Just days after incoming Supervisor of Banks at the Bank of Israel Hedva Ber publicly announced that she would work towards enabling the banks to enter the business of selling insurance products, "Globes" has learned that Ber's aspiration is not shared by the Supervisor of Capital Markets, Insurance and Savings at the Ministry of Finance, Dorit Salinger, who was taken by surprise by the intentions of her new colleague, and by no means sees eye to eye with her.
It therefore appears that banks selling insurance is far from becoming a reality. Sources inform "Globes" that the Department of Capital Markets, Insurance and Savings, headed by Salinger, was not party to the step that Ber announced in her first speech as Supervisor of Banks. (The High Court of Justice rejected the petition brought against her appointment today, thus removing the last obstacle to it.) As far as is known, Ber updated Salinger before her speech last week, but, despite the fact that the latter expressed reservations, nevertheless announced the initiative, and even said that she would promote it together with her colleague at the Ministry of Finance.
So, from what is currently known, insofar as the matter depends on the current insurance regulator, the banks will not be allowed to start distributing insurance products. It should be pointed out that Salinger is the one with the authority in this matter. In response to our enquiry, the Ministry of Finance said today, "The subject of distribution of insurance via the banks is not on the agenda of the Department of Capital Markets, Insurance and Savings."
What is at stake? As far as the banks are concerned, selling insurance has huge revenue potential, depending on which area of insurance is concerned and subject to the conditions they will be required to meet if they are allowed to enter this field. The revenue will, however, not necessarily translate into huge profits, because of the complexity of the business and the need to provide different and more extensive service than the banking system is accustomed to providing.
At present, some of the banks have good, and highly profitable, experience in their existing insurance activity: through insurance agencies that sell insurance for mortgages. These agencies sell insurance at high prices, generating handsome profits for the banks. For example, the insurance agency of Mizrahi Tefahot Bank (TASE:MZTF) is as far as is known the most profitable insurance agency in Israel, and is responsible for 10% of the bank's profit. On the other hand, despite the fact that a decade has gone by since the banks were permitted to act as consultants in pensions and provident funds, so far the consultancy business has failed to take off at the banks, especially in pensions.
In fact, the two financial regulators are completely at odds in their views of the ability of the banks to bring about competition in the insurance market. While Ber sees it as a tool to improve the situation of the consumer, Salinger does not see the banks as harbingers of improved competition in the area under her supervision.
Salinger, who has done much to improve competition in the insurance and long-term savings areas that are part of her remit, apparently fears the power that only five banks would have, and their ability to dominate the market and the consumers. This is in the light of existing experience with the banks in selling insurance ancillary to mortgages, as mentioned, especially given the nature of the insurance market, both the products and consumer behavior.
As far as is known, the Ministry of Finance is wary of the fact that most insurances in Israel are products that are pushed, often sold to customers with no real need, and sees that as a landmine that threatens the market. In this respect, giving an insurance distribution permit to the banks, with their immense power vis-a-vis their customers, would create a huge landmine, that would actually threaten the existence of an effective consumer market.
Insurance market sources say that Ber's announcement was by way of adding a carrot to the stick. The Supervisor of Banks' stick is removing the credit card companies from the ownership of the big banks, while the carrot would be letting the banks deal in insurance. Are we on the way to another battle of the regulators, along the lines of other disputes seen in the past in this area? For the time being, we should not hold our breath to see the banks starting to sell general insurance products.
Published by Globes [online], Israel business news - www.globes-online.com - on September 7, 2015
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