexible enough to respond to new questions which may arise from time to time, and to permit integration with the information on other data banks, insofar as these are available to the Data Bank Operator, for the purpose of achieving the Data Bank objectives. The statistical data in the Data Bank will be updated at least once a month. The information will not be erased, and shall be retrievable in any statistical cross-section required. Reports 2.5.3 Principles 1.         Form and detailed design of the reports are subject to the approval of the Commissioner. All reports will be able to be viewed on-line and will be electronically transferable from the access station on the client's premises. The reports will also be conveyed, upon client demand, on magnetic and/or optical media and/or in hard copy.. Data Bank reports should include changes in the purchasing power of the shekel in past years, and include inflation calculations. Standard reports to the insurance sector will be produced once a year. A report on the size of the Pool and the percentage of uninsured motorists will be produced once every calendar quarter. A report on recommended premium rates for the Pool will be produced at least once every calendar quarter. Any statistical report will be supplied within one week from the requisite date. The reports will be able to be received as text reports, and in standard spreadsheet form. Statistical reports as a basis for assessing Pure Risks in the voluntary market 2. The Data Bank Operator will generate the following calculated results every year: Loss ratios, average cost of claims, claim frequencies, loss costs. Results will be broken down according to type of coverages, region and risk classification, all at the overall sector level. The Operator will also generate a report for each insurer, which will include its exposure to risk and specific claims experience. In this regard, "loss cost" - the part of the premium rate which does not include expenses (except for claim settlement expenses as defined in the statistical plan) and profits, based on Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 26 - Request for Proposal Compulsory Automobile Liability Insurance past claims experience plus an estimate of future payments in respect of those claims (which will be shown separately), and taking into consideration the trends (which will be shown separately) which affect claim frequency and the cost of claims. The annual reports for the year 2001 onwards will be produced not later than the date to be set by the Commissioner. The first annual report will be produced not later than 10.05.2000. The aforesaid notwithstanding, the Pure Risk for the beginning of the year 2000 will be based on information submitted by the Insurance Companies and additional available information, insofar as exists (statistical data, knowledge and actuarial research in the Operator's possession). The reports to the Commissioner and to the Insurance Companies will include detailed explanations, as far as possible, of the information on which the Data Bank Operator relied and the manner of its analysis for the purpose of producing the reports, so as to enable the intelligent assessment of their compatibility with the specific needs of each insurer. Report on the size of the Pool and the percentage of uninsured motorists 3. The Data Bank Operator will produce a detailed report once every quarter, on the number and characteristics of insureds in the Pool, as well as an estimate of the percentage of uninsured motorists. Reports on final Pool rates 4. The residual market mechanism (the Pool) is a insurance arrangement for automobile users who are unable to acquire a policy directly from an insurer. Pool premium rates will be based on analysis of Pure Risk, subject to rules to be determined pursuant to the Ordinance. The report will be submitted to the Commissioner on at least a quarterly basis. Additional reports and information for the public 5. The Operator will produce and distribute additional reports upon the demand of the Commissioner, including statistical information which will be made available to the public via the Internet. In this regard, the Commissioner may demand that the Operator produce up to three reports a year which require the collection and processing of new data, and also any report (unlimited) which processes raw data which is already in the Data Bank by means of a standard report generator or the report generator of the tool whereby the operating system of the Data Bank will be implemented. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 27 - Request for Proposal Compulsory Automobile Liability Insurance ADDITIONAL SERVICES (S) offer additional services to a specific insurer on the basis of its The Data Bank Operator may individual data, or to other relevant entities, with the prior approval of the Commissioner and subject to any law, and particularly the provisions of Restrictive Trade Practices Law, 57481988. Assuming that the vendor intends to provide additional services as aforesaid, the types of services should be noted in this chapter and a forecast of the income and expenses as noted in Chapter 5. The Operator will not be permitted to provide statistical information which is not in accordance with the approved statistical plan. 2.6 2.7 - 2.18 VOID INFORMATION SECURITY (S) 2.19 The information stored in the Data Bank is confidential. The Operator is responsible for employing all requisite means for ensuring the confidentiality of the information in the Data Bank and for ensuring that no use is made thereof other than for Data Bank objectives, in accordance with all laws and in accordance with the terms of the tender. As stated in section 11A(2) of the Controlled Competition Conditions Law, the information which will be received from the insurers shall not include identifying details about insureds or information on their religion, nationality or origin. The information will include the characteristics of the automobile and the driver in a form which will preserve personal privacy. The Vendor is responsible for ensuring preservation of the integrity of the information in the Data Bank, preventing damages, gaps, manipulation and unauthorized penetration. Data about individual insurance companies will not be made public and will not be conveyed to other insurers. The Vendor is responsible for creating internal organizational audit functions. The Vendor is responsible for setting procedures for the backup and reconstruction of statistical data. The provisions of this chapter shall apply also to external interfaces as set forth in Section 2.22 1. 2. 3. 4. 5. 6. 7. 2.20 VOID Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 28 - Request for Proposal Compulsory Automobile Liability Insurance SIZE OF THE SECTOR (I) 2.21 Below are some quantitative data about the compulsory automobile liability insurance sector in Israel. These data are only partly indicative. The State does not undertake that the data are complete and accurate, and it is incumbent upon the Vendor to verify and complement all information which he believes is relevant to this tender. Total insurance premiums and their distribution appear in the annexes attached. In 1996 and 1997, insurance premium from the compulsory automobile liability insurance sector accounted for about one quarter of total insurance premium in the Israeli general insurance sector (total insurance premium received in the general insurance sector in 1997 was about NIS 12,495 million, compared with NIS 12,891 million in 1996). Total insurance premium received in 1997 from automobile property insurance was about NIS 4,300 million, compared with NIS 4,700 million in 1996. The number of road accident victims in 1997 was 47,451, compared with 46,534 in 1996 and 38,524 in 1995. Total number of new claims (according to loss year) in 1997 was about 84,000 (about 83,000 in 1996). In 1997, 22 companies operated in the compulsory automobile liability insurance sector (not including Karnit and Avner). Details about the insurers in the compulsory automobile liability insurance sector (including data on their volumes of activity in the sector), appear in Annex 2.21. In 1997, 1,616,828 vehicles were registered at the Licensing Office in Israel, compared with 1,524,870 in 1996 and 1, 459,018 in 1995. The number of vehicles in the Pool as at 31.12.97 was about 70,000, of which more than 90% were motorcycles Most motorcycles are insured in the Pool.. 1. 2. 3. 4. 5. 6. 7. 8. 9. EXTERNAL INTERFACES (S) 2.22 The Data Bank Operator will create interfaces with the Insurance Companies, the Pool, Karnit and the Commissioner, as far as possible in a standard and uniform way which the Operator shall determine. On the subject of interfaces with other data banks, see Section 2.5.2, "Logical files". The standard access method to the Data Bank will be by means of computers online to the Data Bank. The Operator will supply customers with software which will enable them to order reports, view them and print them while ensuring a high level of information security, and which may also be used for submitting data to the Data Bank. The Operator will also be required to set up a dedicated site on the Internet, at which information such as final Pool rates as set and approved will be published for public use according to the Controlled Competition Conditions Law. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 29 - Request for Proposal Compulsory Automobile Liability Insurance CHAPTER 3 - TECHNOLOGY GENERAL (I) The Vendor will be responsible for setting up the necessary technical system for operating the Data Bank, including hardware and software. The Data Bank will be established using tools that are standard and commonly-used in Israel and throughout the world. The system will be prepared for the new century, i.e. for transition to the year 2000. A year field will be defined in the System, and stored, dealt with and presented in four digits, 1900 and 2000. (M) 3.0    PRINCIPAL HARDWARE (S) The Vendor will describe the configuration of the principal hardware to be used for the Data Bank. The proposal will state whether use will be made of computers which will be purchased specially for the implementation or whether the Vendor's existing computers will be used. The Data Bank must not be unavailable for more than seven business days per year. 3.1 1. 2. 3. DATA STORAGE AND SURVIVABILITY (S) The Vendor is responsible for survivability of the data in the Data Bank. In case of malfunction, the Vendor will ensure complete reconstruction of the Data Bank. The means for backup will be stored in Israel in a fireproof facility at a distant site from the main operating site, in the storage conditions that are recommended by the manufacturer, and will be in the control of a trustee on the State's behalf. (M) 3.2 1. 2. 3. END-USER EQUIPMENT (S) Clients will be responsible for the purchase and installation of end-user equipment, to the extent required, for operating the interface on their premises. 3.3 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 30 - Request for Proposal Compulsory Automobile Liability Insurance COMMUNICATIONS (S) The Vendor will describe the configuration of the communications infrastructure and its components, both at his site and at clients' sites. The communications infrastructures required at clients' sites, to the extent required, will be financed by the clients . 3.4 SUPPLIES (S) 3.5 The purchase of supplies required for operation of the System at the Operator's site and for providing services, such as paper, diskettes, etc. will be effected by the Vendor. 3.6 - 3.9 VOID OPERATING SYSTEM (S) 3.10. The Vendor will describe the details of the proposed operating system which will serve the Data Bank. The operating system should be commercial, in widespread use, well-known and wellestablished. The software which will be given to end-users must run in a Windows 95 or higher environment and/or in an NT environment. DATA BANK PLATFORM (S) 3.11 The system will be developed and maintained on a commercial, commonly-used, well-known and well-established processing platform. The provider will be required to provide 24-hour support, 7 days a week, with a response time which shall not exceed two hours for a malfunction which shuts down the operation of the Data Bank. (M) Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 31 - Request for Proposal Compulsory Automobile Liability Insurance CHAPTER 4 - IMPLEMENTATION GENERAL (I) 4.0 4.0.1 The required solution is a development or adaptation of a dedicated system which will fully comply with the application and technological requirements described in the previous chapters. 4.0.2 The Operator will prepare a comprehensive testing program for the System which will be developed, by which tests will be performed prior to Operation of the System. 4.0.3 The Operator will train his staff to an expert level of work with the System, and will make experts available to the insurers and other clients to assist in connecting the System to their systems. 4.0.4 Pursuant to the authority vested in the Minister of Finance, directives will be issued as needed concerning the duty of an insurer to convey information to the Data Bank, and concerning the details which an insured will convey to the insurer. Implementation of the System is divided into a system set-up stage and a regular operation stage. THE PARTIES INVOLVED (S) Managerial entities representing the State (I) 4.1.1 The Commissioner through his staff, or an administration which will be appointed for the purpose, including the project manager. 4.1.2 - 4.1.3 Void 4.1 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 32 - Request for Proposal Compulsory Automobile Liability Insurance The principal Vendor 4.1.4 A group which has united as the Vendor will submit the details listed below for each of the members of the group.. Details about the Vendor 4.1.4.1 Name, number of the registered company, address, telephone and fax number; Name of General Manager; Description of the structure of ownership and control, the owners of the company and names of its directors (including organizational chart)); Contact person for the purpose of this tender; Description of organizational structure; Documents of incorporation; Full annual financial statements for the most recent three years; Details of current relations, direct and indirect, with entities in the insurance industry in Israel; Details of companies controlled by the Vendor, and primary area of business; Details of companies controlled by the Vendor's controlling shareholders, and primary area of business. Details about the Operator (MI) 4.1.4.2 The Operator should be a company registered in Israel with at least 26% Israeli ownership. (M) If the Vendor is not in compliance with this condition, he must submit an undertaking that within one month of the date of receipt of notice of winning the tender, he will establish a duly registered company in Israel as required in this tender; Name, address and telephone number of the Operator; Name of General Manager; Description of ownership and control structure (including organizational chart); Professional biographies of the controlling shareholders and the officers; Certificate of integrity of the shareholders and officers in the Operator; Planned headcount, by field and profession; Contact person for the purpose of this tender; Description of organizational structure (plus organizational chart), as well as physical location of center of operations and of the computer and data systems; Documents of incorporation; Any contractual commitment between entities which have made a commitment as a vendor in the matter of this tender. Agreements with sub-contractors, if any. Qualification and experience of the Operator and the Vendor (S) 4.1.4.3 Experience Proven experience of at least five years in implementing the following tasks in the field of general insurance (the Vendor should attach declaration plus recommendations and examples): A. 1. 1. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 33 - Request for Proposal Compulsory Automobile Liability Insurance Development of insurance statistical plans. Development of insurance risk classification plans. Gathering and analysis of statistical data for the purpose of determining insurance premium rates. Experience in providing data analysis services. In this matter, the Vendor should provide details of experience in computerization and data bank management on a scale commensurate with the size required in this tender. Description of computer projects in three organizations in Israel or abroad. The Vendor should provide the names and telephone numbers of three references. Training Professional expertise and resources - in-depth knowledge of the work processes of insurers as they relate to insurance policy forms, the structure of premium rates, etc. Employment of experts in the actuarial analysis of general insurance, in statistics, in insurance and in data processing. Details should be given of the training, experience and number of such experts in the above fields whom the Operator will use, as well as details of the professional training of the senior work force in the company. Proven ability of coordinated team work between the various activities required of the Operator. In the case of a group which organized as a Vendor, the cumulative experience and the training of all the individual Vendor units should be stated. Financial robustness (M)     2. B.    4.1.4.4 The Operator will be organized as a company with shareholders' equity of not less than NIS 3 million, or alternatively, NIS 1 million plus an autonomous bank guarantee for NIS 2 million. The said capital shall be free of any lien, attachment and third party right. The Vendor shall demonstrate his financial robustness and the ability to finance the establishment of the Data Bank. The Vendor will provide details of the capital means at his disposal, including shareholders equity and a readiness to provide guarantees and collateral, and a readiness to provide adequate capital means or proven ability to raise the means of capital for the establishment of the Data Bank. For examination of the financial robustness of an individual or group which organized as a Vendor, the shareholders' equity of each of the units of the group will be examined as described below: Shareholders' equity - including surpluses.  In calculating the joint shareholders' equity of the shareholders in the Operator, a  corporation or shareholder holding at least 20% of the rights to the Vendor's profits will be taken into account. For calculating the rate of joint capital of the shareholders in the Operator, the proportional  part of the shareholders' equity of a corporation or individual holding, directly or indirectly, shares of a shareholder in the Vendor may be taken into account, provided that all of the following obtain: Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 34 - Request for Proposal Compulsory Automobile Liability Insurance The rate of the indirect holding of that corporation or that individual is not less than 20%.  If a partnership holds shares of the Operator, its part in the joint shareholders' equity will be  calculated according to the amount of the shareholders' equity of the partnership itself, or according to the amount of the guarantee of the partners to the partnership, all according to the percentage of the partnership's holding in the Operator. If an individual has holdings in the Vendor, the shareholders' equity was certified by an  accountant. The fields of business of the Vendor, giving details of the relative proportions of main areas of business out of the total. Total revenues in 1997, broken down by area of business. Headcount, broken down by area of business. Point of clarification - the parameter of shareholders' equity is only one parameter out of a number of parameters which will be examined in respect of each Vendor and which will serve the Tenders Committee in assessing the extent to which the Vendor meets the financial robustness criterion. 4.1.4.5 The Operator's project manager (S) The Operator must appoint a project manager who will coordinate and manage the services which will be provided on the Operator's behalf as part of the implementation of the System and will be the Operator's "address" for any matter relating to implementation of the System. The Vendor should state in his proposal the name of the designated project manager and his professional resume. The Vendor hereby declares that the project manager will not be replaced by another person without the prior approval of the State as long as he is employed by the Vendor or the Vendor is bale to use him. (MF) a. a. b. c. b. 4.1.4.6 Foreign corporation (S) If the Vendor is a foreign corporation - he must cite any law which is his opinion could affect the commitment between him and the State. The nature of the corporation's activities in Israel - details of whether the company in Israel was established for the purpose of this tender. Experience in Israel in the fields of activity that are relevant to this tender. The physical location proposed for the computer system and data. 1. 2. 3. 4. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 35 - Request for Proposal Compulsory Automobile Liability Insurance Sub-vendors (S) 4.1.4.6 4.1.5.1 Maximum number of sub-vendors The maximum number of sub-vendors (sub-vendor - a vendor who supplies products or provides services to the Operator for the implementation of one or more of the requirements in the Specification) participating in the proposal shall be three who are approved by he State. 4.1.5.2 Additional information about sub-vendors If some of the functions of the System will be effected by secondary service providers with which the Vendor has business relations, he must add to his proposal information about these sub-vendors in the format that was required for the Vendor himself in the above sections (except for those which are not relevant to sub-vendors). He must also add the following: A complete description of the functions of the sub-vendor in the implementation organization . Details, description and term of the commitment between the sub-vendor and the Vendor. The undertaking of the sub-vendor to collaborate as a sub-vendor in the proposal of the main Vendor. A detailed description of the supervisory procedures of the Vendor for the work of the sub-vendor. The means available to the Vendor to replace the sub-vendor or to take over his functions if for any reason he ceases to fulfill them, and the Vendor's undertaking to do so at short notice. 1. 2. 3. 4. 5. OVERALL DEVELOPMENT OF THE SYSTEM (S) Details of the steps and actions required for setting up the Data Bank according to the requirements defined in the tender. Methodology for the regular operation of the Data Bank. Full details of the steps which the Vendor will take for estimating Pure Risks and for proposing premium rates for the Pool, starting from the data collection stage and ending with the production of the reports required. Full details should be given of each stage in the process, including the techniques for statistical analysis and the calculations which will be used. Full details of the software which will be used and of previous experience acquired in their use. Details should also be given of any additional software development required for compliance with the terms of the tender. 4.2 1. 2. 3. 4. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 36 - Request for Proposal Compulsory Automobile Liability Insurance STAGES OF IMPLEMENTATION (M) 4.2.1 Below is the framework of a plan for setting up and operating the System Target dates are absolute except as noted below. Dates are based on the assumption that the Contract with the winning Operator will be signed by 1.7.99. If any change is made in this date, the dates will be adjusted accordingly. The Vendor should refer to the plan below, giving details of additional intermediate stages required for compliance with it. (S) 1. 2. 3. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 37 - Request for Proposal Compulsory Automobile Liability Insurance Stage 0 Activity 1 2 3 Submission of procedures defining working relationships with insurers Submission of risk 01.07.99 classification plan and statistical plan (for both historical and current data), and of general design of required quarterly and annual reports) Examination of risk 01.09.99 classification plan, statistical plan and report design Issuance of directives to 15.09.99 insurers for the submission of: historical data for . st1 the period January 1995 to September 1999 current data for . nd2 each month, from October 1999 Guidance to Data Bank clients concerning the statistical and risk classification plans. Advice and recommendations for the year 2000: Pure Risk for the . st1 voluntary insurance market Premium rates for . nd2 the Pool Submission of methodologies for actuarial analysis, including methods and formulas for dataquality checks and for the statistical analysis of insurance costs. Statistical data begins to be received, checked and manipulated. 15.09.99 Start date 01.07.99 Target date 15.07.99 Duration (months) 0.5 Product Application for Commissioner approval Application for Commissioner approval Responsibility Operator 01.09.99 2 Operator 15.09.99 0.5 Approval by Commissioner Commissioner 01.10.99 0.5 Directives to insurers Operator 4 01.11.99 1.5 Client guidance Operator 5 01.07.99 15.09.99 2.5 Report to Commissioner Operator 6 01.07.99 01.12.99 5 Application for Commissioner approval Operator 7 01.10.99 01.12.99 2 Functioning system for the absorption and verification of statistical data Operator Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 38 - Request for Proposal Compulsory Automobile Liability Insurance 8 9 10 11 12 13 14 Completed development of the computer system, including actuarial methodologies, required processing and report production. Submission of 1st report on recommended premium rates for the Pool. Approval and distribution of report on Pool premium rates, size of the pool, and the number of uninsured motorists. Submission of quarterly reports on recommended premium rates for the Pool. Approval and distribution of quarterly reports on Pool premium rates, size of the Pool and the number of uninsured motorists. Distribution of 1st report on the voluntary insurance market. Distribution of annual report on the voluntary insurance market. 01.07.99 01.02.00 7 Computerized System Operator 01.03.00 10.03.00 Application for Commissioner approval Approval and distribution of reports Operator Commissioner + Operator 01.05.00 and every 3 months thereafter 10.05.00 and every 3 months thereafter Application for Commissioner approval Approval and distribution of reports Operator Commissioner + Operator 10.05.00 Distribution of report Distribution of annual report Operator 10.11.00 Operator GENERAL DIRECTIVES FOR THE WORK PLAN (I) 4.2.2 4.2.2.1 The date for completion of examination of the proposals is contingent upon the number of proposals submitted. The winning Vendor will appoint a project manager on his behalf. The State will approve the proposed project manager. The Vendor's activities will be fully coordinated with and supervised by the State. The Data Bank will be set up in stages. Transition between the stages will be conditional upon receipt of the State's confirmation of completion of the previous stage to his satisfaction. During the period between signing the Contract and the start of Operation, there will be periodic meetings between the Vendor and the State, every two weeks. During these meetings, a report will be given on the progress of the project and potential problems will be dealt with. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division 1. 2. 3. 4. - 39 - Request for Proposal Compulsory Automobile Liability Insurance 4.2.2.2 (M) The Vendor hereby undertakes meet the timetable for all the items which are his responsibility. The State will strive to meet the timetable, but reserves the right throughout the period of implementation, to make changes in the timetable according to developments, at his sole discretion. However, the State shall not be entitled to shorten the timetable of a task for which the Operator is responsible without prior coordination with the Operator. Assistance, guidance and advice (I) 4.2.3 As stated, the setting up of the System shall be the responsibility of the Operator. In this context, the following tasks will be imposed upon the staff of the Commissioner: (I) Approval of the System design documents as prepared by the Operator. Approval of the System acceptance tests file of the Operator. Approval of the System acceptance tests. Approval of rules and work procedures of the Operator with the System. Supervision, control, reporting and work procedures (S) 4.2.4     4.2.4.1 During the setting up and maintenance of the systems, the Operator's activities will be accompanied by supervision and control on behalf of the State. The State shall notify the Operator of who the supervising entities will be on his behalf, who will act subject to the State's project manager. The Operator, for his part, undertakes to cooperate with the State's project manager and with the supervisory entities. This undertaking includes making the requisite information available to them, and acting in accordance with the directives, data and definitions of the entities representing the State. Working procedures 4.2.4.2 The State's project manager and the Operator's project manager will hold working meetings, and will participate in meetings of the project steering committee as required. All the meetings will be documented in the project work log. The Vendor will describe the work procedure in effect between him and his clients. The working procedures between the Operator and the Insurance Companies will be approved by the Commissioner. Periodic reporting 4.2.4.3 The Operator will submit to the State monthly progress reports which will include the work of the sub-vendors and will contain the following items: Description of work done. Progress report compared with original planning as per the work plan. 1. 2. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 40 - Request for Proposal Compulsory Automobile Liability Insurance Report by name of the manpower employed on the project. Report on new faults/problems of any kind which arose and suggestions for their solution. Alternatively, a declaration that "No new faults/problems have arisen since the date of the previous report". Status of former faults/problems - cumulative. Proposal for an updated work plan in case of delay in the original work plan. The Operator should detail an existing procedure, the techniques proposed and the computerized tools which will be used for making this report. The State may demand a more detailed report based on the procedure which the Operator will present. This periodic report will be made throughout the Period of Commitment and is additional to the demand for meetings at a frequency to be determined. Acceptance of the reports by the State does not constitute consent to its contents and/or a waiver on his part of any of his rights in this commitment. Events log for the project 4.2.4.4 A log containing all the events in the project - planned timetable and actual timetable, submission of documents for approval, receipt of approval for the documents, decisions, report on faults and delays, report on unplanned changes, report on implementation of the changes, etc. A detailed procedure for maintaining the log will be determined with the winning Vendor. VOID DAY-TO-DAY OPERATION (S) 3. 4. 5. 6. 7. 4.3 4.4 4.4.1 The activities of the Operator will be subject to the regular supervision of the Commissioner of Insurance. The State can cancel the Contract with the Operator if he fails to meet the requirements of the Commissioner within the allotted time-frame. The Commissioner may examine the Operator at any time he deems appropriate. The reasonable expenses of these examinations will be at the Operator's expense. Examination of the Operator, the managers and employees of the Operator and anyone acting on his behalf can be demanded at any time, and the Operator must present all the books, records, accounts, documents or agreements according to which he acts. The Commissioner may check the statistical plans at any time. 4.4.2 The System will be operated by the Operator at the Operator's site and on his responsibility. The Operator will maintain a permanently manned office in the central region of Israel, and will ensure that service is available to insurers and the Commissioner throughout the period of his operation. (M) Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 41 - Request for Proposal Compulsory Automobile Liability Insurance Support team - It is the Operator's responsibility to ensure that a permanent support team will maintain the connection between him and the Insurance Companies, the Pool and Karnit, and the Commissioner and anyone whom the Commissioner may designate, for providing the requisite technical and professional assistance. DOCUMENTATION (M) 4.5 Overall responsibility for documentation 4.5.1 The Operator shall bear responsibility for and the costs of production of documenation relevant for all targeted activities, such as insurers, the Commissioner, System maintenance and operating teams. Preparation of the documentation 4.5.2 The documentation will be prepared in such a way as to be graphically clear and pleasant to use, using advanced graphical aids for ease of reading and understanding. Upon the State's request, specimen documentation will be supplied during examination of the proposals. Documentation for end-users - insurers, Karnit 4.5.3 The language of the documentation for end-users will be Hebrew. The documentation will be divided according to the mandatory services described, so that the user in need of a particular service will not be required to hold all the documentation for all the services. In other words, relevant documentation will be provided for each of the services separately. The style of the documentation for the end-users will be legible, clear and in simple language, using graphical aids and providing numerous examples, so that users of all levels and of different backgrounds will be able to understand the contents. The documentation for the end-users will be supplied in the form of a printed and bound book, and if possible also on diskette with an IBM-compatible PC using Microsoft Word Version 7 and upwards. 1. 2. 3. 4. Documentation for the Operator's applications, support and guidance personnel 4.5.4 The language of the documentation for application, support and guidance personnel will be Hebrew. (MF) The documentation for application and support personnel will include a summary of the documentation for the end-users, tables and decision diagrams identifying and categorizing faults, and a full list of System messages, including explanations about the nature of the cause for messages and guidelines on how to act thereafter. (MF) The documentation for guidance personnel will include instruction kits in the form of slides at least, and preferably also in the form of a demonstration diskette suitable for IBM-compatible PCs, designed for presentation in a classroom or for viewing on the PC. (S) 1. 2. 3. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 42 - Request for Proposal Compulsory Automobile Liability Insurance The instruction kits will be distributed according to the Mandatory and additional services, and according to user level, so that both insurer personnel who work in a particular field and insurer personnel who work in a range of fields but at a more senior level, can be instructed. (S) 4. Documentation for the Commissioner’s staff 4.5.5 The language of the documentation will be Hebrew. The documentation will include a description of the System in an acceptable professional format: overview, definition of terms, description of entities, processes, information flow chart, logical diagram and data structure, etc., as well as other optional uses of the System. The documentation for systems analysts will be supplied in the form of a printed book or on diskette suitable for reading on an IBM-compatible PC by Microsoft Word Version 7 or higher. 1. 2. 3. Other professional documentation 4.5.6 The Operator will prepare full and detailed documentation of: Processes for checking the accuracy and completeness of statistical data; 1. Methodology, equations and coefficients which are used for measuring, analyzing and 2. forecasting insurance-related paramaters. Supply of printed documentation 4.5.7 A user's manual will be supplied in four printed copies for each user, on dates to be fixed by the State. MAINTENANCE (M) 4.6 Overall responsibility 4.6.1 The Operator shall bear overall responsibility for the quality and working condition of all System Components, including the repair of any fault within a reasonable time throughout the Period of Commitment, for no additional compensation. The Operator's responsibility as aforesaid shall include all types of faults at all levels: software faults, faulty design or characterization, faults in documentation, faults in formulae and performance problems. Furthermore, the Operator shall be responsible for the development of new components and enhancement of existing components at the request of the State, subject to the System development plan. In case of a fault whose source, in the opinion of the Operator, lies not in the System but in some other factor, the burden of proof shall be on the Operator. 1. 2. 3. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 43 - Request for Proposal Compulsory Automobile Liability Insurance Maintenance file 4.6.2 The Operator hereby undertakes to maintain an up-to-date maintenance file describing the manner of System maintenance, including: a list of changes and improvements in the System which were made upon the State's demand; a list of malfunctions which were reported or identified, and their treatment status; a list of requests for changes and improvements and their treatment status. 1. 2. 3. Operator's maintenance representative 4.6.3 The Operator hereby undertakes to define in his organization the job of Maintenance Manager who will interact with the State, who will be the "address" for any matter connected with the maintenance of the System throughout the Period of Commitment after the System Set-up Period. The function of the Maintenance Manager will be defined as a job at project manager level requiring qualifications and familiarity with the System In case of replacement of the Maintenance Manager, the Operator shall notify the State two months in advance, and will ensure orderly takeover at his own expense, during which the new Maintenance Manager will study the contents of the System, the documentation and the maintenance file. Void 4.6.4 Repair of malfunctions 4.6.5 a. 1. 2. The Operator shall make available to the insurers a malfunction report service 24 hours a day, whether through manned stations or through automatic recording. (If for any reason the reporting system is unavailable, the transmittal of a fax or telegram to the offices of the Operator or a letter by messenger shall be considered reporting in all respects.) Reporting after normal working hours shall be deemed to be reporting a malfunction at the start of the first subsequent working day (normal working hours are: SundayThursday 08:00 - 17:00; Friday and holiday eve: 08:00 - 13:00) Immediately upon receipt of the report, the malfunction will be given a special identification number to which all of the Operator's entities and the user will refer throughout any treatment. The Operator's support team will ensure that the person who sent in the report will be advised of the identification number as soon as it is allocated. The Operator will manage the reported malfunctions in a computerized follow-up system, and once a month or upon demand will generate a report for the State in respect of all the solved and unsolved malfunctions (separate reports) and their treatment status. The Operator will attach full details of a procedure for handling malfunctions, and will undertake to present the malfunction report management system to the State upon demand. b. c. d. e. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 44 - Request for Proposal Compulsory Automobile Liability Insurance Treatment of malfunctions shall be continuous until the solution is found, i.e., until the malfunction is repaired or until a reasonable way is found to circumvent it. A solution which is circumvented shall not absolve the Operator of his duty to repair the malfunction. The Operator shall notify the State in writing within 10 days of finding the circumvention, of the planned date and nature of the repair. If 8 working hours have elapsed since the report of a malfunction without a solution having been found, the State may demand the personal and uninterrupted presence of professional representatives of the Operator, having the appropriate skills and in the relevant number as the case may be, free of charge. If three working days have elapsed since the report of a malfunction without a solution, the State may deduct from the current payments payable to the Operator a proportional sum from the quarterly payment made by the insurers on the basis of 250 working days per year, for each day from the first day of reporting until a solution is found. f. g. Support system 4.6.6 The Vendor should give a full and detailed description in his proposal of the support procedures for the System at all levels and for all types of problems and requests, including: procedures for reporting malfunctions; procedures for dealing with malfunctions, improvements and changes and the control of their integration into the regular operating system.   INTEGRATION INTO THE ORGANIZATION (S) 4.7 Client training 4.7.1 4.7.1.1 The Vendor should propose a program for the comprehensive training of insurers' staffs and of other users. The plan must take into consideration the different populations requiring guidance. (I) 4.7.1.2 The training can be by means of courses sequences distinguished by subject and by level. (I) Each course will include extensive and comprehensive practical work. (I) The Vendor should attach to his proposal a detailed course program which will include a list of the courses to be given, and a description of the nature and level of each course, course duration, and optimal number of students. (S) All courses will be held in Tel Aviv, in a place to be coordinated with the State. Course students will be users' personnel only, unless the State gives prior written approval for the participation of students from other entities. (I) a. b. c. d. e. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 45 - Request for Proposal Compulsory Automobile Liability Insurance Application in the organization (I) 4.7.2 As already noted, sole responsibility for the application and assimilation of the System on insurers' premises shall be that of the Operator. SYSTEM TESTS AND UPDATED VERSIONS (S) Submission of test program 4.8 4.8.1 As stated above, the Vendor should submit programs for testing the System. Scope and format of test program (I) 4.8.2 The test program will contain complete and precise instructions for operating the System and for System response in every test case, so that the amount of background knowledge needed for executing the task will be minimalized. Test cases must include all borderline and significant cases, including success cases and failure cases. Approval of test program (I) 4.8.3 The State may change the various test programs before their approval and implementation. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 46 - Request for Proposal Compulsory Automobile Liability Insurance CHAPTER 5 - COST (M) GENERAL The Operator shall be responsible for financing the set-up and operation of the Data Bank. The Operator shall be responsible for financing the cost of a supervisory entity on behalf of the State to the extent of 100 hours per month of advice from a senior consultant during the first year, and beginning in the second year 100 hours every two months. During the Set-up Period, the Operator shall have no income whatsoever from the State or from the Insurance Companies. After the start of operation of the Data Bank, the Operator shall earn his income from the following sources: The Operator shall earn income for mandatory services from payments which will be transferred by each of the Insurance Companies operating in the sector, where the amount of the payments will be determined, inter alia, taking into account the proportional share of the company in the sector. The cumulative total of all payments in the first three years for the mandatory services will constitute the financial competition in the tender. The annual consideration for the mandatory services will be determined as an obligatory payment. Additional income will be generated if and to the extent that the Operator provides additional services as aforesaid. The consideration which the Operator will receive for these services will be subject to regulation. The Data Bank's income from the obligatory payments of the Insurance Companies will serve as a financial anchor for its operation. This income is contingent upon the Operator's fulfillment of his undertakings and in particular as regards the quality and availability of his services. The amount of income from providing optional services will depend upon the extent of the Data Bank's marketing success in selling its services to the Insurance Companies. The prices for the additional services to be provided by the Operator to the companies will be reasonable and fair, and will be subject to regulation. The Operator shall be responsible for collecting payments. Prices will be denominated in shekels and linked to the Consumer Price Index known at the time of submitting the proposal . The prices will include all taxes except for VAT. 5.0 1. 2.    3. 4. 5. 6. 7. 8. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 47 - Request for Proposal Compulsory Automobile Liability Insurance COMPENSATION FOR MANDATORY SERVICES The Vendor should quote a price representing his requested compensation for mandatory services during the Period of Commitment. Annual compensation shall be linked to the Consumer Price Index. The average annual compensation as aforesaid shall be reduced each year of the option period by 5% per year. Total cumulative compensation for the first three years shall be considered as the price quotation. In the matter of this tender, the quotation shall be binding upon the Vendor if he is declared the Winner, including for the option period as aforesaid. The Vendor should fill in the table below fully and precisely so that each square will contain a price in shekels without VAT, or 0, as necessary. The Vendor will not note any comments which lead to a change in the amounts detailed . 5.1 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 48 - Item 2.5.1.1 2.5.1.2 2.5.1.3 2.5.1.4 Description of action Development of statistical plan Examination and updating of statistical plan Development of risk classification plan Examination and updating of risk classification plan Development of formulae, calculations and coefficients Adjustment of formulae, calculations and coefficients Collection and organization of historical statistical data from insurers for the period January 1995 - September 1999 Collection and organization of current, monthly statistical data from insurers Development of system for testing the accuracy and completeness of statistical data Historical statistical data - operation of system for testing the accuracy and completeness of statistical data obtained from insurers, assuming that the number of errors identified by the system will equal 15% of the total number of records collected Current, monthly statistical data - operation of system for testing the accuracy and completeness of statistical data obtained from insurers, assuming that the number of errors identified by the system will equal 10% of the total number of records collected Conducting regular statistical investigations Production of annual statistical report (including 2 reports in the 1st year) as basis for Pure Risk assessment (except for Pool insureds) Production of quarterly reports on Pool size and the percentage of uninsured motorists Production of quarterly reports on recommended premium rates for the Pool Collection of additional items of information assuming one additional information requirement per year (payment for this item will be conditional upon actual performance) Assimilation Information for the public Type of cost Fixed Ongoing Fixed Ongoing Fixed Ongoing Fixed Ongoing Fixed Fixed Fixed cost (one-time) --- Cost - 1st year1 ----- Cost - 2nd year --------- Cost - 3rd year --------- Total for item ----------------------- 2.5.1.5 Ongoing --- --- --- 2.5.1.7 2.5.3.2 Ongoing Ongoing ----- 2.5.3.3 2.5.3.4 2.6 Ongoing Ongoing Ongoing ------- 2.8 2.9 Ongoing Ongoing ----- 1 The year begins with the end of the Set-Up Period. Request for Proposal TOTAL Compulsory Automobile Liability Insurance Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 50 - Compulsory Automobile Liability Insurance FINANCIAL FORECAST A separate forecast should be presented for the Set-up Period and for each of the years of the Period of Commitment. Forecasted amounts for Mandatory Services and additional services should be shown separately. The items below are for information only. There is no obligation to reimburse these expenses. 5.2 FORECASTED INVESTMENTS Investments in computers Investments in software, including communications Development of statistical plan and risk classification plan for the sector Development of procedures for the evaluation of the Pure Risk. Development of procedures for the evaluation of Pool premium rates Other investments 5.3       FORECASTED EXPENSES 5.4      General and administrative expenses, including salary expenses Expenses for data collection from the Insurance Companies Expenses for data analysis Expenses for communications with clients, including reports. Other expenses EXPECTED INCOME Income from Mandatory services Income from additional services to the Insurance Companies 5.5   ANNEXES Capital Markets, Insurance & Savings Division -53- Compulsory Automobile Liability Insurance ANNEX 0.6.1 GUARANTEE NOTE FROM PROSPECTIVE VENDORS Ministry of Finance Via the Commissioner of Insurance Dear Sirs, Re: Guarantee No. _________ At the request of ______________, we hereby guarantee towards you the clearance of any amount up to the sum of NIS 500,000 (in words: five hundred thousand New Israel Shekels), which will be linked to the US dollar from _______, and that if so demanded by you of ___________ ("the Debtor") in connection with RFP No. XX-1-1999, "Compulsory Automobile Liability Insurance 2000", dated _______, we will pay you the above amount within seven days of your first written demand, without your being required to give reasons for your demand and without any defense allegation which could serve the interests of the Debtor in connection with the obligation to you, or first demanding the clearance of the said amount from the Debtor. This guarantee shall remain in effect until _______ inclusive. A demand pursuant to this guarantee is non-transferable. A demand pursuant to this guarantee should be referred to ___________branch, at __________________. Date _______ Bank _____________ Signature _____________ Capital Markets, Insurance & Savings Division -54- Compulsory Automobile Liability Insurance ANNEX 0.6.2 LAWYER'S OR AUDITOR'S CONFIRMATION OF CORPORATION REGISTRATION Ministry of Finance Via the Commissioner of Insurance Dear Sir/Madame, Re: Tender No. XX-1-1999 - "Compulsory Automobile Liability Insurance - 2000" I, __________________ (full name of lawyer/CPA) certify the following details of the bidding entity in the tender in reference: 1. Name as written in the official register: 2. Type of organization: 3. Date of incorporation: 4. Identifying number: 5. Names of those authorized to sign and commit in the name of the bidder, and their ID numbers: Yours sincerely, Signature and stamp Lawyer/CPA Full name Telephone No. Address Capital Markets, Insurance & Savings Division -55- Compulsory Automobile Liability Insurance ANNEX 0.6.4 - B SENIOR OFFICE HOLDER'S QUESTIONNAIRE Name: __________________ Position in Operator's organization: ___________________. 1. Insurers, agents and reinsurers operating in Israel in which I have been employed, and companies 2. related to such corporations, as defined in Section 0.6.4, whether as employee or as contractor, in the past 10 years: The corporation, nature of its operation in Israel or concatenation of ownership to an insurer, agent or reinsurer operating in Israel (plus diagram) My title/s in the corporation Years when connected with the corporation Comments and any other relevant information Corporations in which a senior position is held by a family member. In this matter, "family .3 member" - spouse, brother, parent, grandparent, child or the spouse of any of these; “corporation” - insurer, agent or reinsurer operating in Israel, or a company related thereto, as defined in Section 0.6.4. The corporation, nature of its operation in Israel or concatenation of ownership to an insurer, agent or reinsurer operating in Israel (plus diagram) Name of my family member and the relationship His office in the corporation Comments and any other relevant information Details of material commitments with insurers, agents and reinsurers operating in Israel, or with a 4. related company of one of them, not named in the table above. Additional material information likely to affect the discretion of the Tenders Committee with 5. regard to the provisions of Section 0.6.4. Deposition: I the undersigned, ____________, hold the office of ________ in _________ (of the units of the Bidder), declare that the information and details given above reflect full and precise information. Signature: Date: ___________ Capital Markets, Insurance & Savings Division -56- Compulsory Automobile Liability Insurance ANNEX 0.6.4 - C QUESTIONNAIRE FOR CORPORATION WHICH IS A UNIT OF THE BIDDER Name of corporation: _____________________ The Bidder does not operate in insurance in Israel (to be filled out separately for each of the units 1. of the Bidder). The Bidder is not: a) a licensed insurer in Israel (I confirm: __________); b) a licensed insurance agent in Israel (I confirm: _________); c) a reinsurer of a licensed insurer in Israel (I confirm: _________ ). Relations of control, direct or indirect, with an insurer, with an agent or with a reinsurer .2 operating in Israel. (The table below should be filled out in respect of each of the Sections 0.6.4 (1) to (6).) (To be filled out separately for each of the units of the Bidder.) Below are details concerning insurers, agents or reinsurers operating in Israel with which I have relations of control, either directly or indirectly: Related corporation Type of means of control Percentage of means of control Concatenation of control (plus diagram) The corporation is an insurer operating in Israel in these sectors Details of material commitments with insurers, agents or reinsurers operating in Israel, or with a 3. related company of one of them, not named in the table above. Additional material information likely to affect the discretion of the Tenders Committee with 4. regard to the provisions of Section 0.6.4. Deposition: I the undersigned, ____________, hold the office of ________ in _________ (of the units of the Bidder), declare that the information and details given above reflect full and precise information. Signature: Date: ___________ Capital Markets, Insurance & Savings Division -57- Compulsory Automobile Liability Insurance ANNEX 0.7.2 GUARANTEE NOTE FROM WINNING VENDOR Ministry of Finance Via the Commissioner of Insurance Dear Sir/Madame, Re: Guarantee No. __________ At the request of ______________, we hereby guarantee towards you the clearance of any amount up to the sum of NIS 4,000,000 (in words: four million New Israeli Shekels), which will be linked to the Consumer Price Index from _______, and that if so demanded by you of ______________ ("the Debtor"), in connection with RFP No. XX-1-1999, "Compulsory Automobile Liability Insurance - 2000", dated _______, we will pay you the above amount within seven days of your first written demand, without your being required to give reasons for your demand and without any defense allegation which could serve the interests of the Debtor in connection with the obligation to you, or first demanding the clearance of the said amount from the Debtor. This guarantee shall remain in effect throughout the period of commitment. A demand pursuant to this guarantee is non-transferable. A demand pursuant to this guarantee should be referred to ___________branch, at __________________. Date _______ Bank _____________ Signature _____________ Capital Markets, Insurance & Savings Division -58- Compulsory Automobile Liability Insurance ANNEX 0.11.2 COMMITMENT OF SUB-VENDOR FOR THE PROPOSAL Ministry of Finance Commissioner of Insurance ___________________ Ltd. hereby declares and undertakes that the elements of the solution proposed to the Ministry of Finance which relate to our company, will constitute an integral part of the proposal of ________________ for the tender __________ on the subject of the establishment and operation of a Data Bank for the compulsory automobile liability insurance sector in Israel, and that they meet the requirements together with the proposal of the Operator as one integral and operative unit . Our company and ________________, the Operator-Bidder, are related in a binding contract in which we undertook to supply the above elements of the solution throughout the period of commitment, and in the matter of this tender we consider that company to be the chief vendor. In witness whereof we have affixed our signature: Name and no. of corporation Signature and stamp of the corporation Lawyer's affirmation I the undersigned, Adv. ____________________, hereby affirm that Messrs. __________ signed before me on behalf of the corporation, and that their signatures together with the corporation stamp are binding upon the corporation in all of its activities. Signature of lawyer Date Capital Markets, Insurance & Savings Division -59- Compulsory Automobile Liability Insurance ANNEX 1.2 STRUCTURE OF THE COMPULSORY AUTOMOBILE INSURANCE SECTOR AVNER The Association for the Insurance of Road Accident Victims Ltd. ("Avner") was established about the time that the Compensation Law took effect, and against a background of uncertainty as to the extent of the risk which the law would impose upon the insurance industry. Avner is a private company whose shareholders comprise all the insurance companies, each according to its share of the sector as determined from time to time. In the past, Avner and the insurance companies had a five-year agreement, which was automatically renewed in the absence of written notice of cancellation. This agreement regulated the distribution of the insurance risk. In the past (prior to the Controlled Competition Law taking effect), the insurance risk was divided 30% to the insurance companies and 70% to Avner.2 The Controlled Competition Law adopted this arrangement for an interim period, while changing the division of liability between the insurers and Avner (50% each) until completion of the sector's transition to a competitive structure on 1.1.2000. KARNIT Karnit is a statutory fund for the compensation of road accident victims. It’s function is to compensate an injured party who is entitled to compensation by virtue of the Compensation Law but is unable to sue the insurer for compensation for one of the following reasons (see also Section 12 of the Compensation Law): The driver responsible for the accident cannot be identified. The driver responsible for the accident does not have insurance in accordance with the Vehicle Ordinance, or the insurance does not cover the liability concerned. The insurer is in liquidation. Karnit is funded by a percentage (currently 5.15%) of insurance premiums paid by the public (see Section 15 of the Compensation Law). 1. 2. 3. 2 Except for Eliahu Insurance Co. Ltd., which in 1982 started to share the insurance risk equally with Avner. Capital Markets, Insurance & Savings Division -60- Compulsory Automobile Liability Insurance THE POOL The Pool for Automobile Liability Insurance of the Association of Israeli Insurance Companies, acts as administrator for the co-insurance of all the automobile insurers. Its purpose is to provide insurance for vehicles who were rejected by the other insurance companies. The Pool’s regulations constitute a contract between all insurers participating in the joint insurance. The shares of the insurance companies (including Avner) in the insurance cover is fixed anew for each underwriting year according to the relative share of each company in the sector in the previous year. In practical terms, the Pool is run by Avner through a large insurance agency. Under the rate regulations, the premium collected by the Pool is 25% higher than the regular rate set therein. CONTROLLED COMPETITION MODEL At the beginning of 1996, several companies in the sector gave notice of their wish to resign their membership in Avner. Against the background of this notice and out of concern that the resignation of the companies from Avner would undermine the stability of the sector, in 1997 the Commissioner of Insurance conducted a comprehensive investigation of the arrangements desirable for the operation of the sector. Based on the recommendations that were made, it was decided to adopt a model termed "controlled competition" as most suitable for the sector. Among the principal characteristics of this model are the avoidance of a uniform and binding premium rate that is based only on the type of vehicle and it’s engine size (the method currently in effect in the Rate Regulations), and the transition to an insurance environment in which insurers will bear all the insurance risks and set premium rates themselves. In the new model, the level of premium rates will be controlled by means of the rates that are set for the Pool. Premium rates for the Pool will effectively serve as limit on rates in the voluntary market, since insureds will refuse to pay premium rates that are any higher than those of the Pool. Premium rates for the Pool will assure a reasonable availability of insurance to the public and minimize the proportion of drivers without insurance. Capital Markets, Insurance & Savings Division -61- Compulsory Automobile Liability Insurance ANNEX 1.2 A INFORMATION SYSTEMS IN THE COMPULSORY AUTOMBILE INSURANCE SECTOR Below are some of the general characteristics of the profile of information systems in the sector. This description is based on a sector-wide audit carried out recently on behalf of the Commissioner of Insurance. Principal characteristics of the information systems in the sector Substantial uniformity in work and audit processes of the insurance companies in the sector. For example: issue of policies, rider insertion, accounting with Avner, opening a claim. Uniformity in the data managed by the sector. All companies were found to have the data which appear on the insurance certificates. Great similarity in work and audit processes of compulsory liability insurance between companies belonging to the same group of companies. The Data Bank within the group is also managed similarly. There is a tendency among the insurance companies towards tightening the supervision of agents by using a central data bank and integrative software (about 75% of the companies use integrative software - software in which the modules are linked; for example the agent is connected to a central data bank in which most of the actions are taken - e.g. supervision of certificates, matching riders, policy management and claims management). Underwriting activity is on the increase, which will have a salutary effect on the standard and extent of data collection (for example, in the direct insurance companies). The direct insurance companies have a detailed questionnaire for estimating the insurance risk of the customer; however, the traditional companies today also investigate subjects such as the number of claims of a new customer, etc. Many of the companies work with the program of a specific software house (about 35% of the companies in the market and about 45% of the companies which use integrative software). The stand alone system of Avnerit is used by about 20% of the companies in the market and about 85% of the companies which use non-integrative software. Audit of claim opening is mostly automatic (in about 75% of cases, the claim is automatically checked against the policy).         Other important findings The data entering process is usually manual. However, for the policy renewal process, in most  companies (about 65%) the process is automatic, using automobile property insurance data. The companies differentiate in auditing data with outside entities such as Israel Police, National  Insurance and service providers. The level of information analysis differs from company to company:  The level of detail of payment codes of the compulsory claims varies from company to  company. The most widespread payment codes are insured, driver, injured party, pedestrian, National Insurance Institute, Ministry of Defense, lawyer, medical expenses, investigator, health funds and hospitals (some companies have more detailed and specific sub-codes). An analysis of the difference between total claims and actuarial assessments is rarely  carried out. Not all companies analyze claims run-off (only about 30% do so).  Capital Markets, Insurance & Savings Division -62- Compulsory Automobile Liability Insurance Most of the companies lack plans in case of emergency. There exists a difference in the source of data that is used for issuing policies - in most of the companies policies are issued on the basis of automobile property insurance, whereas in some companies policies are issued on the basis of data for the purposes of automobile liability insurance alone. In general, there is insufficient integration of data between the systems for automobile property insurance and the systems for automobile liability insurance. Only rarely does there exist an underwriting process at the time of issuing policies for automobile liability insurance.     Capital Markets, Insurance & Savings Division -63- Compulsory Automobile Liability Insurance ANNEX 1.2 B REVIEW OF LEGISLATION Below is a brief description of the legislation which regulates activity in the sector. The Vendor should study the relevant laws, regulations and orders, and make further legal examination to the extent he deems appropriate. ROAD ACCIDENT VICTIMS COMPENSATION LAW. In 1975, the Knesset [Israeli parliament] enacted the Road Accident Victims Compensation Law, 5735-1975 ("the Compensation Law"), which defines the insurance cover in a compulsory automobile liability insurance policy which is required by the provisions of the Motor Vehicle Insurance Ordinance [New Version], 5730-1970 ("the Ordinance"). The main points of this legislation are these: Absolute liability - The entitlement of the road accident victim to compensation is absolute 1. (Section 2 of the Compensation Law). Absence of need to prove guilt - The compensation is given without any need to prove guilt 2. (Section 2 of the Compensation Law). Exclusivity of cause - Suit for physical injury in a road accident can be brought only under the 3. Compensation law (Section 8 of the Compensation Law). Immediate payment - The victim is entitled to immediate compensation for his essential 4. expenses even during the litigation of his suit (Section 5 of the Compensation Law, and the Compensation Law Regulations (Immediate Payments)). Compulsory insurance - Insurance was made compulsory against physical injury deriving from 5. a road accident (Section 2 of the Ordinance). Compensation for cases where no insurance cover exists - Establishment of Karnit - a statutory 6. corporation whose function is to compensate victims who are entitled to compensation pursuant to the Compensation Law but who are unable to sue for compensation from the insurer owing to a defined list of reasons (Sections 10-15 of the Compensation Law, and the Compensation Law Regulations (Fund Financing)). Compensation ceiling - A ceiling was established for compensation which will be paid to a 7. victim for loss of earnings (up to three times the average national wage) and for loss which is not financial loss (Section 4 of the Compensation Law). Uniform rate - The premium was set in the Regulations (Compensation Regulations for Road 8. Accident Victims (Premium Rate) ("the Rating Regulations" - attached hereto as an Annex), and is binding upon all insurers in the sector (this principle is expected to change at the beginning of the year 2000, as explained below). Balance between revenues and expenses - The premium was fixed at a level designed to 9. maintain a balance between revenues and expenses at the sector level (this principle too is expected to change at the beginning of the year 2000). Dictation of terms of insurance and cover - The terms of the insurance and cover are dictated in 10. the legislation (the Compensation Law and the Ordinance). Capital Markets, Insurance & Savings Division -64- Compulsory Automobile Liability Insurance CONTROLLED COMPETITION CONDITIONS LAW Against a background of concern about undermining of the stability of the sector and the decision on future changes, on 30 July, 1997 the Knesset enacted the Controlled Competition Conditions Law. In Section 7 of the Ordinance, the law makes the licensing of an insurer to engage in compulsory automobile insurance contingent upon the insurer being a party to the agreements as were immediately prior to application of the law, between the insurance companies and Avner and between each of them and the Pool, subject to the changes set forth in the Controlled Competition Conditions Law itself. The law states that the transition to the new operational model will be implemented gradually, over time, with appropriate preparation of the sector at the various levels, so as to ensure the economic stability of the sector, and the good of the insured public in reasonable, fair and appropriate supply of compulsory automobile liability insurance. Among the changes designed to meet at this objective is the stipulation in the law that starting from the beginning of 1998, liability will be shared between Avner and an insurance company 50% 50%, and from the beginning of the year 2000 each company shall bear the full responsibility for the policy. Another central aspect, which requires the companies and supervisory entities to make adequate preparation, relates to cancellation of the uniform rate (except for the Pool rate) and its opening up to competition between the companies. Cancellation of the dictated rate method is designed to ensure compatibility between the extent of exposure of each individual insurer and the rate he collects, thereby also having a direct effect on the insurer's stability. Capital Markets, Insurance & Savings Division -65- Compulsory Automobile Liability Insurance ANNEX 1.2 C - RATE REGULATIONS Regulations for the Compensation of Road Accident Victims (Insurance Premium Rates), 5758-1998 In my capacity pursuant to Section 17 of the Road Accident Victims Compensation Law, 573519751 (hereinafter - the Compensation Law), in consultation with the Minister of Justice and the Minister of Transport, after hearing the representative organization of the insurance companies, and in my capacity pursuant to Section 13(A) of the Automobile Insurance Law (Insurance in Conditions of Controlled Competition and Arrangements for a Transition Period), 5757-19972 (hereinafter - the Insurance Law), all with the approval of the Finance Committee of the Knesset, I order as follows: Fixing insurance premium rates Insurance premium rates pursuant to the Automobile (a) Insurance Ordinance [New Version], Insurance Premiums, 573019703 (hereinafter - the Ordinance), shall be as set forth in the Addendum, updated as provided in Section 3. In addition to the provisions in sub-section (a) above, an (b) insurer shall collect a supplement from an insured for financing activities for the prevention of road accidents at a rate of 4.74 percent of the insurance premium in the Addendum, and transfer it to the fund which was established pursuant to Section 17 of the law. In addition to the provisions in this section, an insurer who (c) waived in writing the receipt of handling fees from Avner is entitled to collect from an insured an amount not exceeding 12.94 percent of the insurance premium in the Addendum for covering his administrative expenses, including agents' commissions; if the insurer did not waive the handling fees as aforesaid he shall transfer to Avner, in addition to his share in the insurance premium as set forth in Regulation 2, and irrespective of the amount he actually collected from the insured pursuant to this sub-regulation, an amount equal to the product of two percent of the insurance premium in the Addendum at the rate of Avner's part in the liability for co-insurance as provided in Section 4 of the Insurance Law. A sum equal to 94.85 percent of the insurance premium in the (a) Addendum shall be divided between the insurer and Avner in accordance with the rate of allocation of liabilities between them that is stipulated in Section 4 of the Insurance Law. 1. Distribution of the insurance premium 2. Capital Markets, Insurance & Savings Division -66- Compulsory Automobile Liability Insurance A sum equal to 5.15 percent of the insurance premium in the (b) Addendum shall be transferred to Karnit in accordance with the Order for the Compensation of Road Accident Victims (Fund Financing). 5757-1997.4 An insurer may not deduct from the share of Avner or Karnit (c) in the insurance premium, any amount in respect of agents' commissions. Linkage to changes in the CPI On the first of every month starting from October 1998, insurance 3. premium rates shall be updated compared with the rates appearing in the Addendum, according to the rate of change in the Consumer Price Index which was published in June 1998 compared with the index published for the third month prior to the date of the increase. The insurance premiums shall be paid in full by the date of the start of 4. the insurance; however, if the insurer issued a temporary coverge as defined in Section 10 of the Ordinance, an amount shall be paid by the date of the start of the insurance in accordance with item 11 in the Addendum. This sum shall be in addition to the annual insurance premium which will be paid by the date of issue of the policy. Should an insurer be required to reimburse an insured for the 5. insurance premium owing to cancellation of the insurance, linkage shall be added to the reimbursement in an amount commensurate with the changes which occurred in the Consumer Price Index starting from the index of the third month prior to the date of the start of the insurance up to the index of the third month prior to the date of cancellation of the insurance contract. The Order for the Compensation of Road Accident Victims 6. (Insurance Premium Rates), 5757-19975 - is void. These Regulations shall begin from the 11 th day of Elul, 5758 (1 7. September, 1998), and apply to insurance policies taking effect on that date or thereafter, whereas sub-regulation 2(c) will also apply to policies taking effect on the 3rd day of Tevet 5758 (1 January, 1998) or thereafter. Dates of payment Reimbursement of insurance premium Cancellation Application Capital Markets, Insurance & Savings Division -67- Compulsory Automobile Liability Insurance ADDENDUM Private passenger automobile cc (as stated in vehicle license) Up to 1,000 1,001 1,301 1,501 1,801 2,000 More than 1,300 1,500 1,800 2,000 2,500 2,500 Annual insurance premiums in NIS 1,420 1,542 1,542 1,619 1,619 1,931 1,931 1. Notes: 25% supplement for a vehicle used for driving lessons (including passenger premium). 1. 20% supplement for a vehicle for hire for a period of a year or more, according to a 2. rental contract for such period; the rates for a private passenger automobile which is rented for less than one year appear in Item 2. Discount of 75% for a vehicle which is more than 30 years old and for which the 3. license states that it is a collector's item. Private passenger automobile for hire cc (as stated in vehicle license) Up to 1,000 1,001 - 1,300 1,301 - 1,500 1,501 - 1,800 1,801 - 2,000 2,000 - 2,500 More than 2,500 Annual insurance premiums in NIS 3,549 3,856 3,856 4,049 4,049 4,827 4,827 2. Notes: The rates in this sub-item applies to an automobile which is hired for less than one 1. year. Including passenger premium. 2. In a policy for a number of automobiles exceeding 400 with one owner - the insurance 3. premium shall be NIS 3,463 for each automobile. Capital Markets, Insurance & Savings Division -68- Compulsory Automobile Liability Insurance Commercial vehicle cc (as stated in vehicle license) Up to 1,600 1,601 2,501 4,001 10,001 More Mobile than 2,500 4,000 10,000 16,000 16,000 home Annual insurance premiums in NIS 1,894 2,000 2,000 3,835 3,835 3,835 2,000 3. Notes: A commercial vehicle qualified to travel the roads, including mobile shops and 1. canteens, mobile clinics and vehicles with X-ray machines, mobile workshop units, and a vehicle defined in its license as an all-terrain vehicle. Including passenger premium in automobiles up to 4000 kg total weight; however - 2. In automobiles up to 4000 kg - NIS 245 supplement for each permitted paying 3. passenger, from the seventh passenger; in automobiles of more than 4000 kg - NIS 214 supplement for each permitted passenger even if not paying, from the seventh passenger. 25% supplement for a vehicle used for driving lessons. 4. 10% supplement for a dump truck. 5. 10% supplement for a truck with crane. 6. 25% supplement for the transportation of fuel, gas and flammable or combustible 7. materials. 66% supplement for hiring for less than ninety days. 20% supplement for hiring for 90 8. days or more. If the license states that the automobile is for transporting a disabled person, the rate 9. shall be as for a private passenger automobile, where any total weight in kilograms shall be considered as 1 cc. Mobile home - a vehicle whose license states that it is a "mobile home". 10. Motorcycles .4 cc (as stated in vehicle license) Up 51 251 More to than 50 250 500 500 Annual insurance premium (for use of one driver designated by name) in NIS 958 1,813 2,024 2,024 Notes: Capital Markets, Insurance & Savings Division -69- Compulsory Automobile Liability Insurance Motorcycle, including a motor scooter and motorized tricycle. 1. 20% supplement where the policy is issued for the use of more than one driver 2. designated by name. 10% supplement for a motorcycle with sidecar. 3. 60% supplement for a motorcycle used for driving lessons. 4. Capital Markets, Insurance & Savings Division -70- Compulsory Automobile Liability Insurance Taxis No. of seats stated in the vehicle license (excluding the driver) Up to 6 7 or more Annual insurance premium in NIS 4,640 6,959 5. Notes: This category includes also passenger taxis which are permitted under their license to 1. be used for tourism, and for these a discount of 25% shall apply. Including passenger premium. 2. Discount of 20% where the policy is for the use of one driver designated by name. 3. Buses and commercial tourism vehicles No. of seats stated Annual insurance the vehicle license premium in NIS (excluding the driver) a. Private and public (including tourism) Up to 20 4,752 21 - 30 4,815 31 - 40 4,815 More than 40 7,277 Commercial tourism vehicle 7,277 b. Public - On authorized transport lines For any number of seats 13,600 in 6. Notes: Including passenger premium. 1. Bus, including a minibus as defined in the Transportation Regulations, 5721-19616 2. (hereinafter - the Transportation Regulations). Trading in automobiles Type Annual insurance premium (where the policy is issued for the use of one driver designated by name or other commercial sign), in NIS 2,770 1,903 7. Automobiles Motorcycles Notes: In a policy issued for the use of more than one driver designated by name or more than 1. one commercial sign - 50% supplement for each driver or sign. Including passenger premium. 2. Including premium for a sidecar in motorcycle trading. 3. 20% supplement for driving of an additional person for display purposes, accompanied 4. by a person licensed to drive. Capital Markets, Insurance & Savings Division -71- Compulsory Automobile Liability Insurance Special automobiles Type a. Engineering equipment 1. Wheeled 2. Caterpillar b. Agricultural and forestry vehicles 1. Up to 6 h.p. .1 2. More than 6 h.p. .2 c. Ambulances and fire engines Hearses d. Roadsweeper vehicles e. Moped f. Dune buggy g. 6‫ 6׳‬dune buggy h. Other vehicles i. Annual insurance premium in NIS 8. 1,055 867 240 636 2,770 2,754 1,980 336 1,812 1,812 638 Notes: Including tractors for earthworks and tractors used as bulldozers and wheeldozers, 1. levelers, graders, diggers and earth-carriers - excluding equipment designed for agricultural and forestry work - all provided that they are qualified to travel on the roads. Vehicles for agricultural and forestry work, including tractors for agriculture and 2. forestry. Other vehicles include fork-lifts, steam-rollers and cleaning vehicles which are 3. qualified to travel on the roads. Including use by hire or for pay. 4. Trailers Type a. All types b. For haulage . I c. For haulage Trailers used as a base d. for permanentlyinstalled work tools Trailers for transporting e rigid wheeled vehicles designed to move in closed areas such as ports and factories wt. in kg Up to 1,000 1,001 - 16,000 More than 16,000 More than 1,000 More than 1,000 Annual insurance premium in NIS 240 for every 5 trailers or fewer 788 974 463 for every 5 trailers or fewer 463 for every 5 trailers or fewer 9. Notes: Including supported trailers. 1. 10% supplement for hoist. 2. 25% supplement for transportation of fuel, gas, flammable or combustible materials. 3. Together with trailers of type a., d. and e - NIS 459 for every 5 trailers or fewer. 4. Capital Markets, Insurance & Savings Division -72- Compulsory Automobile Liability Insurance Train Type Annual insurance premium in NIS starting from 7,431,696 10. Train and track operation through Ports & Railways Authority as defined in the Ports & Railways Authority Law, 572119617 Train and track operation not through Ports & Railways Authority 72,156 Insurance for less than one year For up to seven days - 5% of the annual insurance premium. A. For more than seven days - 5% of the annual insurance premium plus 0.3% of the B. annual insurance premium for each day's insurance starting from the eighth day. In any case, the insurance premium shall be not less than NIS 77. C. Insurance of a vehicle staying in Israel for a short period Despite the provisions of Item I, a foreign vehicle entering Israel in accordance with a lawful permit for a limited period which does not exceed three days, shall be subject to a pro rata insurance premium out of the full annual insurance premium pursuant as in this Addendum, according to the period the vehicle remains in Israel under the permit, plus NIS 23. Standing vehicle III When a policy is issued for a period in excess of 45 days and use of the vehicle does A. not include any driving for a continuous period in excess of 45 days, and the insurance certificate was returned to the insurer - the insurance premium is NIS 40 for one vehicle for one month, but not less than NIS 78. When a policy is issued for use of a vehicle which is in manufacturing or assembly B. plants or bonded warehouses and the use thereof does not include any driving - the annual insurance premium is NIS 162 per one vehicle. Administration expenses in respect of issue of a replacement insurance certificate, including the IV issue of insurance for a replaced vehicle - NIS 42. I. II Capital Markets, Insurance & Savings Division -73- Compulsory Automobile Liability Insurance Insurance by the Pool V. When a policy is issued by the Israeli Pool for Automobile Insurance of the Association of Insurance Companies in Israel, a 25% supplement shall apply to the rates fixed in Items 1 to 13; this supplement shall not apply when the owner of the automobile is a disabled person as defined in the Transportation Regulations or when the automobile is designed for the use of a disabled person. Yaakov Neeman Minister of Finance ___________, 5758 (__________, 1998) __________________________ 1. Sefer Hahukkim 5735, p.234. 2. Sefer Hahukkim 5757, p.205. 3. The Laws of Israel, New Version 12, p.320. 4. Book of Regulations 5757, p.937; 5755,p.1356. 5. Book of Regulations 5758, p.140. 6. Book of Regulations 5721, p.1425; 5752, p.452. 7. Sefer Hahukkim 5721, p.145; 5752, p.42. Capital Markets, Insurance & Savings Division -74- Compulsory Automobile Liability Insurance REGULATIONS FOR THE COMPENSATION OF ROAD ACCIDENT VICTIMS (INSURANCE PREMIUM RATES), 5758-1998 EXPLANATIONS Introduction Section 17 of the Road Accident Victims Compensation Law, 5735-1975 (hereinafter - the Law) stipulates that "Insurance premium rates pursuant to the Insurance Ordinance, including a supplement for financing road accident prevention activities (hereinafter - the Supplement) and arrangements for distribution of the burden of compensation among the insurers, taking into account the various types of automobiles, whether by way of balancing income from insurance premium or by way of balancing the payments made to victims - shall be fixed by the Minister of Finance in consultation with the Minister of Justice and the Minister of Transport, after hearing the representative organization of the insurance companies and with the approval of the Finance Committee of the Knesset." Following the latest amendment to the Regulations for the Compensation of Road Accident Victims (Insurance Premium Rates), 5758-1998, dated 1.1.98, and in view of additional analyses undertaken by the Office of the Commissioner of Insurance since its updating, it appears that additional amendments must be made to the rates. The main amendment relates to termination of the collection of money from the public for past losses. Below are the principal changes proposed (appendix attached): Overall reduction of the total rate by about 8% as a result of that stated below Sources of coverage of past losses will be fully depreciated. The item Other management expenses which was presented in the calculations and was a component of the risk insurance premium, has been removed from the insurance premium and combined with the fees as a limited supplement in the ceiling whose collection is at the discretion of the insurer. Thus, the source for payment of current claims (handling fees) from the insurance premium at a rate of about 2% will be cancelled, while the sources for covering fees will be increased by about 2% so as to cover the expenses of the insurance companies which until now were included in the handling fees. The proposed changes are based, inter alia, on various audit facts and financial statements which were submitted to the Commissioner of Insurance in recent years. These changes are a further intermediate step, and additional examinations will continue to be carried out in respect of the rate and its various components. Expenses item The fees which the insurance company is entitled to collect were designed to cover all of the general and administrative expenses relating to the sector, including policy issue expenses, commission to insurance agents, office handling of claims, collection, accounts, etc.    Capital Markets, Insurance & Savings Division -75- Compulsory Automobile Liability Insurance Even though the fees were designed, as aforesaid, to cover the expenses of handling claims, over the years the companies collected additional amounts from Avner in respect of the claims which they handled (we note here that this arrangement worked both ways, meaning that Avner collected "handling fees" from the insurance companies in respect of claims which it handled). In 1993, handling fees amounted to 2.1% of the claim, after the intervention of the Commissioner of Insurance who reduced them from 4.2%. In our opinion, these expenses should be included in the Administrative expenses item of the insurer, to be collected within the limits set for this matter, at the discretion of each insurer. Past losses According to additional analyses performed at the Office of the Commissioner of Insurance over the past six months, and following examinations carried out in preparing the latest amendment, it transpires that since the date of application of the Law the entire sector has posted a cumulative profit of considerable size which, in the opinion of the Office, justifies termination of the collection. We note here that the Office of the Commissioner of Insurance is initiating a comprehensive actuarial examination of the compulsory automobile liability insurance sector, in accordance with earlier decisions of the Finance Committee of the Knesset, which includes, among other things, examination of the past losses component of the premium. On completion of this examination, the Commissioner will have more precise results of the balance sheet of the insurance companies in respect of compulsory automobile liability insurance. At this stage it is proposed that the premium be reduced at a uniform rate for all automobiles, until a more in-depth study is made for fixing the premium according to types of automobiles in the actuarial examination mentioned above. Capital Markets, Insurance & Savings Division -76- Compulsory Automobile Liability Insurance REGULATIONS FOR THE COMPENSATION OF ROAD ACCIDENT VICTIMS (INSURANCE PREMIUM RATES), 5758-1998 FURTHER EXPLANATIONS TO THE FINANCE COMMITTEE PRIOR TO APPROVAL OF THE REGULATIONS After hearing the representative organization of the insurance companies pursuant to Section 17 of the Road Accident Victims Compensation Law, 5735-1975, and after hearing the representatives of Avner, below are a number of amendments and clarifications relating only to the implications of the Regulations for the method of accounting between Avner and the insurance companies in accordance with the agreements between them. Handling fees The proposed amendment in the Regulations, whereby the financial source used for payment of handling fees in claims from the Current losses item (which is included in the insurance premium in the Addendum) for the Fees item (Regulation 1(c), necessitates adaptation of the agreements between Avner and the insurance companies. Accordingly, it is proposed to determine an optional arrangement concerning the collection of the handling fees and their distribution among the insurers and Avner according to the existing arrangement in the agreements or a change which will be agreed upon on a per case basis as explained below. Each insurer may, at his discretion, collect a percentage which will not exceed 12.94% of the insurance premium in the Addendum, to finance its administrative expenses including agents' commissions and as now proposed also for handling fees in claims. In view of the existing arrangement in the agreements in the matter of payment of handling fees in claims, and to prevent double payment to the insurer, it is proposed to stipulate that an insurer who waives his future right to receive handling fees from Avner (as opposed to payment of handling fees which it makes to Avner, as the case may be), will not be obligated to transfer to Avner at the insurance premium collection stage, any amount in respect of this component in the accounting between them. On the other hand, an insurer who does not waive this right as aforesaid will be obligated to transfer to Avner, in addition to his share in the insurance premium in the Addendum and irrespective of the amount actually collected from the insured, a sum equal to the product of two percent of the insurance premium in the Addendum at the rate of Avner's share in the liability in the co-insurance, as a source which will be used in the future by Avner for payment of the handling fees to the insurer according to the existing arrangement. A stipulation will also be made that the change in respect of handling fees shall apply only to new policies (see definition of handling fees and the application clause). Capital Markets, Insurance & Savings Division -77- Compulsory Automobile Liability Insurance Agents' commissions The Regulations for the Compensation of Road Accident Victims (Insurance Premium Rates), 5758-1997 (from January 1998) stipulate that the component of agents' commissions which was included up to that date in the insurance premium in the Addendum, will be collected, subject to the discretion of the insurers, within the Administration expenses item of the insurer (including agents' commissions). The actual transfer of the agents' commissions component as aforesaid was reflected by the reduction of the insurance premium in the Addendum accordingly. It is therefore clear that from the date of the change, there is no room for accounting with Avner in respect of distribution of the insurance premium in the Addendum in respect of this component. The aforesaid notwithstanding, and owing to differences of opinion which came to light in the sector on this matter, it is proposed to clarify the matter in the new Regulations applicable from the date of application of the change, i.e. 1.1.98 (Regulations 2(c) and 7). Capital Markets, Insurance & Savings Division -78- Compulsory Automobile Liability Insurance THE CHANGE IN THE STRUCTURE OF THE PREMIUM (APPENDIX TO REGULATIONS) (Data from 1997 in December 1997 shekels) NIS thousands Item Current losses* Handling fees Past losses Karnit Total insurance premium Safety fund Stamps Fees* Total premium Existing 2,572,308 54,018 218,011 154,437 2,998,775 142,142 49,907 328,366 3,519,189 Proposed 2,572,308 0 0 139,667 2,711,975 128,548 45,944 350,980 3,237,447 Percentage of insurance premium Existing Proposed 85.78% 1.80% 7.27% 5.15% 100.00% 4.74% 1.66% 10.95% 117.35% 94.85% 0.00% 0.00% 5.15% 100.00% 4.74% 1.69% 12.94% 119.38% Change Percentage 0.00% -100.00% -100.00% -9.56% -9.56% -9.56% -7.94% 6.89% -8.01% NIS thousands 0 -54,018 -218,011 -14,770 -286,800 -13,594 -3,963 22,614 -281,743 * The handling fees which were separated from the Current losses item were transferred to the Fees item. Note - The accounting between the companies and Avner in respect of transfer of 0.547% to Avner will continue, with the changes necessitated by these Regulations. Capital Markets, Insurance & Savings Division -79- Compulsory Automobile Liability Insurance REGULATIONS FOR THE COMPENSATION OF ROAD ACCIDENT VICTIMS (INSURANCE PREMIUM RATES), 5758-1997 EXPLANATIONS FOR THE EARLIER AMENDMENT OF THE REGULATIONS Introduction On 30 July, 1997, the Road Accident Victims Compensation Law (Insurance in Conditions of Controlled Competition and Arrangements for the Transition Period), 5757-1997 (hereinafter - the Law) passed its second and third readings in the Knesset. The Law is the continuation of the Automobile Insurance Law (Temporary Provision), 5757-1996 (hereinafter - Temporary Provision), which stipulated that in the period from 31 December, 1996 to 31 July, 1997, the license of an insurer to engage in compulsory automobile liability insurance pursuant to Section 7 of the Automobile Insurance Ordinance [New Version], 5730-1970 (hereinafter - the Ordinance), would be contingent also upon the insurer being a party to agreements as they were immediately prior to application of the Temporary Provision, between the insurance companies and Avner, and between each of them and the Pool. The background to legislation of the Temporary Provision was the notice of a considerable number of the insurance companies of their wish not to renew the agreements with Avner, which had been in effect since legislation of the Road Accident Victims Compensation Law, 5735-1975 (hereinafter the Compensation Law). The Commissioner of Insurance believed that the withdrawal of the insurance companies from the Avner agreement without the orderly and intelligent formulation of an alternative model for operation of the sector, would prejudice the public interest for a proper arrangement of compulsory automobile liability insurance in accordance with the requirements of the Ordinance and the Compensation Law. Over the past eighteen months the Commissioner of Insurance has carried out comprehensive examinations on the question of the desirable arrangements for operation of the compulsory automobile liability insurance sector. Various alternatives were evaluated while taking into account positions presented by representatives of the insurance companies, of Avner and of consumers and others. From the models examined, the model chosen for operation of the sector in the future is the "controlled competition" model. The Law stipulated a transition period, at the end of which the insurers in the sector would operate in conditions of controlled competition, in view of the assessment that transition to a new model is feasible only gradually, over time, while ensuring appropriate preparation of the various levels of the sector so as to ensure the stability of the sector from the economic aspect and the good of the insured public for the reasonable, fair and appropriate supply of compulsory automobile liability insurance. An essential condition for the activity of insurers in a controlled competition environment is the release of the uniform rate, as is today, from regulation and a gradual transition to competition among the companies, except for the matter of the Pool rate, which will remain under supervision in the future model. Release of the rate is a central element in the transition of the compulsory automobile liability insurance sector to operation in a competitive model, in that it ensures the ability to make the extent of exposure of each individual insurer compatible with the rate he sets, a fact which also directly affects the stability of the insurer. Capital Markets, Insurance & Savings Division -80- Compulsory Automobile Liability Insurance From examinations made since the regulation of the Road Accident Victims Compensation Order (Insurance Premium Rates), 5753-1993 (hereinafter - the Rates Order), it transpires that there are cross-subsidies between the various groups of automobiles. Under the new operation model, rate levels will be set by the insurance companies according to assessment of the various risks for automobiles and drivers. Thus, in order to reduce the impact of the change in the rate on the public starting from the end of the transition period pursuant to the Law, it is necessary to update the existing Rates Order while reducing the level of the cross-subsidies with a number of restrictions, as explained below. Also under examination is an adjustment of the overall rate level in two main components: one - the premium for covering current losses, the other - allocation and distribution of the collection for past losses. MAIN POINTS OF THE AMENDMENT Section 17 of the Compensation Law stipulates that the insurance premium rate, including a supplement for financing road accident prevention activities will be determined: "by the Minister of Finance in consultation with the Minister of Justice and the Minister of Transport, after hearing the representative organization of the insurance companies and with the approval of the Finance Committee of the Knesset." Below are the main points of the proposed changes (Appendix A attached): Reduction of the rate by about 8.7%. This reduction takes into account the surplus in current premium as estimated today and the updating and distribution of past losses. We note that owing to concerns about policy cancellations ("twisting"), the change will be made gradually over a period of six months. Thus, in 1998 the effective reduction will be at a lower rate (about 7%). As part of the rate amendment: The resources at Avner's disposal will be reduced by about 8%, and the resources available to the insurance companies will be reduced by 10%. Resources for payment of current claims will be reduced by about 4%. Resources for covering past losses will be reduced, at this stage, by about 42% and the period for making up the deficit will be rescheduled. Uses which are not for payment of claims: The fees have been combined with the Agents' commissions item and constitute a ceiling for collection by insurers. The Investigations fund has been cancelled. The percentage allocated to the fund for financing the campaign against road accidents and for Karnit has not been changed at this stage.       Capital Markets, Insurance & Savings Division -81- Compulsory Automobile Liability Insurance The proposed changes are based, among other things, on the balance sheets of Avner in recent years (1992-1996), the research of Professor Y. Kahana as submitted to the Commissioner of Insurance and to Avner, of Mr. Y. Kreidman concerning past losses at Avner, and of actuary S. Sapir on compulsory automobile liability insurance pursuant to the Road Accident Victims Compensation Law, as shown below. These changes are an intermediate step, and further examinations will be carried out with regard to the rate and its various components. CURRENT LOSSES The research of Prof. Kahana which was submitted to the Commissioner of Insurance shows a clear trend of a surplus in the current rate in recent years. The data show that the business results in 19951996 indicate a surplus in the current rate which varies from about 0.25% to 7% on average in the two years. The data also include a standard deviation which, if not taken into account, will increase the surplus by between 5.5% and 11.5%. It is still too soon to estimate to what extent the positive actuarial forecasts will prove true and whether a final profit will be generated in each of those years; nevertheless, against a background of this trend it can be determined that reduction of the current premium by an average 4% will be a rather conservative reduction when taking into account, among other things, the following: Anticipated profits for 1997. 1. A standard deviation from the forecast which constitutes about 5% of the losses. 2. Handling fees which were included in the calculations and whose justification should be investigated. We note that 1995-1996 are "immature" years for which claims have not yet been finalized, and there could be a deviation from the actuarial forecast. However, based on the results of 1990-1992 (which are more mature years) and adding the real increase in premium from August 1993 (23%), we can see that a theoretical surplus would have been obtained. PAST LOSSES The past losses mechanism has been in place since 1981. Over the years, with the updating of the Order, the allocations of past losses were also changed, both to Avner and to the companies. As mentioned, in 1993, with the update of the Rates Order, it was decided to set the total allocation for past losses at 11.11% of the basic premium. Past losses at Avner Since 1993, Avner has succeeded, following an increase in the rate and a cost containment plan, to reduce the deficit in its shareholders' equity from NIS 1,602,355,000 (in December 1996 shekels) to NIS 740,693,000. According to Avner's forecast, total past losses which will be collected in 1997 will amount to NIS 311,00,000 (in December 1996 shekels), so that Avner's expected deficit as at 31.12.97 will be NIS 429,693,000 (in December 1996 shekels). At this stage, based on the accounting deficit presented in Avner's balance sheet, and taking into account the growth data in the fleet and the proposed changes in the rate, it would appear that an allocation of 7.27% of the insurance premium will cover the deficit. 3. Capital Markets, Insurance & Savings Division -82- Compulsory Automobile Liability Insurance Past losses in the companies The companies currently receive approximately 1.5% of total premium for past losses. From the calculations made, there would appear to be no justification for continuing the collection of past losses for the insurance companies. This subject of past losses requires further investigation and adjustment. PREMIUM FOR VARIOUS GROUPS OF AUTOMOBILES Setting the premium for the various groups of automobiles (as shown in Appendix B) will be based on research carried out in recent years. The findings of the research pointed to the same trends, but since they contain various reservations, the subject still requires further investigation. For example, one of the research papers was based on 1994 and 1995, years in which the claims have not yet matured but indicate the current tend, which is further reinforced by another research paper which contained cumulative data from the years 1976 to 1993. The guiding principles for setting the premium for the various groups are these: Maintaining a current rate which is appropriate for coverage of current losses at the sectoral level. Reduction of the cross-subsidy within the limit of the resources while restricting premium supplements, at this stage, to the present Pool rate which is the effective rate ceiling, particularly for automobiles which are currently undercosted (up to 25%). All the surpluses obtained as a result of lowering the total rate and as a result of raising the rate for groups which are undercosted, are divided equally according to the depth of the subsidy among the overcosted automobiles, so that the level of cross-subsidy imposed upon them will be the same. As a result, the maximum subsidy percentage was reduced to only 16.9%. 1. 2. 3. TRAINS Setting the premium rate for trains is complex, owing to problems of definition, reliability of the data and the special character of this vehicle. In setting the rate, we relied on the researches of actuaries Professor Kahana and Professor Babad which were submitted to the Commissioner of Insurance. Professor Babad writes in his paper that: "It should be recognized that the train has special insurance-related data and that in the railway sector, centralization differs greatly from anything existing in the other branches of transport. Even the existing statistics for this branch, which are required for structuring the rates, do not exist." The actuaries also recommend: "In our opinion, one premium amount should be set for Israel Railways." We are adopting this recommendation to set one rate for all railway activities, which will be imposed upon the Ports and Railways Authority or an entity which replaces it, where this cost will naturally be rolled over to the lessors of the cars and locomotives or other users. For setting the premium, claims of the five available years were taken into account (including 1992, in which there were two exceptional claims). Also taken into account was a loading in respect of extraordinary claims, as recommended by the researches referred to above. Capital Markets, Insurance & Savings Division -83- Annexes to Request for Proposal Compulsory Automobile Liability Insurance Appendix A PROPOSAL FOR CHANGING THE RATE AND ITS DISTRIBUTION* (in NIS millions - December 1996 prices as per 1996 data) Item Current Past losses Karnit Investigation fund Commission Total Premium Fees Safety fund Total ins. Premium Stamp duty Total Exisitng in 1996 NIS Precentage millions 2429.60 80.25 336.40 11.11 150.50 4.97 1.80 0.06 109.30 3027.50 210.10 138.40 3376.10 48.40 3424.40 3.61 100.0 6.94 4.57 111.51 1.6 113.11 Proposed for 1997 NIS Precentage millions 2332.42 87.56 194.28 7.29 137.19 5.15 0.00 0.00 0.00 2663.89 291.70 126.27 3081.85 44.22 3126.08 0.00 100.0 10.95 4.74 115.69 1.66 117.35 Change in % -4.00 -42.25 -8.84 Avner 50% Current Proposed 70% 1700.72 1166.21 284.25 194.28 Companies 50% Change Current Proposed Change in % 30% in % -31.43 728.88 1166.21 60.00 -31.65 52.14 0.00 -12.01 38.84 -8.76 -8.72 -8.64 -8.71 1984.97 1360.49 -31.46 781.02 1166.21 49.32 1984.97 1360.49 -31.46 781.02 1166.21 49.32 1984.97 1360.49 -31.46 781.02 1166.21 49.32 *The details are based on the existing division of liability (30 - 70) and are designed to clarify the change on the basis of comparative figures. Note: The accounting between the companies and Avner with regard to the transfer of handling fees in a claim (at 2.1%) and with regard to the transfer of 0.547% to Avner will continue, with the changes necessitated by this Order. Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 84 - Annexes to Request for Proposal Compulsory Automobile Liability Insurance Appendix B THE CHANGES IN THE RATES ORDER (Final premium in January 1998 prices) Type of vehicle Private passenger automobile Commercial automobile Motorcycles Class Premium today 1,708 1,954 2,122 2,703 3,243 5,029 4,353 1,087 2,058 2,297 5,267 7,983 5,989 7,774 10,024 13,180 19,053 2,058 Old estimated subsidy 23.1% 11.1% -11.2% -17.0% -32.0% -53.8% 8.5% 368.5% 213.8% 612.9% 40.1% 34.2% 12.4% New estimated subsidy 0.0% 0.0% -16.8% -16.9% -16.8% -16.9% 28.0% 242.2% 129. 2% 420.8% 2.4% 0.0% 0.0% Change, in NIS 212 28 -52 -237 -823 -2,476 1,089 272 515 575 1,318 1,800 158 -1,627 -3,877 -3,888 -1,688 515 Change, in % 12.4% 1.5% -2.5% -8.8% -25.4% -49.2% 25.0% 25.0% 25.0% 25.0% 25.0% 22.6% 2.6% -20.9% -38.7% -29.5% -8.9% 25.0% New premium 1,920 1,982 2,069 2,466 2,419 2,554 5,442 1,359 2,573 2,872 6,585 9,783 6,147 6,147 6,147 9,292 17,365 2,573 Required premium 1,920 1,982 1,721 2,050 2,012 2,122 6,964 4,651 5,899 14,958 6,740 9,783 6,147 Up to 1,000 cc 1,001-1,500 cc 1,501-2,000 cc Over 2,000 cc Up to 1.599 tons 1.6-4 tons Over 4 tons Up to 50 cc 51-250 cc Over 250 cc Up to 6 passengers Over 6 passengers Up to 20 passengers 21-30 31-40 Over 40 passengers Public Buses Dune buggy Taxis Buses Dune buggy -35.9% -0.2% 76.2% -16.9% 0.0% 28.7% 7,719 17,365 3,312 Tender No. SH-1-1999 Capital Markets, Insurance & Savings Division - 85 - ANNEX 2.5.1.1 MINIMUM REQUIRED STATISTICAL INFORMATION The statistical plan will include at least the items of information listed below: Company code Car use - private or commercial Business category - insurance through an insurer (voluntary market) or through the Pool (residual market) Area code Risk category Report date Reported experience period (for historical data only) - The period to which the report refers, in respect of premiums by calendar year, in respect of claims payments by loss year or underwriting year Type of coverage - loss of earnings, medical expenses, pain and suffering Activity code and amounts - premiums; claims payments; claim settlement expenses; balance of outstanding claims (for historical data only) Types of claims - payments by types of coverage Number of claims - paid and outstanding (for historical data only) Exposure - by premium months (for historical data only)             Compulsory Automobile Liability Insurance ANNEX 2.21 INSURANCE GROUPS OPERATING IN THE SECTOR Clal Group Company name Total % of gross insurance premium in the sector in 1997 (not including Avner and past losses 3.7% 4.8% 13.7% 22.2% Aryeh Ararat Clal Total The Phoenix Group Company name Noga Hadar Dolev The Phoenix Total Migdal Group Company name Total % of gross insurance premium in the sector in 1997 (not including Avner and past losses 0.2% 5.0% 3.6% 9.4% 18.2% Migdal Maoz Hamagen Sela Total Other companies Company name Total % of gross insurance premium in the sector in 1997 (not including Avner and past losses 7.0% 0.7% 3.6% 1.5% 12.8% Sahar Ayalon Eliahu Elite Bituach Haklai Hachsharat Hayishuv Menorah Zion Personal Direct Bituach Yashir A.I.G. Total Total % of gross insurance premium in the sector in 1997 (not including Avner and past losses 8.4% 4.7% 10.7% 2.5% 1.2% 4.4% 6.2% 4.3% 1.3% 2.7% 0.4% 46.8% Capital Markets, Insurance & Savings Division - 87 - Compulsory Automobile Liability Insurance Capital Markets, Insurance & Savings Division - 88 -