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Marcin Kawi ń ski The Insurance Ombudsman Office Poland

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  1. Aspects of the implementation of insurance rules and ensuring insurance supervision after enlargement Marcin Kawiński The Insurance Ombudsman Office Poland Seminar on Financial Services(INT MARKT 20590) Sofia, 14-16 September 2005

  2. The Insurance Ombudsman Office • Founded to protect the interests of the weakest market participants - insurance consumers, vis-a-vis Insurance Companies equipped with much greater resources and qualified staff • The Insurance Ombudsman takes part in the meetings of The Insurance and Pension Funds Supervisory Commission

  3. The Insurance Ombudsman’s statutory tasks The Insurance Ombudsman was founded: • to represent and protect consumer interests of the insured and beneficiaries under insurance contracts; • to advise the supervisory body of any irregularities found in the operation of insurers, pension funds and vocational pension plans; • to initiate and engage in educational and information activities in the scope of insurance, pension funds and vocational pension plans.

  4. The process of implementation • How exact? • Implementation  translation • Implementation  variation • How fast? • Where is the market? • Waiting for the market • Directives for market not market for directives

  5. Legislation – common problems in the new Member States • Full participation in the ‘green card’ system for third party liability insurance • Further transposition/fine-tuning needed • prudential standard not aligned to acquis and international standards • minimum solvency and guarantee fund • administrative and legal restrictions the freedom to provide the right of establishment and service • out-of-court redress schemes There is always something to implement.

  6. Road to accession • Act of 28 July 1990 on Insurance Activity • Basic act for a new insurance market • Simulation plan; minimal guarantee fund, solvency margin and own funds. • Generally consistent with present EU directives 1990

  7. Road to accession • Amendment of Act of 28 July 1990 on Insurance Activity • More precise and higher criteria for new insurance company. • Implementation of security norms (one risk < 25% of the fund) • Foundation of supervisory office • Regulation of insurance intermediaries • Foundation of The Insurance Guarantee Fund • New bankruptcy regulation • Foundation of Insurance Ombudsman • Foundation of actuary 1990 1995

  8. Road to accession • Amendment of Act of 28 July 1990 on Insurance Activity • Regulationsfor branch of foreign insurance company • Obligation • Principle of mutuality • New definitions some of security norms 1990 1995 1998

  9. Road to accession • Amendment of Act of 28 July 1990 on Insurance Activity • Regulations on trade of insurance company shares • Regulationsfor branch of foreign insurance company • Modification of investment limits for an insurance fund 1990 1995 1998 2000

  10. Missing elements • full freedom of cross-border services • single license • supplementary supervision of insuranceundertakings in insurance group • insurance intermediares • third party liability insurance

  11. Road to accession • Act of 22 May 2003 on Insurance Activity (Official Journal No 124, Item 1151, as amended) • Act of 22 May 2003 on Compulsory Insurance, Insurance Guarantee Fund and Polish Motor Insurance Bureau (Official Journal No 124, Item 1152, as amended) • Act of 22 May 2003 on Insurance Mediation (Official Journal No 124, Item 1154, as amended) • Act of 22 May 2003 on Insurance and Pension Supervision and The Ombudsman for the Insureds (Official Journal No 124, Item 1153, as amended) 1990 1995 1998 2000 2003

  12. Act on insurance activity Main issues: • performing the profession of actuary • change in the list of assets covering the technical provisions • change of the value of the guarantee capital and the amounts when calculating the solvency margin • strengthen position of the insurance supervision • supplementary supervision of insurance undertakings in insurance group

  13. Act on insurance activity reorganisation and liquidation of the insurance companies organisation and functioning of the economic insurance self-government community co-insurance freedom to provide services, right of establishment and single license

  14. Solvency Solvency – ability of an insurer to meet its obligation (liabilities) under all contracts at any time. • circumstances the appropriateness of the assets to cover • time horizon • acceptable degree of probability of becoming insolvent (International Association of Insurance Supervisors)

  15. Polish regulation concerning insolvency • Indicators • Mechanisms • Institutions

  16. Polish regulation concerning insolvency – indicators • Own funds - not lower than solvency margin • Guarantee fund - one-third of the solvency margin, but not less than minimum amount of guarantee fund dor each class of insurance and for reinsurance business • Solvency margin – based on reserves or premiums

  17. Polish regulation concerning insolvency - mechanisms • own funds > solvency margin • solvency margin > own funds > guarantee fund • guarantee fund > own funds

  18. Polish regulation concerning insolvency – institutions • Insurance and Pension Funds Supervisory Commission • The Insurance Guarantee Fund

  19. Supervisory authority – common problems in the new Member States • (administrative) capacity is insufficient • additional staff recruitment • staff qualification improvement • dependency in political and budgetary terms • operational dependence (the lack of power to issue its own regulations) • cross border co-operation between supervisory authorities • low quality of the monitoring • mergers of supervisory authorities

  20. Insurance and Pension Funds Supervisory Commission The body performing the supervision is the Insurance and Pension Funds Supervisory Commission. This is a body of central State administration. The Commission was established on 1st April 2002 on the basis on the Act of 1 March 2002 on changes in organisation and carrying out the duties of central State administration /.../. (Law Gazette No. 25/2002, pos. 253). The Commission was created due to merger of PUNU and UNFE.

  21. Insurance and Pension Funds Supervision Commission Under Insurance and Pension Funds Supervision shall be the activity of: • insurance undertakings; • insurance mediation, • pension funds; • occupational pension programs.

  22. Insurance and Pension Funds Supervision Commission • commission gives authority for permitting, withdrawal of permitting, acquisition of shares and operating supervision (articles 6, 35, 36, 92, 101, 107, 119, 239 of Act on insurance activity) • commission may grant and receive from Banking Supervision Commission, the Polish Securities Commision and Exchange Commission and other financial supervisors information’s required by such bodies to perform their statutory duties in the field of supervision (article 16 Act on insurance supervision and Insurance Ombudsman)

  23. Insurance and Pension Funds Supervision Commission • commision may enter into agreements of co-operation and exchange of information in the field of insurance supervision with insurance supervision bodies (article 17 of Act on insurance supervision and Insurance Ombudsman)  • commission may submit a request to the competent body of the insurance company for the removal of members of board (directors of branch) and suspend members of the board of the insurance company pending consideration of the request for their removal (article 212 of Act on insurance activity) 

  24. Insurance and Pension Funds Supervision Commission • commission may request that management of an insurance company convene an extraordinary general meeting and include particular matters on the agenda of the next general meeting and delegate a representative to participate in the general meeting (article 211 of Act on insurance activity) • commission may convene meeting of the board or supervision board of insurance company and include particular matter on the agenda (article 212 of Act on insurance activity)

  25. Insurance and Pension Funds Supervision Commission • commision may request from insurance company explanations and information on the company and its financial standing (article 207 of Act on insurance activity) • commission may inspect the activities and financial position of an insurance company and entities which carry on insurance actions on behalf and in the name of insurance company, within the scope in which they are carried out (article 208 of Act on insurance activity) 

  26. Insurance and Pension Funds Supervision Commission • commission may pass recommendations for an insurance company to ensure compliance of business of an insurance company with rules of the law, sets and the operating plan to ensure permanent capability of the insurance company to carry out its obligations and to prevent or eliminate faults in activities of the insurance company which may violate interest of the insured (article 209 of Act on insurance activity)

  27. The Insurance Guarantee Fund The Fund settles claims in the event of bankruptcy of an insurance company, dismission of the application for the adjudication of bankruptcy of an insurance company when the assets of the debtor cannot cover even the costs of the proceedings in bankruptcy and ordering the obligatory liquidation of an insurance company when the claims cannot be covered by the assets covering the technical and insurance reserves.

  28. The Insurance Guarantee Fund Compensations and benefits due under compulsory third party liability insurance of holders of motor vehicles, third party liability insurance of farmers and insurance of farm buildings are paid in the amount of 100%

  29. The Insurance Guarantee Fund Compensations and benefits due under life insurance and other insurance which are compulsory under the provisions of the internal law or international agreements ratified by the Republic of Poland - in the amount of 50% of liability, not more however than equivalent of 30 000,00 EUR.

  30. The Insurance Guarantee Fund The Insurance Guarantee Fund is allowed (under art. 99 of the Act) to grant a repayable financial aid to the insurance company which takes over the portfolio of compulsory insurance contracts (i.e. TPL insurance of holders of motor vehicles and TPL insurance of farmers) if the own financial means of that company, at least amounting to solvency margin and assets covering the technical and insurance reserves do not guarantee in full the solvency of this company. The aid is a kind of repayable jean and the Fund may acquire the receivables of the insurance company taking avail of such financial aid, up to the amount of the granted aid.

  31. II. Expanses of the Fund (in PLN) Expanses of the Fund (in PLN)

  32. Problems? No insolvency no cry Polish case

  33. Polish market overview – life insurance • Premium • Concentration • Products

  34. Polish market overview – premium

  35. Polish market overview – products

  36. Polish market overview – products

  37. Polish market overview – insurance agents

  38. Potential problems • Macroeconomic situation • New products

  39. Macroeconomic situation • Capital market • Technical rate

  40. Capital market - structure of assets covering technical provisions [%]

  41. Capital market - structure of assets covering technical provisions [%]

  42. Capital market - structure of insurance companies' investments by place and maturity dates

  43. New products • Old data • No data

  44. Insolvency before and after the accesion • Cases • Causes • Effects • Conclusions

  45. Old regulation – What went wrong? • Dumping • Illegal investment • Risky business

  46. Real problems • Market situation • Main products • Others

  47. Polish market overview – non-life insurance • Premium • Concetration • Products • Profits