Marcin Kawi ń ski The Insurance Ombudsman Office Poland

Aspects of the implementation of insurance rules and ensuring insurance

supervision after enlargement

Marcin KawińskiThe Insurance Ombudsman Office

Poland

Seminar on Financial Services (INT MARKT 20590 )

Sofia, 14-16 September 2005

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

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.

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

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.

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

Road to accessionAmendment 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

Road to accessionAmendment of Act of 28 July 1990 on Insurance Activity• Regulations for branch of foreign insurance company

o Obligation o Principle of mutuality

• New definitions some of security norms

1990 1995 1998

Road to accessionAmendment of Act of 28 July 1990 on Insurance Activity• Regulations on trade of insurance company shares• Regulations for branch of foreign insurance company• Modification of investment limits for an insurance fund

1990 1995 1998 2000

Missing elements

• full freedom of cross-border services• single license• supplementary supervision of insurance

undertakings in insurance group• insurance intermediares• third party liability insurance

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

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

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

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)

Polish regulation concerning insolvency

• Indicators • Mechanisms• Institutions

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

Polish regulation concerning insolvency - mechanisms

• own funds > solvency margin

• solvency margin > own funds > guarantee fund

• guarantee fund > own funds

Polish regulation concerning insolvency – institutions

• Insurance and Pension Funds Supervisory Commission

• The Insurance Guarantee Fund

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

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.

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.


• 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)


• 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)


• 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)


• 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)


• 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)

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.


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%


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.

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.

Expanses of the Fund (in PLN)Expanses of the Fund 31.09.2003 31.09.2004 Dynamics

in %Claims by way of basic activity 52,7% 53,1% 112,52Claims by way of bankruptcy 13,2% 9,0% 76,18Operational costs 8,9% 6,9% 86,8Administrative costs 24,9% 30,8% 138,21Others operational costs 0,2% 0,2% 77,13Others financial costs 0,0% 0,0% 7,16TOTAL 100% 100% 111,75

Problems?

No insolvency no cryPolish case

Polish market overview – life insurance

• Premium• Concentration• Products

Polish market overview – premium

Dynamics (in %)2003 2004 2004/2003

Total gross written premiums per an inhabitant (in EUR)

147 160 108,24

Life 66 74 110,69Non-life 81 86 106,24

Value (in EUR)

Total gross written premiums share in GDP (in %)

3,04 3,13 102,87

Life 1,37 1,44 105,20Non-life 1,67 1,69 100,96

2003 2004 Change (in % pts)

PZU Życie S.A. 45,917 43,019 -2,899Commercial Union Polska - TUnŻ S.A. 15,095 13,806 -1,289PAPTUnŻiR Amplico-Life S.A. 9,380 8,143 -1,236TUnŻ ING Nationale-Nederlanden Polska S.A. 8,124 7,131 -0,992Nationwide TUnŻ S.A. 1,723 5,035 3,312TU Allianz Życie Polska S.A. 2,597 2,678 0,081TUnŻ WARTA VITA S.A. 4,323 2,382 -1,941Credit Suisse Life & Pensions TUnŻ S.A. 1,387 2,180 0,793TUnŻ Cardif Polska S.A. 1,396 2,172 0,776Nordea Polska TUnŻ S.A. 0,399 2,091 1,692TUnŻ EUROPA S.A. 1,518 1,736 0,218Generali Życie TU S.A.*) 0,940 1,373 0,433Gerling Polska TUnŻ S.A. 0,665 1,314 0,650Pramerica Życie TUiR S.A. 1,739 1,276 -0,463Skandia Życie S.A. 0,902 1,115 0,213STUnŻ Ergo Hestia S.A. 0,992 0,994 0,002TUnŻ Compensa S.A. 0,603 0,680 0,078CitiInsurance Polska TUnŻ S.A. 0,383 0,667 0,284TUnŻ Polisa-Życie S.A. 0,522 0,438 -0,084FinLife S.A. 0,250 0,422 0,172Royal Polska TUnŻ S.A. 0,318 0,398 0,080UNIQA TUnŻ S.A. 0,056 0,362 0,306Sampo TUnŻ S.A. 0,227 0,192 -0,034BENEFIA TUnŻ S.A. 0,125 0,108 -0,017TUW Rejent Life 0,084 0,075 -0,009Universum-Życie TU S.A. 0,096 0,061 -0,035TUnŻ INTER-ŻYCIE Polska S.A. 0,049 0,053 0,004TUnŻ SKOK S.A. 0,026 0,033 0,007SIGNAL IDUNA Życie Polska TU S.A. 0,013 0,026 0,013ASPECTA ŻYCIE TU S.A. 0,019 0,020 0,000WTUŻiR Concordia Capital S.A. 0,015 0,019 0,003MACIF Życie TUW - 0,000 xKU Filar-Życie S.A.połącz.z UNIQA TUnŻ S.A. 0,036 - xGenerali Życie TU S.A. przed połączeniem z Zurich TUnŻ S.A.0,077 - xGarda Life S.A. w likwidacji 0,001 - xWüstenrot Życie TU S.A. w likwidacji 0,004 - x

SpecificationShare in life branch premiums (in

Insurance companies

Polish market overview – products

Marriage insurance, birth insurance

1,2%

Life insurance linked to capital investment fund

31,8%

Life insurance48,8%

Annuity insurance0,2%

Accident and sickness insurance if supplemental to

the insurance referred to in classes 1-4

18,0%

Polish market overview – products

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

Life insurance Marriage insurance, birthinsurance

Life insurance linked tocapital investment fund

Annuity insurance Accident and sicknessinsurance if supplementalto the insurance referred

to in classes 1-4

Gross w ritten premiums

Gross claims paid

Polish market overview – insurance agents

Specification 31.12.2004Registered agents

Exclusive agents* 28 765of which: life insurance companies 14 080non-life insurance companies 14 685Multiagents** 13 428*Insurance agents perf orming activ ities on behalf of one insurance company .

**Insurance agents perf orming activ ities on behalf of more than one insurance company .

Potential problems

• Macroeconomic situation• New products

Macroeconomic situation

• Capital market• Technical rate

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

insurance where the investment

risk is not borne by policyholders

insurance where the investment risk is borne by policyholders

The State Treasury securities 73,50 80,99 57,53Bank deposits 5,11 6,47 2,21Debtors from reinsurers, ceding undertakings, policyholders, insurance intermediaries and budget

0,31 0,46 0,00

Participation units and investment certificates 8,81 1,20 25,03Other fixed-income debt securities 2,45 2,29 2,79Shares admitted into public trading on regular market 7,94 6,18 11,69Other assets 1,88 2,42 0,75Total 100,00 100,00 100,00

Specification

Life insurance

Total life

of which:

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

The State Treasury securities 73,50 67,56 71,29Bank deposits 5,11 4,39 4,84Debtors from reinsurers, ceding undertakings, policyholders, insurance intermediaries and budget

0,31 4,05 1,70

Participation units and investment certificates 8,81 3,76 6,93Other fixed-income debt securities 2,45 1,22 1,99

Shares admitted into public trading on regular market 7,94 6,69 7,47

Other assets 1,88 12,33 5,77Total 100,00 100,00 100,00

Non-life insurance Total

Life insuranceSpecification

Capital market - structure of insurance companies' investments by

place and maturity dates

Specification Life Non-life Total

Domestic investments 97,35 97,31 97,39Foreign investments - EU countries 2,45 2,37 2,56Foreign investments - nonEU countries 0,20 0,32 0,05

Liquid investments 85,88 92,07 78,76Other investments 14,12 7,93 21,24

by place

by maturity dates

New products

• Old data• No data

Insolvency before and after the accesion

• Cases• Causes• Effects• Conclusions

Old regulation – What went wrong?

• Dumping• Illegal investment• Risky business

Real problems

• Market situation• Main products• Others

Polish market overview – non-life insurance

• Premium• Concetration• Products• Profits

casco liability Total casco liability Total

PZU S.A. 60,735 56,130 58,306 35,924 37,071 72,995TUiR WARTA S.A. 11,338 9,560 10,400 28,966 27,273 56,239HDI SAMOPOMOC TU S.A. 1,320 8,207 4,953 10,876 75,495 86,370STU Ergo Hestia S.A. 6,999 2,809 4,789 32,383 14,511 46,894TU Allianz Polska S.A. 6,126 2,792 4,367 31,069 15,813 46,882UNIQA TU S.A. 2,161 3,207 2,713 27,567 45,690 73,257TU Compensa S.A. 2,275 3,035 2,676 30,513 45,457 75,970Tryg Polska TU S.A. 1,901 3,327 2,653 24,642 48,153 72,795PTU S.A. 1,864 2,936 2,429 30,597 53,811 84,409Generali TU S.A. 0,585 2,861 1,786 8,717 47,641 56,358BENEFIA TU Majątkowych S.A. 1,529 0,607 1,043 58,571 25,984 84,556TUiR CIGNA STU S.A. 1,010 0,973 0,990 16,363 17,598 33,961Link4 TU S.A. 0,495 0,996 0,759 29,335 65,866 95,201TU Filar S.A. 0,625 0,674 0,651 13,187 15,876 29,063TUW TUW 0,168 0,562 0,376 10,960 40,883 51,843MTU Moje Towarzystwo Ubezpieczeń S.A. 0,124 0,456 0,299 18,031 73,805 91,836TUW Concordia Wielkopolska 0,170 0,248 0,211 16,469 26,929 43,397TUW Florian 0,247 0,134 0,187 52,685 31,847 84,532TUwRiGŻ Agropolisa S.A. 0,032 0,297 0,172 6,123 62,563 68,687TUW TUZ 0,082 0,050 0,065 36,935 25,216 62,151Pocztowe TUW 0,103 0,024 0,062 26,155 6,930 33,085Gerling Polska TU S.A. 0,032 0,036 0,034 1,492 1,880 3,372TU INTER Polska S.A. 0,058 0,007 0,031 7,851 0,991 8,841AIG Polska TU S.A. 0,019 0,035 0,027 0,679 1,355 2,033TU EUROPA S.A. 0,000 0,037 0,020 0,002 3,048 3,050SIGNAL IDUNA Polska TU S.A. 0,001 0,000 0,001 0,218 0,068 0,286Commercial Union Polska-TU Ogólnych S.A. 0,000 0,000 0,000 0,004 0,001 0,005Credit Suisse Life & Pensions TU S.A. 0,000 - 0,000 0,006 - 0,006TUiR Partner S.A. 0,000 0,000 0,000 3,493 24,746 28,239Total 100,00 100,00 100,00 29,730 33,197 62,926

Share in premiums of insurance

Insurance companies

Specification Structure by insurance companies

2003 2004Change

(in % pts)

PZU S.A. 53,088 50,263 -2,825TUiR WARTA S.A. 12,834 11,637 -1,197STU Ergo Hestia S.A. 6,896 6,426 -0,470TU Allianz Polska S.A. 5,109 5,862 0,754HDI SAMOPOMOC TU S.A. 2,793 3,609 0,816UNIQA TU S.A. 2,420 2,330 -0,090Tryg Polska TU S.A. 2,234 2,293 0,059TU Compensa S.A. 1,506 2,217 0,711Generali TU S.A. 0,596 1,994 1,398TUiR CIGNA STU S.A. 1,592 1,835 0,243PTU S.A. 1,559 1,811 0,252PTR S.A. 1,574 1,647 0,073TU Filar S.A. 1,548 1,409 -0,138AIG Polska TU S.A. 0,726 0,851 0,124BENEFIA TU Majątkowych S.A. 0,711 0,776 0,065Gerling Polska TU S.A. 0,723 0,632 -0,092Commercial Union Polska-TU Ogólnych S.A.0,528 0,542 0,014Link4 TU S.A. 0,327 0,502 0,175TUW TUW 0,390 0,456 0,066TU EUROPA S.A. 0,308 0,406 0,098TU Euler Hermes S.A. 0,001 0,348 0,348TUW Concordia Wielkopolska 0,271 0,306 0,035TUW SKOK 0,242 0,251 0,009TU INTER Polska S.A. 0,279 0,219 -0,060MTU Moje Towarzystwo Ubezpieczeń S.A. 0,025 0,205 0,180KUKE S.A. 0,264 0,202 -0,062SIGNAL IDUNA Polska TU S.A. 0,009 0,162 0,154TUwRiGŻ Agropolisa S.A. 0,638 0,158 -0,481TUW Florian 0,038 0,139 0,102TUW CUPRUM 0,135 0,135 0,001Pocztowe TUW 0,119 0,117 -0,001Credit Suisse Life & Pensions TU S.A. 0,082 0,117 0,035TUW TUZ 0,014 0,066 0,052D.A.S. TU Ochrony Prawnej S.A. 0,035 0,039 0,004TU PZM S.A. 0,035 0,038 0,003TUiR Partner S.A. -0,002 0,000 0,002IF TU S.A. w likwidacji 0,000 - xZurich TU S.A. 0,355 - xTotal 100,00 100,00 x

Specification

Share in life branch

Insurance companies


2003 2004 Change (in % pts)

The three biggest insurance companies 72,818 68,325 -4,492The five biggest insurance companies 80,719 77,796 -2,923The ten biggest insurance companies 90,098 88,465 -1,632

SpecificationShare in life branch premiums (in


01

000

000

2 00

0 00

03

000

000

4 00

0 00

05

000

000

6 00

0 00

0

Accidentinsurance

Sicknessinsurance

Cascoinsurance

of landvehicles

Cascoinsuranceof railway

rollingstock

Cascoinsuranceof aircraft

Insuranceof vesselsin sea and

inlandnavigation

Goods-in-transit

insurance

Insuranceagainst fireand natural

forces

Insuranceagainst

otherdamage or

lossproperty

Motorvehicleliability

Aircraftliability

Liability forships insea andinland

navigation

Generalliability

Creditinsurance

Suretyship Insuranceof variousfinancial

risks

Insuranceof legal

protection

Insuranceof

assistanceand

benefits fortravelers

Gross w ritten premiums

Gross claims paid

Comparison – old vs. new situation

• Inexperience• Lack of early warning

system• Lack of power - slow

path

• Experience• Lack of early warning

system• Centralised power –

quick path

Would new ragulation had helped?

Others problems

• Cross-border insurance• Mother vs. doughter companies• Globalisation

Thank You

Marcin Kawiń[email protected]

mailto:[email protected]








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Marcin Kawi ń ski The Insurance Ombudsman Office Poland