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JERUSALEM-Executives from eight Israeli insurance companies that were convicted of running a price cartel are resisting government pressure to resign.
The companies were found guilty of creating a cartel between 1991 and 1992 to fix prices for contractors-all-risk, civil engineering insurance and personal lines coverages.
Israeli Insurance Commissioner Doron Shorer, who is leading the push to have the executives stand down, asserted that "people who are convicted of such a thing against their clients cannot continue to serve as senior executives in insurance companies."
The 15 company executives charge that a plea bargain made last year with the attorney general allows them to remain in their jobs.
"The state is acting unfairly," said Uri Taiber, general manager of Tel Aviv-based Zion Insurance Co. Ltd., one of the companies convicted of price fixing.
The plea bargain, which took more than a year to negotiate, was economical and convenient for both the state and insurance companies to settle the dispute, he said. "Then one day afterward the government comes in with the second part. No one would have signed the plea bargain knowing there would be dismissals," he said.
The dispute originates from losses totaling about $300 million suffered by insurers during heavy and sustained flooding in late 1991 and early 1992.
"We had the worst year ever, all of the reinsurers were leaving the country," said Sammi Bassat, deputy general manager of Clal Insurance Co. Ltd., another of the companies. "The market understood that if something was not done then many of the smaller insurers would collapse."
Mr. Bassat said that Israeli insurers got together to talk over how to improve matters.
He recalls that at the time the feeling within the insurance industry was that the losses were a problem the market had to sort out for itself.
But matters took a different turn in 1993, when the Israeli government's then-antitrust commissioner, Viktor Bovic, began to investigate allegations of price fixing.
According to Commissioner Shorer, the insurance companies were found to have consulted with each other and set rates on various lines, and coordinated their actions in consultation with their reinsurers. Mr. Shorer declined to name the reinsurers involved but said they are large European companies.
"There is a possibility that this coordination had happened both before and after the 1991-92 period," he added.
The antitrust commissioner started examining the case in 1993, presented his findings to the attorney-general in 1995, and the eight companies were convicted of operating a cartel by a Jerusalem District Court in 1996.
The companies are: Ayalon Insurance Co.; Clal Insurance Co. Ltd.; Hamagen Insurance Co.; Israel Phoenix Insurance Co.; Menora Insurance Co.; Migdal Insurance Co., a subsidiary of Italy's Assicurazioni Generali S.p.A. and Israel's largest insurer; Safar Israel Insurance Co.; and Zion Insurance Co.
In addition, a total of 15 senior executives, mostly managing directors and general managers, from the companies were convicted of a conspiracy to create a price cartel. At Clal these included the chairman, Raiom Benshaul, who has since resigned, and non-life manager Jacob Kil, according to Mr. Bassat.
Representatives from Migdal, Safar Israel, Hamagen, Menora, Israel Phoenix and Ayalon either declined to comment or could not be reached.
The companies were fined between $500,000 and $2 million, while the individual executives were fined between $100,000 and $300,000 to be paid from their personal assets, and given suspended prison sentences of between six months and two years, according to Commissioner Shorer.
The plea bargain agreed to in late 1996 required the executives to admit to some of the charges in exchange for receiving suspended prison sentences. The personal fines were waived.
"It was decided not to prove in court that damage was incurred to (the companies') clients. In this case it would be difficult for the public to present a class action," said Mr. Shorer.
Six of the companies agreed to the plea bargain while two-Israel Phoenix and Ayalon-are continuing to appeal the convictions in court.
The insurance commissioner has sent a letter to the relevant executives demanding that they step down from their positions. Mr. Shorer said that he has consulted with the attorney-general on the matter. If the executives continue with their refusal to step down, he could limit the companies' licenses to operate, he added.
Zion's Mr. Taiber, who together with his company's chairman, Abraham Taiber, is among the executives whose resignations are requested, said that his company has applied to the District Court of Tel Aviv for an injunction stating that there is no reason to dismiss him and his colleague.
Mr. Shorer said that the issue will be discussed at a June 15 meeting of the insurance commissioner's advisory committee. This committee will decide how to proceed on the matter of the executives' refusal to resign. If it goes against the executives, they can appeal to the Supreme Court, the country's highest court, Mr. Shorer said.
Separately, Mr. Shorer said that his office is preparing an overhaul of Israel's insurance regulations. The hope is to bring these in line with existing European Union insurance legislation. In addition, a long process is under way to introduce more transparency in insurance company accounting through the adoption of U.S. generally accepted accounting principles.