Israel’s insurance companies are planning to raise their premium rates for comprehensive property insurance by 5-10%. The Ministry of Finance said in response that it had not yet received a request for a premium hike.
The good second quarter results reported by the insurance companies concealed a decline in property insurance underwriting profit. The cost of the average claim rose 15%, the loss rate (claims divided by insurance premiums and fees) rose accordingly, and profitability in the field was affected.
There are four main reasons for the decline in profitability: a 15% rise in car thefts in the second quarter (following by a further rise, resulting from the ceasefire with the Palestinians); higher spare parts prices, following the shekel depreciation last winter; the assessors High Court of Justice petition, which enabled policyholders to choose their claims assessor, rather than having to accept the insurance company in-house assessor; and an increase in traffic accident damages, caused by the severe winter.
In May, Menorah Holdings (TASE:MORA1; MORA5) became the first company to raise its premium rates, and Israel Phoenix Assurance (TASE:PHOE1; PHOE5) announced similar plans. Migdal Insurance (TASE:MGDL) CEO Izzy Cohen told “Globes”, “In view of our underwriting losses, we’ll have to raise our premium rates.”
Ofek Securities and Investments finances and real estate analyst Ravit Volkovich explained the trend. “Vehicle insurance is a key factor in the profits of the non-life insurance sector. The recent price competition has been revealed as a mistake, and is liable to cause the industry losses this year,” she said.
Not all insurance companies, however, are following suit. AIG Israel CEO Hava Friedman-Shapira told “Globes”, “We don’t plan to raise our premium rates at the moment.” IDI Direct Insurance also said raising premium rates was “not on our agenda”.
Premium rate hikes have an effect only after a lag of several months, since the new rate affects only new policies, while the old policies are still priced at the old rates.
Published by Globes [online] - www.globes.co.il - on September 1, 2003