1. Regulation of the Provision of Insurance Services
The Israeli Regulator for insurance services is the Commissioner of Capital, Markets, Insurance and Savings at the Ministry of Finance. (the “Commissioner”). As the title suggests, the Commissioner is charged with responsibility to regulate not only the insurance sector but also the participants in the capital markets and pension areas in Israel. The authority and responsibility of the Commissioner to regulate the Insurance sector in Israel is set forth in the Financial Services Supervision Law (Insurance) of 1981, as amended (the “Supervision Law”). The main responsibilities of the Commissioner in the field of Insurance is licensing of both insurers and insurance intermediaries, monitoring the solvency of insurers, approval of master policy wordings to be used for large numbers of insureds (this applies mostly to personal lines business) and dealing with consumer complaints.
The Commissioner uses a variety of measures to supervise the insurers it regulates. This includes issuing regulations under the Supervision Law, issuing directives to insurers, issuing position papers indicating the views of the Commissioner on certain matters, issuing rulings in cases of consumer complaints and joining legal proceedings in which issues of importance are being ruled upon. Insurers must complete detailed reports to the Commissioner which are intended to assist the Commissioner in monitoring the relevant businesses. Auditing firms appointed by the Commissioner conduct periodic visits to the premises of licensed insurers and audit them.
The Commissioner has wide-ranging powers. The Commissioner can withdraw or amend an insurer’s license and can impose financial or other penalties on firms whom are found to be in breach of the Supervision Law and its regulations or any of his directives. He can also discipline the directors and those other members of senior management who have to be individually approved by the Commissioner in order to hold their positions.
The Courts have repeatedly given broad interpretation to the Commissioner`s authority to supervise activities of insurers in Israel.
The Commissioner gives special attention to the regulating of personal lines business. For example, in motor insurance (both property and bodily injuries) and in homeowners insurance, policy wordings are dictated by the commissioner. In addition, insurers must file their rates with the Commissioner. The Commissioner actively encourages competition among insurers. For example, several years ago motor bodily injuries insurance was opened up to competition. The Commissioner publishes, on the web site of his department, comparisons of motor insurance rates charged by insurers in Israel.
The Commissioner announced in 2008, that the EU Solvency II Directive will be implemented in Israel and will apply to Israeli insurers by the end of 2012. Each insurer must appoint senior personnel to be responsible for implementing the Solvency II directive
2. Cover for global risks from Israel or elsewhere
Section 14 of the Supervision Law, prohibits engaging in insurance business without a license (a non – admitted insurer).Each insurer license is limited to the classes of insurance business stated in the license. An insurer may not transact insurance business in classes of business not included in the license. The regulations list over 20 different classes of insurance business (e.g, property, personal accidents, marine, life etc.). A license may be granted to an Israeli company or to a foreign company which meet the conditions set forth in the regulations enacted under the Supervision Law. Transacting insurance business without a license is a criminal offense, punishable by a fine and/or imprisonment for a term of up to three years. In case the violation was committed with intent to defraud consumers the imprisonment may be increased up to 5 years. In recent years there have been various examples of the Commissioner taking action against companies conducting insurance business in breach of the licensing requirements.
An insurer licensed in Israel, whose license allows it to transact insurance business originating outside of Israel is, as far as Israeli law is concerned, permitted to cover risks located anywhere in the world. However, such insurer will have to comply with the local requirements of the foreign countries in which it transacts insurance business.
There is no prohibition on an Israeli insured to purchase insurance from a non-admitted insurer located outside the boundaries of the state of Israel. However, as stated above, a non-admitted insurer is prohibited from transacting insurance business locally. Therefore, so long as the insurance transaction is conducted outside the state of Israel, a non-admitted insurer is not violating Israeli law. However, an insurance broker located in Israel may not be involved in such a transaction. Section 31 of the Supervision Law prohibits any person from engaging in insurance intermediation between an Israeli insured and a foreign insurer who is not licensed in accordance with the Supervision Law.
As a consequence, if a multi-national company headquartered outside Israel chose to enter into a global insurance policy to cover property risks of its subsidiaries around the world including a subsidiary in Israel, execution of such a policy with a foreign insurer not licensed in Israel would not, in itself, breach any law in Israel.
3. Implications of a corporate insured purchasing insurance from a non-admitted carrier
A corporate insured based in Israel, who purchases insurance from a non-admitted insurer in Israel will not be held in breach of any Israeli law or regulation, since the prohibition is on the insurer. Lower courts in Israel have held that the policyholder may enforce an insurance contract with a non-admitted insurer that has breached the Supervision Law.Such lower courts have also held that a non-admitted insurer that pays a claim under its policy may not initiate a subrogation claim which may only be executed by admitted insurers. Israeli courts are insured friendly courts that appear to interpret contracts with non-admitted insurers to the benefit of insureds, However, Israeli courts are not inclined to allow the non-admitted insurer the same relief afforded to admitted insurers.
In Israel insurance policies are governed by the Insurance Contract Law of 1981, which is a consumer protective law. However, a non admitted insurer, not located in Israel may require that that policy be subject to another law (such as the law where the insurer is registered) and/or jurisdiction of its home state courts. In such a case the insured will not be afforded the protection of the consumer oriented Insurance Contract Law of 1981. Furthermore, it will be more difficult to enforce a judgment against a non admitted insurer with no assets in Israel.