Discounts end, prices skyrocket: insurance company methods in the regulator's crosshairs
The Capital Market Authority is working to eliminate temporary life insurance discounts, requiring companies to maintain initial terms throughout the policy's duration. The regulator warns that customers lured by low entry prices often become trapped due to age or health issues, eventually facing premium hikes of hundreds of percent.
Will this be the next bomb the Capital Market Authority drops on insurance companies? Following its intervention in car insurance pricing, the Authority, led by Amit Gal, now intends to stop temporary promotional discounts for life insurance. The purpose of such insurance is to provide financial security for spouses and children in the event of death. If successful, the regulator plans to extend this policy to health and critical illness insurance.
According to the Authority's draft circular, expected to take effect in early December, an insurance company will be prohibited from canceling or reducing a discount granted at the start of a policy. It will be required to maintain the discount throughout the entire insurance period. This also applies to discounts granted after the policy has already commenced.
Currently, insurance companies use temporary discounts of tens of percent to attract new customers. However, once the discount period expires, premiums jump sharply. For example, a 35-year-old receiving a 25% discount pays 45 shekels instead of 60. After three years, as the discount drops to 15%, the price rises to 51 shekels, and once the discount ends entirely, it hits 60 shekels—a 33% increase.
Market Situation and Regulatory Initiatives
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Current Situation: Companies offer temporary discounts to attract life insurance customers.
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The Problem: Prices skyrocket after a few years, and policyholders often become "stuck" due to age or deteriorating health.
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The Initiative: The Capital Market Authority wants to mandate that if a customer joins with a discount, it must remain valid for the entire duration of the insurance.
The Authority views this as a consumer failure. Marketing that emphasizes short-term discounts leads customers to make decisions without considering the long-term cost of the policy. In reality, as years pass, policyholders age and may develop medical conditions that prevent them from switching to a competitor, as new insurers may either deny coverage or demand higher premiums.
Yaniv Meir, CEO of the Insurance Agents Chamber, explains: "The problem isn't the discount itself, but the model of a time-limited discount for a long-term product. Customers place significant weight on the initial price rather than the total cost over the years." According to Meir, even the option to request a discount extension doesn't solve the issue, as the customer remains at the mercy of the insurance company's decision.
Rising Costs with Age
It is important to note that life insurance premiums increase with age regardless of discounts. For those over 60, monthly costs can exceed 1,000 shekels per person (nearly 2,000 shekels for a couple).
Actuarial data illustrates the deep gap between entry prices and long-term costs. For a 35-year-old non-smoking man, coverage of 1,000,000 shekels starts at 65 shekels per month (as of 2024). By age 45, the premium rises to 110 shekels, and by age 55, it reaches 325 shekels. The average premium over the entire period is 276 shekels, with total payments reaching 100,000 shekels by age 65.
For comparison, a non-smoking woman starts at 52 shekels, with the average premium rising to 200 shekels over time. A smoking man starts at 100 shekels, with an average monthly premium of 540 shekels, totaling 196,000 shekels over the period.
