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Freeing Israel from
Foreign Aid
Goliath
Slain by Dadon
Resurrection
Staff|Literature|Issues|Projects|Quarterly Report
Israel's giant auto insurance
monopoly, a government‑backed cartel of Israel's most powerful insurance
companies, has been defeated by IASPS Koret Fellow Bar Dadon. All Israeli car
owners are the victors in this battle.
On July 28, 1998, the Knesset Finance
Committee voted unanimously to end a special premium that auto insurance policy
holders have been paying to compensate the insurance cartel, called “Avner,”
for past financial losses.
As she faced the mammoth cartel‑monopoly,
Fellow Dadon's slingshot was armed only with research; she was girded with a
deep commitment to freedom and limited government.
Dadon's research proved for the first
time that Israeli drivers were paying NIS 500 million annually in fees having
nothing to do with insuring their cars. The state required them to take out
mandatory bodily insurance and only one company, a conglomerate formed of
Israel's major insurance companies, was allowed to issue such insurance.
Dadon documented the unnecessary
charges and the many other problems caused by state intervention and lack of
freedom. Among the most egregious of the distortions in this market, she found
that Avner recorded losses that were never confirmed by any objective party,
and that Israeli drivers were then ordered to pay for these losses. Some of
these losses were a result of mismanagement and some may have been fictitious,
existing on paper for the sole purpose of increasing the premiums current
drivers would have to pay.
Dadon's research was published as
IASPS Policy Studies No. 30 in September 1997, and generated headlines
in Israel.
MK Itzhak Cohen of Shas, chairman of
the Knesset Finance Committee's Subcommittee on Insurance, called hearings to
discuss the issue.
Readers of the Quarterly Report
may recall how Ms. Dadon was reduced to tears by vitriolic attacks during her
Knesset testimony in February 1998 (“Pandemonium Over Bar Dadon's Knesset
Testimony,” Winter 1998 Quarterly).
On May 26, Cohen reconvened his
subcommittee and voted to end Avner's control over a so‑called “Research
Fund,” approximately 800 million shekels raised from unnecessary premium
payments by Israeli drivers over the years. Cohen demanded that the Finance
Ministry's insurance regulator produce a year by year accounting of what Avner
had done with these funds; and that their collection be ended.
Carmi Gillon, chairman of Avner,
initiated a lobbying effort to de‑enact a law passed by the Knesset ending
Avner's monopoly on January 1, 2000, when the market will be opened to
competition. To show there was no longer a need to end his monopoly, he claimed
that Avner had suddenly reduced its losses and was becoming more efficient. He
even offered to voluntarily reduce premiums in late 1999.
New hearings were held. On July 20,
MK Cohen demanded Avner's premiums be immediately reduced by 7.25%, “since
there is no justification for the public to have to pay for losses that
are nonexistent.” Avner, he said, basing
himself on new research by Dadon, had accumulated NIS 2 billion in profits in
its accounts.
Gillon complained that the Knesset
had no right to consider the move since he was not consulted first.
On July 26, Cohen's subcommittee
reconvened. This time the Finance Ministry, which just last year had agreed
with Avner that it could continue overcharging Israeli consumers well into next
year, admitted the accumulated profits and called for an immediate end to the
“past losses” clause in the premium. The subcommittee voted to re‑commend
an immediate reduction in premiums.
The next day, Ms. Dadon published an
op‑ed in Globes, Israel's financial daily, entitled: “Cutting a
Premium is not a Reform.” Dadon told of the Finance Ministry's proposal to cut premiums,
and attributed the turnaround in policy to the efforts of MK Cohen, the Israel
Consumer Council and IASPS. She warned
that Avner's supposed willingness to reduce its own premiums next year, and
perhaps even the Finance Ministry's newfound religion, might be sinister.
“Israeli drivers must stand guard,” she concluded, “lest this cut be knighted
'reform' and serve as a fig leaf to cover up the cancellation of the true
reform planned for 2000.”
On July 28, the Finance Committee met
to vote on the subcommittee recommendations. When Dadon left the room for a
moment, MK Cohen took the opportunity to state: “It is because of that `girl'
we are all here today.” Cohen was referring to one of the insults hurled at
Dadon during her first testimony in February, when the director of one of
Israel's largest insurance companies demanded of Cohen: “Who is this girl you
brought here? I don't need to listen to this.”
A few minutes later, the committee
voted unanimously to end the “past losses” clause and reduce premiums by 8%,
effective September 1. Gillon left the room grumbling, saying the cartel needed
the extra income. MK Cohen asked to see Dadon and told her: “Your tears have
cost them 280 million shekels — so far.”
Dadon had slain the Israeli insurance
goliath.
Dadon, in consultation with IASPS
Associate Fellow Yossi Laster, chose to study the insurance cartel as part of
her first year Koret Fellowship at IASPS. She was assigned then to do her
Institute internship with Minister of Trade Natan Sharansky. Sharansky assigned her to his Ministry's Israel Consumer Council. Ariella Revdal,
chairwoman of the council, lent her support to Dadon's insurance project from the
very beginning. Ariella Revdal would eventually play a major role in
publicizing and protesting the injustice being done to Israeli car owners.
Dadon has just completed her second year as an IASPS Koret Fellow, having interned in the Prime Minister's Office, working on economic policy research. She has been awarded a third year fellowship and is now interning with Israel's minister of communications, Limor Livnat.
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