In recent years, the professional insurance premiums of insurance policies for license holders under the Law for the Regulation of Investment Advice, Investment Marketing and Portfolio Management have steadily risen in cost.
In an attempt to reduce insurance costs for license holders, the Israel Securities Authority (ISA) has recently taken the following steps:
- A directive published in October 2019 limits the duty imposed on portfolio management license holders to regularly update the coverage amounts in their insurance policies according to the value of the assets managed by them.
- The ISA’s website published data on suits filed against license-holding companies covered by the Advisory Law (i.e. marketers, investment advisers, and portfolio managers) between the years 2015–2019. The data reveals that this amounts to very few suits, with only one suit, as of 2019, going as far as compensation by the insurance company. The publication was therefore designed to produce transparency and to encourage competition between insurers, so that they could properly assess the risk involved in their activity.
- A proposal was made to amend the Regulation of Investment Advice and Investment Portfolio Management (Equity and Insurance), 2000 currently applicable to license holders under the Advisory Law.
This was the primary step taken by the ISA on reducing insurance costs.
If the proposed outline to amend the Insurance Regulations is approved, license holders will still be required to hold professional liability insurance for their clients, but the scope of the insurance coverage of the professional liability policy will be a matter for the license holders’ discretion according to their examinations and assessments. Thus, a license holder (and in a company, the board of directors) will be responsible for fitting the insurance to its activity, so that if the coverage amount set by the license holder is insufficient, it is liable.
In addition to the primary change described above, the proposed amendment includes additional reliefs:
- Young companies will be required to hold insurance only after the first year of their activity or once they acquire five clients, whichever comes first. As to portfolio managers, they will be duty-bound only once the value of the assets managed by them exceeds NIS 5 million; and
- The purchase of group insurance to several license holders will be permitted, so long as the rights of each of the license holders to receive insurance funds is not harmed by suits involving the remaining beneficiaries on the policies.
It is further proposed that to the extent a license holder meets the amounts and requirements set in the Insurance Regulations at the time the proposed amendment takes effect, such license holder shall be considered as meeting the insurance’s requirements. This would be the case until the insurance policy valid on the date the amendment takes effect expires, or 30 days from the effective date, whichever is later.
In our estimation, because the proposed amendment does not expressly state firm amounts (as opposed to the current Insurance Regulations), but instead stipulates that such amount shall be set by the license holders themselves, most license holders will surely prefer to insure themselves with at least the coverage amount set by the current law. Thus, it is possible the ISA will not achieve its central goal of reducing the costs of insurance, as set for itself in the aforementioned steps.