Starting in October 2005, mortgage banks will not be allowed to sell mortgage insurance themselves through their branches; they will have to sell through fully owned insurance agencies. Supervisor of Banks Yoav Lehman and Supervisor of capital markets, insurance and savings Eyal Ben-Chelouche included the restriction in a policy statement on the sale of insurance published today. The statement follows a draft memorandum sent to the banks in August 2004, which Lehman and Ben-Chelouche are now seeking to implement.
Under the new policy, which will be enacted into law, the banks will be entitled to set up special sections in their branches, to which they will not assign personnel. The sections will be linked to an insurance agency by computer, telephone, videoconference, and so forth, which will enable customers to conduct business directly with a licensed insurance agent not present at the bank branch.
The Ministry of Finance and the Bank of Israel explain that separation between the bank employee and the insurance section will also separate transactions, and make it clear to customers that these deals are separate from mortgage transactions. This will enable customers to independently evaluate the insurance being offered.
In order to bolster competition in mortgage insurance, which consists mostly of life insurance and insurance for the building containing the housing unit being purchased, banks will be authorized to market insurance through this insurance agency, even if the mortgage was granted by a different bank. This will become possible only after completion of the necessary legislation.
A circular sent by Lehman and Ben-Chelouche to the banks requires the banks to separate the activity of the insurance agency from that of the bank. The insurance agency will be restricted to brokering building and life insurance for the mortgage. The bank will fully own the agency.
Another circular sent by Lehman to the banks stipulated that a bank may not receive any benefits from the insurance company, except for an insurance commission paid to the insurance agency. A computer system will be put at the disposal of the insurance agency, and access to the system will be given only to employees of the insurance agency. The bank and insurance agency computer systems will be logically separate. Either the insurance agency or the insurance company issuing the policy will conduct reporting and correspondence with the insured party about insurance. The insurance agency or company will also collect the premium, separately from collection of mortgage payments. The policy terms will enable the insured party to cancel the policy at any time, without penalty.
Revenue from premiums for mortgage insurance are an important element in the banks’ mortgage business. Opening the market to competition is likely to push down prices, and reduce the banks’ revenue from this source.
Published by Globes [online] - www.globes.co.il - on February 21, 2005