Clalit and Ayalon Deal Brings Temporary Stability to Israel's Long-Term Care Insurance Sector

After years of turmoil marked by deteriorating insurance terms and financial instability, Israel's long-term care insurance sector is expected to experience relative calm in the coming years. This follows Clalit's announcement that Ayalon will manage its long-term care insurance starting January, ending a four-year period of continuous disruptions that nearly led to the collapse of Clalit's policy offerings due to depleted claim funds and a failed tender. The agreement between Clalit, which bore the greatest risk, and Ayalon is set to provide stability for up to eight years, the duration of their contract.

Another significant factor contributing to this stability is the departure of Moshe Bar Siman-Tov as Director-General of the Ministry of Health. Bar Siman-Tov had threatened to instruct health funds to cease managing these insurance policies, viewing the group insurance model as a "historical accident" that should be replaced by long-term savings models. Although this threat was never implemented, it contributed to the sector's instability.

Despite the operational calm, experts warn that this stability may hinder essential structural reforms. Most professionals, except some budget officials at the Finance Ministry, agree that the sector's inherent uncertainty requires a fundamental solution, such as expanding National Insurance coverage or shifting long-term care towards pension-style savings models with dedicated savings accounts, as proposed by the Capital Market Authority. Amit Gal, the Capital Market Authority Commissioner, recently emphasized the need for a clear new contract defining entitlements amid ongoing uncertainty and potential future shocks.

Currently, the existing model survives not through sustainable solutions but through continuous erosion of the insurance product: premium hikes, benefit cuts, stricter definitions of eligibility, and removal of insurer financial responsibility. Given Israel's aging population, longer life expectancy, competitive pressures among health funds limiting premium increases, and regulatory challenges, these measures may prove insufficient in the long term. Although there is consensus on the need for a new vision to ensure dignified aging in Israel, the Finance Ministry is unlikely to advance significant reforms until the next crisis emerges.