Special Edition The Israeli Insurance, Pension & Finance Newspaper May 2022 Year XXIV 4750-0793 ISSN Deepening The Presence In The Israeli Insurance Market This Special Edition of POLICY is dedicated to the memory of Ofer Eliahu - former Chairman of the Insurance Companies Association
Welcome We wish all of the participants an enjoyable and successful conference
POL I CY The Israeli Insurance, Pension & Finance Newspaper 3 Special edition 2022 Contents Reinsurance is deepening its presence in the Israeli insurance market >> Premiumby Ori Lavi-Pelleg, Editor in Chief, POLICY Value Proposition InThe New InsurtechWorld >> By Ziv Cohen, Executive Vice President, Wesure Globaltech Ltd. Farewell To The Late Ofer Eliyahu There Is A National Problem In Compulsory Motor Insurance – Electric Scooters And Bicycles Are IncreasingThe ClaimsWithout Bringing In Premiums >> Conversation With Shlomo Insurance CEO Uri Omid The Long RoadTo Recovery And Resilience >> By Hillel Damelin, Head Client Management L&h Medi, Ceo Swiss Reinsurance Company – Israel Branch 2021: Elementary Sector returns to normal; Underwriting losses drive earnings down >> By Hagai Shapira Illegal ActWill Serve No Basis For A Claim In Court >> By Peggy Sharon, Adv, Levitan, Sharon & Co. Developments In Cyber Protection And Privacy Protection Laws And Regulations In Israel >> By Adv. Sigal Schlimoff & Adv. Omer Shalev, Gross Orad Schlimoff& Co. - Law Firm The Fog >> By RanMizrachi, Ceo, Davidshield Insurance Company 5 22 6 8 10 12 14 16 20 Will Embedded Insurance Bring About Greater Change ThanThe Autonomous Car? >> By DiklaWagner, Director Of Technology Scouting For The Munich Re Reinsurance Company In Israel 24 AI And Automation-driven Operations For Auto Insurance Claims Management - A Revolutionary Vision >> By Uri Maimon, CEO And Founder Of MRM And Auto3p Europe Ag 28 REGTECH - Turning Regulation FromA Liability Into An Asset >> By Morly Dory – CEO & Founder, Global Pil 34 Partnership Is TheWay To Succeed >> By Orna Carni, Managing Partner, Fintlv Ventures 30 Leaderim Insurance Brokers (1995) Ltd. Is Now WTW Israel 36 Lloyd’s Broker Guest Krieger Which Specializes InThe Israeli Market, Joins The PIB Group 32 The Global VilageWe Live Is Constatly And Rapidly Changing >> By Yasmin Koren, CCO, Deputy General Manager, Aon Israel 38 The Future Of Crypto Coverage: A Global Perspective >> By Zvika Zelichov (Kennedys Israel), Eridania Perez (Kennedys Us) And Alexandra Miller (Kennedys Uk) 26
POL I CY The Israeli Insurance, Pension & Finance Newspaper 5 Special edition 2022 The Israeli insurance market has always tended to buy more reinsurance relative to other developed insurance markets around the world. There are many reasons for this – the small size of the Israeli market, the higher level of risks than in other countries, the fast growth of the Israeli economy and others. The Israeli insurance companies been able to generate strong connections with reinsurers, which over the years have generated a high level of profitability for both the Israeli insurers as well as for the reinsurers. This phenomenon is expected to grow in the coming years. Two reforms which are currently going into effect – Solvency 2 and IFRS 17, are expected to drive the insurance companies even more into the arms of the reinsurers, from capital management and accounting policy considerations. Another phenomenon – the entry of new insurance companies into the Israeli market – Wesure and Libra, is further increasing the penetration of reinsurance. Similarly, the insurance sector has seen constant growth in recent years – the number of vehicles and homes is growing, business activity is expanding, health insurance penetration rates are increasing and the entire Israeli economy is reaping the fruits of the exit from Corona. All of this is being accompanied by the thriving of the digital industry, which has been felt by the insurance companies.Theinsurancecompanies are adopting technologies in all areas – underwriting, marketing, sales, operations, risk management – and are improving their work processes and their profitability. We are convinced that the reinsurers will likewise feel this – both the growth and the improvement in profitability of the Israeli insurance sector. In memory of Ofer Eliahu Ofer Eliahu, former Chairman of the Insurance Companies Association, Migdal CEO and son of its controlling shareholder, Shlomo Eliahu, suddenly passed away just over two months ago. Ofer’s passing, at the age of 64, came as a shock to everyone in the sector. This edition is dedicated to Ofer’s memory (see the article in his memory on pages 6-7). By Ori Lavi-Pelleg Editor In-Chief Chief Editor: Arie Lavi • Editor: Ori Lavi-Pelleg • Translation: Jonathan Marcus • Graphic Design: Ofek studio Publisher: Economic Communication, Ltd. •Mail: news@polisa.news • Tel. 972-3-5407884 • Fax. 972-3-5493622 • P.O.B23622, Tel Aviv 6123601 Premium Reinsurance is deepening its presence in the Israeli insurance market
POL I CY The Israeli Insurance, Pension & Finance Newspaper 6 Special edition 2022 The sudden and untimely death of the late Ofer Eliyahu, on February 27, 2022, has shocked the entire Israeli insurance industry. Ofer held the highest offices in the insurance sector and was the son of Mr. Shlomo Eliyahu who was the owner of the Eliyahu Insurance Company, and as of 2012, Mr. Shlomo Eliyahu is the controlling shareholder in the Migdal Insurance Group, which is one of Israel’s largest insurance groups (according to the value of its balance sheet assets). Ofer’s passing has left a deep and genuine sense of sorrow across the insurance industry at all levels. Despite the lofty roles Ofer occupied, he remained a modest and decent man until his last day. He was a virtuous person who behaved in a kindly manner toward others, treated everyone with respect, and always kept his office door open to all, regardless of the status or position of the person who wishes to enter his room. So, it is no wonder that he was admired by everyone who knew him. Following the completion of his service in the Israeli Navy in an intelligence unit, Ofer studied Insurance at the College of Insurance. His insurance career began when he started working at Eliyahu Insurance Company in 1983. During the first 3 years from, 1983 to 1986, Ofer worked as a trainee, spending about half a year working in each department in the company. Ofer’s approach was that the best way to study the insurance business is to learn it from the bottomup.After Ofer completed his training that had lasted 3 fruitful years he was appointed (in 1986) as CEO of Eliyahu Insurance Company a role he occupied until he was appointed Director of Migdal’s General Insurance Division in 2013. In 2014 he became CEO of the Migdal Group until his resignation in 2018. In parallel with Ofer’s positions at Eliyahu and Migdal, he also served on the management boards of two national Insurance Organizations that is the Israel Insurance Association (R.A.), which integrates most of the general insurance companies in Israel, and the Association of Life Insurance Companies of Israel LTD, which integrates most of the insurance companies engaged in life insurance, including pension insurance and health insurance. Ofer was appointed as chairman of the Association of Insurance Companies in Israel from2011 to 2016 and served from 2014 to 2016 as chairman of the Association of Life Insurance Companies also. As chairman of these Associations, Ofer worked tirelessly to benefit the industry as a whole, whilst always taking into account the interests of medium and small insurance companies, and during his tenure as chairman, Ofer initiated the change whereby each member in the organizations, would have the equal right of vote i.e. each member (insurer) would have one vote only in all institutions operating within the said national organizations, regardless of its size or the membership fee that is paid by it. Under his leadership, Ofer led the insurance organizations to several notable achievements but always kept a low profile when doing so, because he believed that the insurance industry should operate under the media radar. An example of Ofer’s “quiet” achievement was his activity in connection with the wave of fires that occurred in Israel in 2016. Within three or four days he managed to settle an arrangement with the then Minister of Finance and Deputy Minister of Finance (under an “Emergency” approval from the Competition Authority) that provides how-to divide between the State of Israel (Compensation Fund) and the insurance companies the payment to insureds for damage caused to their assets by fires. Consequently, enabling full and immediate compensation to be paid to insureds whose property had been lost or damaged by fire, and thus preventing endless litigations between insurers, fire victims that were insured, and the State on the question of whether any of the fires were caused by an act of terror – a question that could not easily or definitively be answered or resolved. ByOfer’s initiative, Migdal was also the first to implement the Farewell to the late Ofer Eliyahu The late Ofer Eliyahu
POL I CY The Israeli Insurance, Pension & Finance Newspaper 7 Special edition 2022 arrangement, paving the way for the other insurance companies to follow Migdal. Ofer was a professional who looked at the minutiae before making up his mind and when he wasn’t familiar with a subject, he was not reluctant to ask questions or to hear from someone who had the know-how on the subject. Ofer’s high professional abilities combined with his regard for detail, enable him to apply a proper attitude towards insurance agents, brokers, suppliers, service providers, appraisers, and employees, who honored him for those qualities. Ofer would lay stress on the obligations of an insurer towards an insured who entered into an insurance contract with it; these obligations include providing an accessible, high-quality service, including the rapid and fair settlement of claims. Ofer’s managerial maxim was, first and foremost, to create a workplace where people like to work, thereby creating a high level of motivation for employees of all ranks to fulfill their roles to the best of their ability, and so leading to high productivity, efficient performance, job satisfaction and loyalty to the employer. In Ofer’s opinion, an employee’s positive attitude to the workplace creates an important way of preventing unwanted turnover and retaining the good employees, who, by the nature of things, are courted by competitors. As a CEO, Ofer promoted the use of clear, unambiguous, guidelines and procedures, sometimes even at the expense of the insurer’s “immediate interest”, so that the guidelines and procedures will be adhered to by the employees as a matter of course and to enable effective control over their performances, without using “inflated” mechanism. It was Ofer’s view that this sort of approach ultimately yields good business results. Just as a football coach might give his players freedom to act without sticking rigidly to some predetermined tactic, Ofer would give senior executives freedom to exercise broad discretion and to reach their full potential but still to do so within the policy and strategy of the insurer and subject to the implementation of its work plans. One of Ofer’s most important decisions in his role as CEO of Migdal was to develop and promote Migdal’s general insurance sector which Migdal had historically seen as being of secondary importance because he believed that external factors would detract from the substantial profits which Migdal had derived from life insurance in the past. Accordingly, Ofer decided to allocate efforts and resources between the various insurance sectors, and first and foremost to general insurance which he saw as the basic insurance structure for any insurance company. Ofer also held the notion that it is essential to promote young executives, even when they lacked experience. He believed that they would acquire experience “as they went along” and that, at the end of the day, the insurer would benefit from this attitude. Ofer attached great importance to reinsurance and saw it not only as a way of protecting against catastrophes but also as a factor that enables a direct insurer to accept business that it could not take on without reinsurance, because of the limited risk capacity that a direct insurer can accept. In addition, Ofer also saw reinsurance as a stabilizing factor in claims experience. It should be noted, that the basic management principles which Ofer instigated at Eliyahu yielded handsome profits, which were used by its controlling shareholder to make successful investments that enabled him to acquire the control of Migdal. Migdal’s recent business results, not all which Ofer manage to witness – have been derived, inter alia, from the seeds which Ofer had sown as CEO. Ofer’s main hobby was football and, to some extent, basketball. Ofer was a die-hard fan of Hapoel Tel Aviv, even helping them behind the scenes to overcome crises, and especially helping the Hapoel Tel Aviv basketball team out of a deep crisis and preventing it from being dissolved. Despite the crises with the Hapoel Tel Aviv football team and the long periods without any real achievement, Ofer remained loyal to his team and went to their matches in Israel and abroad, saying that support for a football team does not depend on its success but is a Gordian knot that lasts a lifetime. Another of Ofer’s social initiatives was Migdal’s awarding of scholarships to students from the Ethiopian community because he recognized that members of this community must be encouraged to acquire higher education to reinforce social equality. Ofer was patently a “family man”. A man who put his family first and foremost in his life. He would rarely put off a family vacation or event due to professional commitments, and this was the message he also preached to the employees and the managers who worked under him. The insurance industry has parted ways with the late Ofer Eliyahu with deep sorrow and sadness, but with overwhelming recognition of the contribution he made to the industry and we pledge to preserve his memory intact. We hope that what we have said about the late Ofer Eliyahu to the participants of the Tel Aviv Re conference will give those who did not know him personally, to have some idea about Ofer’s virtues and business philosophy. May Ofer rest in peace. Joseph Halevy & Ofer’s collogues in the Israel Insurance Association
POL I CY The Israeli Insurance, Pension & Finance Newspaper 8 Special edition 2022 National crises in the compulsory motor and business sectors, a rail crash in the motor property sector, the exit of reinsurers from the Israeli market – this is the picture of the situation drawn by Shlomo Insurance CEO Uri Omid. Despite record earnings in the insurance sector in 2021, Omid warns that the picture is a false one caused by unusual capital market profits, with already in the first quarter of 2022 the companies posting losses. But Omid is optimistic – the insurance sector is beginning to raise premiums and is receiving for this purpose backing from the Capital Market Authority, which also pave the way for the return of the reinsurers to the Israeli market. How do you regard the insurance companies’ 2021 results, which showed record earnings? Omid: This is a distortion. There has never been such a great gap between the underwriting results and the investment profits, at least in the elementary sector. Most of the companies showed an underwriting loss, despite the bottom line showing significant profits. The earnings came from a number of sources, including capital market profits, the illiquidity premium in life insurance and from other factors, but not one of them deriving from the insurance underwriting results, for example, the companies’ nostro portfolio did 10%, a result which in all probability will not be repeated. Thus, we will be paying the price this year. Economically, there can be no repetition of this. In 2022, the companies are expected to post losses, both on investments and in the underwriting area, which highlight even more the underwriting problem in the market as a whole. What is happening in compulsory motor insurance? Omid: There is a real national problem. The compulsory motor sector is unable to make a profit, for a number of reasons. First of all – the Pool’s losses (standing at 450 million shekels this year), growth in the average wage - a main component in the payment of compensation, and an additional factor – the high number of electric scooter and bicycle claims. These are relatively new claims in the sector, which are growing in extent and in the compensation paid in respect of them, but they are not being priced in and no additional premium is being collected in respect of them. Caution needs to be exercised in considering whether it is worth selling compulsory motor insurance at the existing prices in the market, or that the premium needs to be adjusted to the insurance risks currently being identified by us. In addition, consideration needs to be given to the Pool’s significant and unbelievable losses and the steps that need to be taken by the relevant parties in order bring them under control and reduce them. How can the Pool reduce its losses? It does not carry out underwriting? Omid: We are today the biggest compulsory insurance company in Israel. The Capital Market Authority needs to deal with the Pool tariff. I don’t know whether the Israeli public is aware that when purchasing compulsory motor insurance they are subsidizing motorcyclist one third of their price and mini-tractors a quarter of the price. In the end, it is the public which is bearing the cost. On an optimistic note – the focus is currently on the underwriting results in the general insurance sector, the Capital Market Commissioner is aware of the situation, is helping and permitting tariff adjustments in accordance with the needs of the market. The trend of profitability in THERE IS A NATIONAL PROBLEM IN COMPULSORY MOTOR INSURANCE – ELECTRIC SCOOTERS AND BICYCLES ARE INCREASING THE CLAIMSWITHOUT BRINGING IN PREMIUMS conversation with Shlomo Insurance CEO Uri Omid • The insurance sector is experiencing a rail crash – at the bottom of the turnover cycle, a 35% increase in claims • In business insurances we are seeing many areas in the country were protection is being paid • There is no factor in underwriting that knows how to estimate the cessation of payment of protection – this is a far from simple national problem, but we need to see the unique situation could be a huge opportunity for the reinsure will get to the market in 2023 we are in front of dramatic increasing in online of business POLICY Uri Omid
POL I CY The Israeli Insurance, Pension & Finance Newspaper 9 Special edition 2022 the general insurance sector could bring the reinsurers back to the Israeli market, many of whom have left as a result of the growing losses in the sector as a whole. What is the source of the distortions in this area? Omid: The compulsory motor sector is the only one combining politics with economics. Managing the compulsory tariff is a political process and is not managed purely actuarially, as a result of the nature of it as compulsory insurance. One of the consequences of this is a shortage of premium. A situation has arisen in some cases that the Pool is actually competing with the insurance companies, losses are mounting up and this needs to be taken care of. What is the situation in the motor property sector? Omid: The sector is changing. Traditional companies are becoming direct, the digital companies have entered the sector, and this is leading to a lowering of prices in the sector. Unlike the usual cycle, where prices in the end start going up, this time something else is happening. At the bottom of the cycle the claims were moved because of the post-Corona events. And then, in mid-2021, there was a significant increase in the number of claims. More thefts, there being no spare parts, vehicles are remaining in the garages and becoming a constructive loss. Just when the premiums are at their lowest, the claims increased by 35%. This is a perfect storm, and one which is not about to change – this is the extent of claims that we are going to need to get used to. But it is easier to increase the tariff in the motor property sector. Omid: Correct, and the gap needs to be closed. In a world without big investment revenues – this is needed more than ever. The investments covered the losses and when they do not exist the gap between the premiums and the claims is clear, and thus the underwriting problem in the sector. How are the electric vehicles affecting the sector? Omid: We are concerned. We estimate that the claims will be more expensive. Whilst there are fewer thefts and damages, because the vehicles are maintained better, but the cost of the battery make the claim very expensive. The sector is guessing the premiums at present, and in currently under-pricing. It will be interesting to see whether, with experience, the price will stabilize. How are you deploying for the arrival of the autonomous vehicles? Omid: We will be there. This is an opportunity for the sector. There will be very interesting legal issues here. It is also not unlikely that the car will come with insurance. There will be insurance arrangements we have never known. What is new in the business insurances area? Omid: We have grown greatly in the business insurance sector. This is our significant growth engine. But I am worried – we are seeing a phenomenon of loss of governmental control, of many areas where businesses are paying protection, and no police presence. When crime increases, the bill is sent to the insurance companies. It is getting worse over time. If no solution is found, the insurance companies will reduce the coverage and/or will exit entire areas and sectors. The State of Israel needs to ensure that there are no areas left without being dealt with, otherwise the insurance companies will suffer one or two losses but in the end they will leave the sector. This is a far from simple national problem. What developments are there in reinsurance? Omid: The reinsurance sector is very dominant in Israel relative to all other countries in the world. There is premium 29 billion shekels a year in general insurance here, a lot of which is reinsurance, mainly for capital release reasons. In the past year some of the reinsurers have been reducing activity in Israel because of accumulated past losses and capacity. Reinsurers lost billions in the floods in Europe, which resulted in a reduction in the supply of reinsurance. Now, when I hope that they are seeing the improvement in premiums – they will return here as the results improve. I have to say that if our partner the reinsure who working on the Israeli market, they can find huge opportunity for the next coming years. the premiumcycle is down deep and it has to, and will be dramatically increasing in all line of business, specifically in MBI motor Casco and property casualty liability, so I feel comfortable to invite most of them during The next year - 2023 and join us to the journey of increasing the premiumwho will certainly improve the result of all the market. what is happening with insurance agents? Omid: Their situation will only improve, because the companies that ran a direct insurance operation based themselves only on a cheap price. As premiums increase, the commission will increase and the competition will be less wild. But the process is disturbing – the big companies are reducing the commission, and the agents are merging into agencies and then the commission becomes more expensive for the companies. The desire of the companies to reduce the premium has only increased it, and the ones benefiting are the agencies. When there will be 4-5 mega agencies in Israel – it will be even tougher for the companies unless they own them.
POL I CY The Israeli Insurance, Pension & Finance Newspaper 10 Special edition 2022 Last year, the global economy recovered strongly from the pandemic-induced recession in2020. Vaccine rollouts and unprecedented levels of fiscal stimulus that cushioned the economic blow of lockdowns were powerful demanddriving forces. However, the recovery was cyclical, not structural. The COVID-19 crisis created longterm structural challenges, leaving the global economy with less shockabsorbing capacity than after the global financial crisis in 2008-09. A main challenge to bolstering resilience will be the legacy of historically high levels of public and private sector debt levels as a result of the massive fiscal stimulus response. Debt overhangs inhibit productivity and sustainable growth. Additionally, with so much spending, fiscal resources have been exhausted, meaning less buffer to manage future crisis situations. The pandemic also exacerbated inequality, with people in lowpaying jobs such as in hospitality and retail hit harder than higherpaid people who could work from home. While government support offset some income losses, policy measures also strengthened financial markets, resulting in rising inequality on the wealth side, too. Widening inequality leads to lower productivity growth, rising polarisation and anti-globalisation sentiment, factors that will continue to undermine economic resilience over the long term. The pandemic also helped create what our Swiss Re Institute colleagues expect will be structurally higher inflation over the next decade. A main reason for this will be deglobalization, momentum for which was boosted by COVID-19. Supply chain disruptions and shortages of input goods such as semiconductors or lumber due to backlogs resulting from lockdowns and shipping congestion continue to hamper production in major sectors. The experience has encouraged companies and governments to move production to parallel supply chains and/or “re-shore” operations. The likely result? Less-cost-efficient production with the potential to help fan rising prices and add to underlying inflation pressures. Managing the post-COVID world has become more complicated Without a doubt, the conflict in Ukraine has further darkened the outlook. According to the Swiss Re Institute the negative impact will be felt through five key channels: 1) Higher energy prices and reduced supply, particularly to Europe, will weigh on growth and add to inflation pressures. The supply and price shock will extend to other commodities, as Russia and Ukraine are major exporters of wheat and grains, and also of metals used in semiconductors. 2) tighter financial conditions; 3) weaker investor, business, and consumer sentiment; 4) financial market volatility due to rising uncertainties; and 5) disruptions to trade due to sanctions on Russia and export controls, amplifying existing supply chain disruptions. At this juncture, the global economy may also be at the cusp of a paradigm shift in interest rates. The high inflation environment, compounded by the spike in commodity prices, is forcing central banks to accelerate interest rate hikes in advanced and several emerging economies. However, it will be difficult for central banks to engineer a ‘soft landing’ given The long road to recovery and resilience With the war in Ukraine on all our minds, it is easy to lose sight of the fact that the sharpest global recession of our lifetimes hit two years ago, when COVID-19 gripped the world. The pandemic’s economic wounds, which will require years to heal, had reduced prospects for sustainable growth even before the war. The ongoing Russian invasion has compounded an already slowing-growth environment. With so many challenges, structural change is needed to boost resilience By Hillel Damelin Head Client Management L&HMEDI, CEO Swiss Reinsurance Company – Israel Branch Continued on the page 39
Issue No. 312 January 4 2016 The Israeli Insurance, Pension & Finance Newspaper Year XIII 0793-4750 ISSN Issue No. 624 April 25 2022 Chief Editor: Arie Lavi • Editor: Ori Lavi-Pelleg • Translation: Jonathan Marcus • Graphic Design: Ofek studio Publisher: Economic Communication, Ltd. •Mail: news@polisa.news • Tel. 972-3-5407884 • Fax. 972-3-5493622 • P.O.B23622, Tel Aviv 6123601 SHapira 2021: nEgatiVE trEnDS in MOtOr prOpErty SECtO g Administration and the Agriculture Ministry e existing planning laws, which do not oods The program is expecte as a result the extent of b The transition from the epidemic back to routine alongside the Corona in 2021 resulted in underwriting collapse, due mainly to non-matching of the premium e change in risk with the increase in motor travel and growth in thefts POLICY tE tHan nEVEr: aftEr yEarS Of nEgLECt tH tED DEaLing WitH tHE fLOODS prOBL pagE 2 pagE 3 Haim Samett Yoram Naveh CLaL inSUranCE aCQUiring MaX CrEDit CarD grOUp fOr 2.47 BiLLiOn SHEKELS Policy has good value for money in keeping you informed of the latest news in the Israeli insurance market which has relevancy and impact on the reinsurance market. Policy covers, among other things, the latest financial statement results of the insurance companies, Commissioner of Insurance notes and instructions, regulatory changes, changes in the laws, launching of new policies, trends and needs in themarket, new appointments in the insurance industry, new legislation affecting reinsurance treaties, new court judgments affecting insurance policies, including their impact on reinsurance treaties and facultative, large claims, natural hazards claims, etc. class actions against insurance company/companies and their effect on the reinsurance treaties and facultative. Intrested in the Israeli insurance market? For more information
POL I CY The Israeli Insurance, Pension & Finance Newspaper 12 Special edition 2022 Riding in thick fog is always more difficult. You can’t see the car in front of you, and in the rear-view mirror all you can see is yourself - the driver. All the passengers are extremely tense and on high alert. Even the familiar daily drive back home becomes a huge challenge. And here we are, in the “Travel Insurance and IPMI” vehicle. I am the CEO and I am driving the car. On the passenger’s side - the Risk Manager. The Actuary is sitting in the back, in the middle, trying to navigate us the way out. In the back, on the left, is the CFO, and on the right is the Legal Advisor (because he is always right!). Outside, there is thick fog. So thick that for every meter that passes the uncertainty of what awaits us only grows. We’re all wearing seat belts, this is our Re-insurance. But we drive so slowly and carefully, such that the seat belts are there not to keep us safe from the actions we may take, but to protect us should anything strongly collide with us. The Risk Manager shouts every second. She is clearly very tense. We are in unchartered territory. -“Watch out, Corona. Alpha, beta, delta, more Greek letters... Turn right, there are flight cancellations… Quarantine… Caution! War in Europe… Do not turn left, interest rates are rising in the US ...” As we try to make our way through the thick fog, I look at the mirror and ask the Actuary if he has any ideas how to get us through this. “Carefully”, he answers... “it’s a new world of risks, and it is my first time on this road”. Trying to make an eye contact with the Legal Advisor. She looks back at me ... “I will make sure to note in the affidavit that you drove carefully. And I will also make sure that we have all the necessary papers, just in case ...” I ask the CFO “What do you think?”. He responds: “Keep it slow and steady… We will burn less fuel and keep our expenses down” Meter after meter we progress, driving through the thick fog. Sometimes there are slight breaks in the fog that allows us to speed things up a bit, but the fog keeps coming back, every time ... True, an insurance company is meant to take risks. Insurer and Reinsurer. But in a world where the Actuary knows the road, and more or less where the deep pits are, it is easier to take risks and navigate the vehicle through those risks. These are calculated risks. But how do you even start running an insurance company in conditions of uncertainty with new surprises and unprecedented events at every turn and corner? DavidShield Insurance Company began operations in April 2020. At the start of the Covid-19 pandemic, right when we all thought that we would meet our Creator within a few days or months. To manage under conditions of complete uncertainty is possible only in one way - forget everything you knew up to that point, and start again with baby steps to assess the new situation and respond. Respond step by step to the immediate and the urgent. Progress slowly, clearly, but surely, meter-after- meter, through the thick fog that unfortunately in recent days has been replaced by the “fog of war”. No long-term decisions, no unnecessary risks. Only direct responses to the given situation, in the full knowledge that this Insurance vehicle may again need to be diverted quickly, as new challenges arise and responses are required. New decisions are made every day, every week. Not from indecision. On the contrary – from a wonderful ability to make quick, agile and adaptable decisions, under pressure, to meet a world of constant change. The understanding is that the world has changed and now we must address the new and changing needs of our customers, at a frequency that no one has known before. This requires fast and efficient work with business partners and authorities, as well as with reinsurers. Harnessing these factors to facilitate the frequent changes required to adapt and evolve, requires us to maneuver in an agile manner, and provide an immediate response to all new customer needs. Managing dedicated teams that research expected developments. A team of actuaries across different countries who give a global realtime picture of every change that has taken place in each country, Continued on page 41 THE FOG By Ran Mizrachi, CEO DavidShield Insurance Company
Migdal is leading the New World of Investments Midgal is the first large company in Israel to adopt the ESG policy (Environmental, Social and Governance) of company accountability for management of entire investment portfolios. • Migdal will work towards investing over 3 million shekels annually in NET POSITIVE investments. • Midgal will pull out of investments that are inconsistent with ESG policies at a rate of at least 10% per year. Migdal Insurance Company, Ltd. Migdal Makefet Pension Funds and Provident Funds, Ltd. The aforementioned is subject to the companies investment policies and does not constitute advice or recommendations to take or avoid action.
POL I CY The Israeli Insurance, Pension & Finance Newspaper 14 Special edition 2022 Israel is now enacting new legislation to enhance cyber and privacy protection as part of the global objective to do so. Legislation Relating to Privacy Protection One of the most important new acts of legislations is the bill regarding Privacy Protection Law (Protection of Privacy Bill) (Amendment 14), 2021 (the Bill) which was approved in first reading on 7 November 2021 by the Israeli Knesset (Parliament). The Bill constitutes another step in adapting the Privacy Protection Law (PPL) to advanced technology. The Bill consists of three main provisions, aimed at: (i) expanding the administrative enforcement measures of the Privacy Protection Authority (the Authority); (ii) reducing the scope of duty for database registration; and (iii) adapting terms relating to the protection of personal data to technological developments. First, the Bill expands the administrative enforcement measures available to the Authority in respect of financial sanctions that may be imposed, focusing on the size of the database and the type of data it contains. Pursuant to the provisions of the Bill, a “Database Officer” may substitute the financial sanction imposed by the Authority with an administrative notice or an undertaking from the offender to refrain from another violation. Both remedies are subject to approval by the Attorney General. It is also proposed that the Authority receives broad inspection, investigation and enforcement powers. Second, the Bill partially reduces the duty to register a database, taking into consideration the bureaucratic burden and difficulties on the Authority and on the “Database Owner”, that divert resources from core activities designated to protect privacy. Thus, the proposal is to oblige registration of a database based on criteria of size and sensitivity. Third, it is proposed to revise and modernize the terms and definitions of the PPL, to expand the protection of privacy, similarly to the GDPR. The Bill should be submitted for second and third readings to the Knesset in the coming months. In addition, on 25 January 2022, the Privacy Protection Authority published a work paper regarding the role of the Data Protection Officer (DPO) for organizations and companies. The Authority also published a “guidance kit” which includes practical recommendations for companies which intend to appoint a DPO. The Authority recommends that a DPO be appointed in organizations which provide data-driven services and/or whose operation causes an increased privacy risk. According to the Authority, there are several organizations which are obliged to appoint a DPO, however even those that are not obliged to do so, are encouraged to voluntarily appoint a DPO who may assist in doing business with foreign entities that are subject to the GDPR. Pursuant to the Authority, the DPO is the officer responsible for privacy protection within the organization and for applying work and compliance procedures. The DPO should be privacy-oriented in terms of professional experience and skills, both academically and technologically. The Authority further recommends that the role of the DPO, who should have the relevant professional experience and skills, shall include the following responsibilities: (i) regulating the data management procedures within the organization; (ii) supervising and monitoring privacy-related issues within the organization;(iii)providingguidance and training to employees; and (iv) involvement in all “material” issues relating to protection of personal data within the organization. Legislation Relating to Cyber Protection According to a report recently issued by the Israel National Cyber Directorate (“the Cyber Directorate”), during 2020, Developments in Cyber Protection and Privacy Protection laws and regulations in Israel Continued on page 42 By Adv. Sigal Schlimoff and Adv. Omer Shalev Gross Orad Schlimoff & Co. law firm Cyber and Privacy Protection are at the heart of Israeli regulators: Israel becomes a leading country in the cyber field from technological aspects, unicorn cyber companies and the diverse startups that emanated thereof. The regulatory development is following this important trend
POL I CY The Israeli Insurance, Pension & Finance Newspaper 16 Special edition 2022 2021 started with fanfares and is regarded as the year of exit from the economic crisis that hit during the Corona year – 2020. Corona did not disappear in 2021 (apart from a lockdown in January 2021) and in principle the country returned to normal starting in February 2021. Many unemployeds returned from subsidized unpaid leave, businesses slowly opened and despite the Corona waves (fourth and fifth) we learnt how to live with Corona. By the end of 2021, almost all business sectors, apart from tourism (overseas tourism) returned to the level of activity in 2019, prior to the onset of Corona, and prior to that. As far as general insurance is concerned, life alongside Corona and recovery of the economy brought with results that were contrary to expectations, and thus there is deep disappointment with the results It should be noted that the insurance companies succeeded in ending 2020 with earnings of 2 billion shekels in the elementary sector, despite the catastrophic first quarter in the capital markets. Whilst there was an improvement in the following quarters, total investment profits were lukewarm, at 850 million shekels for 2020 as a whole. In 2021, investment profits climbed sharply to 2.9 billion shekels, but despite this insurance company profits were reduced, at 1.362 billion shekels, compared with 1.994 billion shekels in 2020 – a 31.7% drop in overall sector earnings, the drop being felt mainly in the motor sectors (property and compulsory). The increase in other property and others and in liabilities was not enough to offset the decline in motor sector earnings. Production Production in the current period was only 6.4% higher (from 22.7 to 24.1 billion shekels), despite 8.4% growth in the economy, including an 11.7% increase in private consumption. This was expressed in massive increase in new car purchases, increased inventories and consumption of internal tourism. If we neutralize the 14% growth in liabilities – mainly in professional liability insurance, the growth in the other operating segments was small relative to the growth in economic activity and reflects the situation of competition and lower prices (mainly in the motor sectors) until the middle of the year followed by twists and turns at most of the companies. The production and earnings of Shirbit is divided into two – until November 2021 Shirbit was an insurance company, it ceasing to operate as an independent insurance company in December 2021 when its production started being included in Harel’s reports. The area of activity which in recent years was hit, motor property, is the only one to have posted a loss (whilst small – 25.9 million shekels – but still a loss) and with the biggest 2022 Elementary Results Analysis Hagai Shapira, Insurance Consultancy & Special Projects Advisory Elementary sector results in 2021 (million shekels) compared with 2020 Sector Gross premiums Investment profits Earnings net of investment profits Comprehensive income Change in production Change in investment profits Change in earnings net of investment profits Change in comprehensive income Compulsory motor 5,543 1,222 -1,058 164 248 5% 890 268% -1,150 -260 -61% Motor property 8,718 443 -469 -26 353 4% 310 232% -1,120 -810 from profit to loss Other property and others 5,669 169 554 723 339 6% 113 203% 155 268 59% Liabilities 4,182 1,117 -615 503 517 14% 789 240% -618 171 51% Grand total 24,112 2,951 -1,588 1,363 1,456 6% 2,102 247% -2,733 -632 -32% Investment Earnings net of Comprehensive 2021 General insurance sector results (million shekels) 2021: ELEMENTARY SECTOR RETURNS TO NORMAL; UNDERWRITING LOSSES DRIVE EARNINGS DOWN Appears that life alongside Corona and recovery of the economy brought with them results that were contrary to expectations, and thus there is deep disappointment with the results
POL I CY The Israeli Insurance, Pension & Finance Newspaper 17 Special edition 2022 fall compared with last year. The 2021 result could be a forerunner of the 2022 results. This year’s motor property activity will be influenced mainly by the underwriting activity in 2021, despite the tariff corrections upwards that started being carried out in the second half of the year. The sectorwhich ledearnings is other property and others (mainly home and businesses), contributing 53% of total elementary sector earnings (722.5 million shekels). Exceptional investment profits succeeded in producing unusual earnings in the liabilities sector (502.8 million shekels) and were stronger than the changes in the cost of living index and in the risk free interest curve (including the illiquidity premium, which moderated the negative impact of the interest curve and the cost of living index). The main source of earnings was professional liability and product liability, whilst the other sub-sectors (employers liabilities and third party) remain problematic from an underwriting point of view. On the other hand, investment profits were able to only reduce the negative impact of the lower interest curve (assisted by the illiquidity premium) and the decrease in underwriting profits. The profit was small – 163.5 million shekels compared with 423.8 million shekels in 2020, but given the massive increase investment profits – the results show that the tariffs are problematic and require immediate correction (and not gradual). Motor property The nominal drop in production in the motor property sector was arrested in 2021, with production reaching 8.717 billion shekels (2020 – 8.364 billion shekels) – a 4.2% increase. The growth in production was mainly the result of growth in the number of new car deliveries (until September) and also the start of a process of an increase in prices, or more accurately a brake on the drop in tariffs that took place constantly during the Corona crisis. Some of the companies started putting up prices in the second quarter, with the rest of the companies joining in the coming quarters and even at the beginning of 2022. The motor property sector, which is the largest elementary insurance sector (36% of total elementary production), is the only one to have posted a combined loss, of 25.9 million shekels. The loss, whilst small, still testifies to us being in a trend of deterioration in underwriting which started already in 2020 but which stopped as a result of the Corona epidemic and the lockdowns that came in its wake. The drop in underwriting profits reached a negative record in 2021 of 1.12 billion shekels, deriving from the increase in motor travel and the consequent increase in claims (including growth in thefts). Comprehensive income went from a situation of number 1 in earnings (784.2 million shekels) to a 25.9 million shekel loss – a drop of 810.1 million shekels in earnings. We expect this negative trend to continue in 2022 until the positive impact of the underwriting improvements (including higher tariff) is felt. Menorah Mivtachim Holdings was the top producer (1.408 billion shekels), with Direct Insurance topping the earnings rankings (123.6 million shekel profit). Splitting off Shomera from Menorah results in it being also the biggest producer. 10 of the 14 companies posted an underwriting loss, and 7 companies posted a comprehensive loss. The sector is not reinsurance rich (only 936% of gross production), but it impacted positively on the results of some of the companies. Compulsory motor The compulsory motor sector is the third largest (this year – coming in behind the other property and others sector) with production totaling 5.543 billion shekels – up 4.7% relative to the previous year (5.295 billion shekels). The sector makes up 22.9% of the elementary sector as a whole and the decrease is explained by the gradual drop in compulsory motor tariffs over the years (in addition to the growth in share of liabilities in the elementary sector). A process of higher tariffs has commenced in the compulsorymotor sector (starting in the current year) but the process is slow and gradual and a long way off outweighing the negative changes affecting the sector. Comprehensive income is down, at 163.5 million shekels, compared with last year’s total of 423.8 million shekels – a 61.4% drop, but still in positive territory. The growth in investment profits, from 0.332 billion shekels last year Continued on the next page Elementary sector results in 2021 (million shekels) compared with 2020 Sector Gross premiums Investment profits Earnings net of investment profits Comprehensive income Change in production Change in investment profits Change in earnings net of investment profits Change in comprehensive income Compulsory motor 5,543 1,222 -1,058 164 248 5% 890 268% -1,150 -260 -61% Motor property 8,718 443 -469 -26 353 4% 310 232% -1,120 -810 from profit to loss Other property and others 5,669 169 55 723 339 6% 113 203% 155 268 59% Liabilities 4,182 1,117 -615 503 517 14% 789 240% -618 171 51% Grand total 24,112 2,951 -1,588 1,363 1,456 6% 2,102 247% -2,733 -632 -32% Sector Gross premiums Investment profits Earnings net of investment profits Comprehensive income Compulsory motor 5,295 332 92 424 Motor property 8,365 133 651 784 Other property and others 5,330 56 399 455 Liabilities 3,665 328 3 332 Grand total 22,655 850 1,145 1,995 2021 General insurance sector results (million shekels) Investment Earnings net of Insurance companies general insurance results 2021 (million shekels)
POL I CY The Israeli Insurance, Pension & Finance Newspaper 18 Special edition 2022 to 1.221 billion shekels (up 890 million shekels) in the current report year was outweighed by the negative influences (1.015 billion shekels), of non-investment factors – riskfree interest (somewhat modified by the illiquidity premium), the cost of living index, the Winograd effect in 2020 due to the Supreme Court rulings, which was not repeated in 2021, an increase in the Pool’s losses, alongside a drop in underwriting profits (at a large share of the companies). Compulsory motor insurance, which led elementary earnings until 2015, succeeded, thanks to unusual investment profits, in making what is regarded as a tiny profit – a sign that there are many problems in the sector requiring immediate underwriting handling (as well as tariffs). Menorah Mivtachim Holdings was the largest company (726.6 million shekels), with the Phoenix topping the earnings rankings (209.1 million shekels). Splitting Shomera off from Menorah results in Shlomo being the company with the highest production (669.9 million shekels). Reinsurance is responsible for 39.7% of gross production and is declining, as a result of a hardening in the reinsurers’ positions. It is no secret that the reinsurance rich insurance companies incurred losses for the reinsurers, and there is a clear gradual worsening in the arrangements with the reinsurers following the deterioration in their results. Other property and others The other property and others sector is the second largest, with production of 5.669 billion shekels (2020: 5.329 billion shekels) and grew by 6.4%. The sector makes up 23.5% of total elementary production (slightly more that compulsory motor). The sector comprises mainly businesses, homes and engineering, which together are responsible for 90% of the production in the sector. In 2021, earnings in the sector totaled 722.5 million shekels – more than 50% of total elementary earnings and topping the elementary sector earnings rankings. Earnings came mainly from homes and partially from business and engineering insurances. The companies benefited from a far easier winter than in the previous year. The reinsurers represent a key factor in this sector in production and in profitability (67% of the gross premium) and contribute to the sector’s stability. Liabilities The liabilities sector is the smallest, with 17.3% of total elementary production (4.2 billion shekels out of a total of 23.6 billion shekels). Its share of overall elementary production grew this year as a result of a significant increase in the premiums (mainly in professional liability) – up 14.1% compared with 2020 (from 3.666 billion shekels 2021: ELEMENTARY SECTOR RETURNS TO NORMAL; UNDERWRITING LOSSES DRIVE EARNINGS DOWN 2022 Elementary Results Analysis Continued from previous page Company Gross premiums Investment profits Earnings net of investment profits Comprehensive income Harel 3,693 612 -571 41 Menorah Holdings 3,391 373 -36 336 Phoenix 3,155 448 37 485 Clal Insurance 2,819 266 -173 93 Ayalon 2,046 271 -328 -57 Migdal 1,872 379 -304 76 Direct Insurance 1,711 109 55 164 Shlomo 1,666 124 47 170 Hachshara 1,177 262 -236 26 AIG 935 37 -49 -12 Bituach Haklai 496 29 -4 25 Wesure 310 14 1 15 Libra 304 0.3 5 6 Total 24,112 2,951 -1,588 1,363 Insurance companies general insurance results 2021 (million shekels)
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