POLICY - May 2019

POL I CY The Israeli Insurance , Pension&FinanceNewspaper 9 Tel Aviv Re 2019 innovative solutions and enhanced customer journeys. Technological developments are also affecting the way people buy insurance, broadening industry dynamics beyond the traditional insurance ecosystem. In Life & Health, for instance, there’s enormous growth potential in using technology to further develop automated underwriting platforms and to develop parametric and dynamic pricing solutions in tandem with health monitoring devices. • In your view, what is the biggest challenge in the local industry? The total cost of distribution as a component of the premium has long been a problem in our market, but it is not unique to our market. I expect it to be resolved quite quickly, though, as there is an enormous amount of effort being spent on disrupting this particular component of the chain. The Sick Funds’ Long Term Care (LTC) groups were recently tendered, which allowed for the subject to come up in public again. Long Term Care is, in my opinion, the next frontier for the insurance market, but it will be a particularly difficult nut to crack. Employer scheme groups are no longer viable for several structural and cultural reasons. Individual policies are underappreciated and possibly also under-priced. This is a toxic mix. Solvency II has forced the industry to tackle more carefully the product features of LTC, and to focus on the cost of guarantees implicit in the current market version of the individual LTC product. I estimate that the cost of guarantees makes up some 50% of the premium after distribution cost. The capital is likely under-assessed relative to the actual risk, making it good value for money in a mathematical sense, though not from a consumer perspective. My analogy for this is the pension industry. In the past, fewer pension contributors would live beyond retirement age; those who did, would enjoy 3 to 5 years of retirement benefits, at best. Pension was, therefore, an insurance where a large base pooled for just a few. Today, a larger part of the contributing population is expected to retire and live several decades post retirement age. Today’s pensions are therefore funded but not insured, i.e. people save towards retirement. LTC was like an insurance in its initial conception. Current research and forward-thinking trend prediction suggest that many - probably the majority of contributors - will require some kind of LTC, likely for a long period. This tells me we’d be better off by restructuring LTC as a savings/funding model. While I’m a firm believer in Milton’s free-market approach, I do believe public policy is crucial in this area, where government should take a hands-off but pro-active stance. I would like to see efforts to combine LTC with the pension framework, or alongside it,withmaterial taxbenefits to support and encourage savings. To offset this cost, government should consider transitioning a fixed and discriminatory retirement age into a model that works for our current economy. As a first step in that direction, I would like to see the Commissioner of Insurance encourage insurance companies to experiment with different LTC concepts to understand what is attractive and meets market needs. As a first approximation, fully reviewable rates on Medex and LTC will materially transfer risk to policyholders, but also save enormous risk associated costs. While this isn’t my preferred solution, it would be a step forward. • Reinsurance has always been a conservative business, what’s changing andwhat are the drivers? Reinsurance remains a relationship business, particularly in Israel and the Mediterranean. There’s got to be a sense of trust and collaboration. Our clients are partners, together with whom we strive to develop solutions that address nascent needs. It is not about providing capacity only; it’s about providing a range of services from underwriting automation to product design and risk knowledge that identifies and addresses those needs; it’s about understanding the new risk pools and new distribution channels that are created as our market evolves and matures. In reinsurance, we have the unique ability to collect and disseminate ideas and innovation from around the world. We monitor the key issues affecting our industry, research them in-depth to understand their impact and advise our clients accordingly. This is a value-added service that reinsurers render with the goal of expanding industry frontiers and identifying, monitoring and understanding emerging risks. Cyber is a good example. Developing the ability to provide coverage to a new risk pool benefits the whole supply chain. This value-added service has a price tag associated with it; to remain a win-win situation it needs to be valued and rewarded. Likewise, we need to understand the regulatory environment in which we operate, hence build close ties with the relevant regulatory authorities. In summary, our success in the re/ insurance market depends on our ability to develop a solid business ecosystem that ensures all players in the value chain can deliver on their parts, efficiently and profitably.