Ayalon wins Clalit's long-term care insurance tender

Clalit Health Services announced today (Sunday) that the insurance company Ayalon will operate the group long-term care insurance policy of the group, in which about 2.7 million people are insured. The results of the tender are not surprising, because as revealed by Calcalist last month, Ayalon is the only company that submitted a bid for the Clalit tender.

This means that Ayalon will operate the Clalit policy starting from January 1, 2027, for a period of three years. The tender includes an option for three extensions, so that in total the agreement period may last eight years. For Clalit insured, there will be no difference in the terms of the policy, but in the event of an insurance claim occurring from next year, they will need to contact the Ayalon call center.

The group long-term care policies of the four health funds are the only private policy that can be purchased today in Israel. Each health fund has an agreement with an insurance company to manage the policy. Since 1998, Harel has managed the Clalit policy directly and indirectly (through its subsidiary Dikla). The other three health funds have an agreement with Menora. In other words, Clalit and Harel will end a long-standing partnership.

After Clalit published the tender several months ago, it was estimated that several companies would apply, as the tender was intended in advance for the six largest companies in the market: Harel, Menora, Phoenix, Migdal, Clal, and Ayalon. The fact that only Ayalon — the smallest of the six companies — applied was a negative surprise, which illustrated the reluctance that insurance companies have developed in recent years towards the industry that was on the verge of collapse and the risk of negative public relations due to the rejection of claims.

Starting in January, Ayalon, the company with the smallest long-term care portfolio in the industry, will become the company that operates the group long-term care policy of Clalit, which is de facto the largest group long-term care policy in the world. Although Ayalon is taking a certain risk, the move also represents a significant step up for it. Its long-term care portfolio is currently limited to individual policies — a product that was taken off the shelf in 2019 across the market — with an annual premium volume of only about 38 million shekels.

Although Ayalon has experience in operating group health insurance for employers and organizations, it will now manage a huge collective long-term care portfolio — covering millions of insured and characterized by exceptional actuarial and cash flow complexity — so this is an event of a completely different scale from everything the company has managed so far. This is not only a giant policy, but also a policy that just two years ago was on the verge of collapse.

About two years ago, the long-term care insurance crisis reached a low point, with Calcalist revealing that no insurance company had submitted a bid for the tender to operate the group insurance of Clalit Health Services. The meaning was that within a few months, the long-term care policy of a quarter of Israel's residents could become irrelevant. The reason for the failure of the tender was the fear that the Clalit fund, from which claims are paid, would be completely emptied. Ultimately, following the tightening of the policy terms by the Capital Market Authority and the reduction of the liability of insurance companies, Harel agreed to extend its agreement with Clalit for two years, until the end of 2026. In the meantime, the tightening of the policy terms has balanced the Clalit fund. Health funds are not required to report on the state of the fund and therefore there are no official details on the subject, but it is estimated that the fund has grown in the last two years from a few hundred million shekels to about 2.5 billion shekels.