Israeli Regulator Targets Temporary Discounts in Life Insurance to Prevent Price Surges

The Israeli Capital Market Authority, led by Amit Gal, is preparing to intervene in the life insurance sector to stop temporary discount campaigns offered by insurance companies. These discounts, often given at policy inception for life insurance covering death of a spouse, are used to attract customers with lower initial premiums. However, after a few years, the discounts expire, causing sharp premium increases that can leave policyholders financially strained, especially as they age or develop health issues.

According to a draft directive open for public comment and expected to take effect in early December, insurers will be required to maintain any discount granted at the start or during the policy for the entire duration of the insurance. This move aims to prevent insurers from canceling or reducing discounts after several years, which currently leads to premium hikes sometimes exceeding 30%. The regulator views the current practice as a market failure that exploits consumers’ preference for lower upfront costs, potentially misleading them about the true long-term cost of their policies.

The Capital Market Authority warns that the existing model creates significant barriers for policyholders to switch insurers later due to health deterioration or increased premiums, limiting competition and harming consumers. Yaniv Meir, CEO of the Insurance Agents Association, explained that the problem lies in offering limited-time discounts on long-term products, which distorts customers’ decision-making. While policyholders can request discount extensions or switch companies, health underwriting often prevents affordable alternatives.

The authority may extend this regulation to other insurance types, such as health and critical illness coverage, if successful. Data from the regulator shows that life insurance premiums rise substantially with age; for example, a 35-year-old non-smoking man pays about 65 shekels monthly for a 1 million shekel coverage over 30 years, but this premium can increase to over 300 shekels by age 55. Women and smokers face different premium trajectories, with smokers paying significantly more.

This regulatory initiative follows the authority’s recent interventions in car insurance pricing and reflects ongoing efforts to enhance consumer protection and market transparency in Israel’s insurance industry.