An end to 'discounts' in life insurance? The new directive that changes the rules
A draft circular published by the Capital Markets, Insurance and Savings Authority is intended to put an end to discounts of tens of percent that insurance companies grant to customers for a limited period of several years, in order to encourage enrollment. "It may influence his judgment at the time of enrollment and bias him away from making an informed decision," they write at the Authority.
The Capital Markets, Insurance and Savings Authority is against the temporary discounts that insurance companies grant to customers for life insurance. In a draft circular distributed by the Authority, led by Amit Gal, they propose to determine that insurance companies will be able to offer discounts to insured persons in life insurance, only on the condition that they are valid throughout the entire period of the policy. In addition, in the event that the company chooses to grant the insured person an additional discount, it too will apply until the end of the insurance period.
By doing so, the Authority seeks to put an end to the common practice of insurance companies, in which they market the insurance policy while providing discounts of tens of percent. However, these discounts, which are intended to attract customers, are usually limited to a number of years, at the end of which the companies jump the prices of the policy, and leave the customers with lower bargaining power.
In the Authority, they note that the structure of these discounts appeals to the customer's preference for the present, and therefore:
"may influence his judgment at the time of enrollment and bias him away from making an informed decision that weighs all the characteristics of the policy and its cost throughout the entire expected insurance period."
In fact, this practice also exists in other insurances marketed by insurance companies, but the Authority notes that life insurance is usually purchased for long periods of time, and that there are "switching barriers" in it resulting from the health condition of the insured person. This is because the time that passes may worsen his situation vis-a-vis the insurance company and reduce his ability to purchase a new insurance policy instead of the existing policy.
In such a situation, the Authority estimates that the cancellation of the discount:
"may lead to harm to the insured person who has experienced a deterioration in his health condition, who will find it difficult to purchase alternative insurance coverage under similar conditions and may be required to pay a non-competitive price for the insurance coverage."
