This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Poland.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
The writing of insurance contracts in Poland is regulated by the Polish Civil Code of 23 April 1964 (the “Civil Code”) and by the Polish Act of 11 September 2015 on Insurance and Reinsurance Activity (the “Insurance Law”). Additional rules are also laid down in the Commission Delegated Regulation (EU) 2015/35 (the “Delegated Regulation”), which applies directly in Poland.
The Civil Law regulates the scope, content, rules of conclusion and termination of insurance contracts.
The Insurance Law implements Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (the “Solvency II Directive”). It regulates, among other things, the licensing of insurance and reinsurance companies, supervision over insurance and reinsurance activity, insurance secrecy, outsourcing, solvency capital requirements and other obligations and requirements for insurance and reinsurance undertakings. It also contains some provisions regulating insurance contracts (in addition to those provided for in the Civil Code).
The Insurance Law sets out the rules for the conduct of activity by (a) insurance and reinsurance undertakings established in Poland, (b) the Polish branches (the so-called “main branches”) of insurance or reinsurance undertakings established in non-EU countries (third countries) as well as (c) the insurance or reinsurance undertakings established in the EU or EEA Member States, which conduct activity in Poland on the basis of the freedom of establishment (in the form of branches) or on the basis of the freedom of services (on a cross-border basis).
In addition to the above regulations, there are also a number of recommendations and guidelines which are issued for insurance and reinsurance companies by the Polish Financial Supervision Authority (Komisja Nadzoru Finansowego – “KNF”).
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
The general rule is that an insurance company cannot carry out life and non-life business simultaneously. Therefore, there are either life or non-life companies. A life insurance company must use reference to its life business in its business name.
Life and non-life insurance companies are generally subject to the same requirements laid down in the Insurance Law as regards the conduct of their business, the licensing process, supervision etc.
Nevertheless, there are some specific requirements with respect to life insurers, in particular with regard to the level of information provided to consumers, which is due to the complexity and duration of life and insurance investment products. There are also some specific regulations with respect to solvency requirements for a life business (imposing higher levels) and a non-life business (the levels depending on particular groups of insurance written by a non-life company).
As regards reinsurers, the requirements applicable to insurance companies apply to them unless specific provisions provide otherwise (in many cases requirements toward reinsurers are less strict than those laid down for the insurers).
Are insurance brokers and other types of market intermediary subject to regulation?
Insurance brokers and other insurance intermediaries (insurance agents) are currently regulated by the Polish Act of 22 May 2003 on Insurance Intermediation (the “Insurance Intermediation Law”). Intermediation activity is subject to supervision by the KNF, which maintains a register of insurance agents and a register of insurance brokers as well as oversees their activity.
An insurance agent acts for and on behalf of an insurer on the basis of an agency agreement, and performs its activity through individuals (persons performing agency activity), who must meet specific regulatory requirements and be entered into the relevant register of insurance agents.
An insurance broker acts for and on behalf of the policyholder, and performs its activity through individuals (persons performing agency activity), who must meet specific regulatory requirements.
As of 1 October 2018 the Insurance Intermediation Law will be replaced by a new regulation – the Act of 15 December 2017 on Insurance Distribution (the “Insurance Distribution Law”), which implements in Poland Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (the “IDD”).
The Insurance Distribution Law regulates the activity of both insurance brokers and insurance agents. It also introduces a new type of intermediary, i.e. an ancillary insurance agent. Additionally, following the IDD, it also regulates the distribution of insurance products directly by insurance undertakings.
As is the case under the current regulations, under the Insurance Distribution Law insurance intermediaries will be supervised by the KNF. According to the new law, insurance agents and ancillary agents shall act for and on behalf of insurers on the basis of agency agreements. Insurance brokers shall act for and on behalf of the policyholders.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
The conducting of insurance and reinsurance activity requires a licence issued by the KNF. The process of establishing an insurance and/or reinsurance company and the licensing procedure are regulated by the Insurance Law. The licensing procedure (i.e. the process from the moment of filing of an application to the KNF until a decision is issued by it) takes approximately from 6 to 12 months. The whole process of establishing an insurance and/or reinsurance company, the licensing procedure and final registration of the insurance and/or reinsurance company by the registry court takes approximately from 1 to 2 years.
Both under the Insurance Intermediation Law currently in force and the new Insurance Distribution Law, agents and individuals who perform agency activities for the agent, must be entered in the register of insurance agents maintained by the KNF, which is preceded by formalised examinations. This process (the examinations and registration) takes a few weeks.
Insurance brokers must obtain a licence issued by the KNF. Insurance brokers and individuals who perform brokerage activities for the broker, must be entered in the register of insurance brokers maintained by the KNF. Similarly, as in the case of agents, it is preceded by formalised examinations. This process (the examinations and licensing) takes from a few weeks to a few months.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
The acquisition (directly or indirectly) of shares in an insurance and/or reinsurance company representing 1/10, 1/5, 1/3 and 1/2 of the votes exercisable at the general shareholders' meeting or the same percentage of shares in the share capital requires prior notification to and approval from the KNF. The same requirement applies to any entity or person that intends to become a controlling entity of an insurance and/or reinsurance company in any other way.
There is a detailed list of information and documents that must be submitted to the KNF. The approval process is strictly regulated. The KNF examines whether the criteria laid down in the Insurance Law have been satisfied, including:
- the financial condition and reputation of the notifying entity and its capital group;
- the education, experience and reputation of the persons managing the activity of the notifying entity as well as of the persons who are intended to be management board members of the insurance and/or reinsurance company;
- the business plan of the insurance and/or reinsurance company; and
- anti-money laundering aspects.
Some extra requirements apply in the case of a non-EU acquirer.
The process (from the submission of the filing to the obtaining of the KNF's approval) takes approximately from 4 to 6 months.
A change of control over or ownership of insurance intermediaries (agents/brokers) is not regulated (no notification or approval is required).
However, there is a specific regulation under the new Insurance Distribution Law regarding agency and brokerage activity. Neither the agent nor the agent's shareholder will be able to hold shares in a capital company conducting brokerage activity. Moreover, agents and brokers should not have any "other relations" that could jeopardize the carrying on of brokerage activities honestly, fairly, professionally and in accordance with the client's interests. The concept of "other relations" is not defined. Therefore, as of 1 October 2018 (when this regulation will come into force) the nature of the relationship between brokers and agents will need to be carefully assessed on case by case basis.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
As a rule, insurance activity is regulated and requires a special licence. In order to insure risks in Poland a company must be either a Polish insurance company which holds a licence issued by the KNF or an EU-based insurance company holding a relevant licence issued by its home state regulator, which is subsequently passported into Poland.
Non-EU insurers must undergo a special licensing procedure in Poland and may provide insurance services in Poland in the form of so-called main branches. The requirements are similar to those imposed on domestic insurance companies.
What penalty is available for those who operate without appropriate permission?
The provision of insurance activity without the required permission is a criminal offence in Poland, which is subject to a fine, restriction of liberty or imprisonment for up to two years.
The same penalties apply in the case of persons who, without authorisation from an insurance and/or reinsurance company, conclude insurance and/or reinsurance contracts in the name of such insurance and/or reinsurance company.
The above offences may be the basis for liability of the entity in the name of which such unlawful insurance activity has been carried out. Such entity may be subject to a fine from PLN 1,000 (approximately EUR 240) to PLN 5,000,000 (approximately EUR 1,200,000) (but not more than 3% of the revenue achieved in the financial year in which such activity was carried out). Moreover, the benefits derived from such activity are forfeited. For the entity to be held liable, it is necessary to first issue an appropriate ruling against an individual (e.g. a director) who acted in its name.
However, this regulation has rarely been used in practice. The Polish government is currently working on a new Act on Corporate Criminal Liability, which is to make the procedure against corporate entities more efficient. It will be possible to conduct criminal proceedings against a corporate entity, irrespective of criminal proceedings pending against an individual, and conviction of an individual will not be a precondition for instituting criminal proceedings against a corporate entity (which is the case at present). The new law also considerably increases the maximum penalty for criminal liability of corporate entities to PLN 30,000,000 (approximately EUR 7,000,000). Although the work on the new law is at an early stage, it is possible that it could come into force quite soon. Although it is still difficult to judge, it is quite probable that there will be more appetite in the future for penalizing the corporate entities.
Similarly, the carrying out of insurance agency activity in breach of the requirements laid down for such activity as well as the carrying out of insurance brokerage activity without the required authorisation is a criminal offence in Poland and is subject to the same penalties mentioned above.
There is also a special list of public warnings maintained by the KNF where entities conducting unlawful activity in Poland are placed. The KNF may conduct an independent investigation against an entity before placing it on the list. The entity must provide all necessary information and documents to the KNF during such investigation. Failure to do so is subject to penalties of up to PLN 500,000 (approximately EUR 120,000) and up to 2 years in prison.
How rigorous is the supervisory and enforcement environment?
The KNF exercises supervision and control over insurance and insurance intermediation activity within the scope set out in the Insurance Law, the Insurance Intermediation Law (which will remain in force until 30 September 2018), the Insurance Distribution Law (which will come into force as of 1 October 2018) as well as in the Act of 21 July 2006 on Financial Market Supervision.
The KNF is generally responsible for granting authorisations and licences regarding regulated insurance and/or reinsurance activity, and carrying out inspections in the regulated companies. It also performs disciplinary functions and initiates and/or opines on legislative changes. Its supervision of the financial market is aimed at ensuring its proper functioning, stability, security and transparency, trust in the financial market and protection of the interests of the participants by providing reliable information on the market.
The KNF issues recommendations, in which it sets out specific requirements for insurers in order to ensure compliance with the law, protect the interests of policyholders, to limit the risk occurring in their activities etc.
In the past, the KNF has also issued a number of guidelines for insurers. Such guidelines are not a formal source of law but rather a general indication of the KNF’s views on and interpretations of the law, nevertheless in practice they are observed by the market players.
The KNF analyses reports submitted by financial institutions and assesses whether they satisfy the capital requirements defined by law.
The KNF is generally open to cooperation with regulated entities but frequently takes a strict approach to the applicable regulations.
In the case of a violation of legal regulations, the KNF may impose financial penalties on regulated entities or their management board members or even withdraw the licence held by the financial institution.
From 2006 (i.e. the moment when the KNF was established) to the end of March 2018 the KNF has imposed 603 fines on regulated entities, with the highest one in the amount of PLN 5,700,000. The highest fine imposed on an insurance company amounted to PLN 2,300,000 (imposed in 2016 for delaying payments of insurance benefits and infringement of the information obligations).
How is the solvency of insurers (and reinsurers where relevant) supervised?
As of 1 January 2016, insurance and reinsurance companies in Poland are subject to the Solvency II Directive. The Solvency II regime takes account of the types of risk to which insurance companies and reinsurance companies are exposed in connection with their activity. There are three pillars defined under this system:
- Pillar 1, which refers to financial requirements and provides for two solvency thresholds: the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR).
- Pillar 2, which refers to governance and supervision. Insurers and reinsurers should adopt an effective risk management system, which includes the so-called “Own Risk & Solvency Assessment” (ORSA). There are also special rules for the conduct of supervisory reviews and interventions.
- Pillar 3, which refers to reporting and disclosure. Insurers and reinsurers must make public disclosures regarding the risks incurred by them, their capital adequacy and the risk-management measures adopted by them. They must also provide detailed reports to the KNF.
What are the minimum capital requirements?
There are two solvency thresholds under the Solvency II Directive:
- the Solvency Capital Requirement, and
- the Minimum Capital Requirement.
Both capital requirements are harmonised throughout the EU. Poland follows the same solvency principles as other EU countries. This ensures a uniform level of protection for policyholders.
The SCR is the economic capital to be held by insurance and reinsurance undertakings in order to ensure that they will be in a position, with a probability of at least 99.5%, to meet their obligations to policyholders and beneficiaries over the following 12 months. It is calculated on the basis of either a standard formula or an internal model (in which case it must be approved by the KNF). The SCR should be calculated on the basis of the undertaking's true risk profile, taking account of the impact of possible risk-mitigation techniques, as well as diversification effects. The SCR should be calibrated so as to ensure that all quantifiable risks to which an insurance or reinsurance undertaking is exposed are taken into account. It should cover existing business, as well as the new business expected to be written over the following 12 months.
The MCR is a minimum level of security below which the amount of financial resources should not fall. It should neither fall below 25% nor exceed 45% of the SCR (including any capital add-on imposed in accordance with the Solvency II Directive). It should be calculated as a linear function of a set or sub-set of the insurer's technical provisions, written premiums, capital-at-risk, deferred tax and administrative expenses. It should be measured net of reinsurance.
There are the following minimum base amounts of MCR:
- the PLN equivalent of EUR 3,700,000 - for life insurance undertakings and for non-life insurance companies offering civil liability insurance, credit insurance and insurance guarantees;
- the PLN equivalent of EUR 2,500,000 - for non-life insurance undertakings in case of groups of insurance other than those listed above; and
- the PLN equivalent of EUR 3,600,000 - for reinsurance undertakings.
Is there a policyholder protection scheme?
In Poland there is the Insurance Guarantee Fund ("UFG") that protects the interests of insured persons. However, this protection refers mainly to compulsory third party liability insurance for owners of motor vehicles and farmers in Poland. The basic task of the UFG is to pay compensation and benefits to victims of accidents caused by uninsured vehicle owners and uninsured farmers. It also satisfies claims of injured parties, in the case where the perpetrator of a traffic accident fled the scene of the incident and is unknown.
The UFG pays compensation also when an insurer declares bankruptcy or it is subject to compulsory liquidation. Such compensation is available with respect to compulsory third party liability insurance. It covers the full amount of the claim in case of drivers and farmers. In the case of farmers' buildings it covers the claim up-to a contractually agreed sum.
Moreover, in the case of bankruptcy or compulsory liquidation, the UFG guarantee also covers life insurance and compulsory insurance other than listed above. The maximum payment to an entitled person may not exceed 50% of the claim (up to EUR 30,000).
How are groups supervised, if at all?
The rules set out in the Solvency II Directive for the supervision of insurance and reinsurance undertakings taken individually continue to apply at the level of a group in order to ensure that own funds are appropriately distributed within the group and are available to protect policyholders and beneficiaries as needed. Insurance and reinsurance undertakings within a group should have sufficient own funds to cover their solvency capital requirements.
Group supervision applies in any case at the level of the ultimate parent undertaking that has its head office in the EU. The KNF (similar to other EU regulators in their jurisdictions) may also apply group supervision at a limited number of lower levels, where it deems it necessary.
The consolidated SCR for a group should take into account the global diversification of risks that exist across all the insurance and reinsurance undertakings in that group in order to properly reflect the risk exposures of that group.
Insurance and reinsurance undertakings belonging to a group may apply for approval of the internal model to be used for the solvency calculation at both group and individual levels.
Do senior managers have to meet fit and proper requirements and/or be approved?
The Insurance Law provides for specific fit and proper requirements for management board members and senior managers (so-called "key managers"). The KNF approves the appointment of two members of the management board of an insurance company - the president thereof and the member responsible for risk management.
At least half of the management board members, including both of the management board members approved by the KNF must demonstrate their knowledge of the Polish language.
All management board members as well as key managers must meet specific education requirements and have no criminal record.
At least half of the management board members, including both of the management board members approved by the KNF as well as all key managers must have relevant experience necessary to perform their functions.
Are there restrictions on outsourcing parts of the business?
Provisions regarding the outsourcing of parts of an insurance business are contained in the Insurance Law, which follows the principles introduced by the Solvency II Directive.
Insurance and reinsurance undertakings remain fully responsible when they outsource functions or any insurance or reinsurance activities to external parties. Outsourcing of critical or important operational functions or activities may not: materially impair the quality of the system of governance of the undertaking concerned, unduly increase operational risk, impair the ability of the KNF to monitor the compliance of the undertaking with its obligations or undermine continuous and satisfactory service to policyholders.
Insurance and reinsurance undertakings must notify the KNF prior to the outsourcing of critical or important functions or activities as well as of any subsequent material developments with respect to those functions or activities. Moreover, the KNF must have access to all relevant data held by the outsourcing service provider as well as the right to conduct on-site inspections.
Each insurance and reinsurance undertaking should have a written policy in relation to outsourcing and ensure that this policy is implemented.
How are sales of insurance supervised or controlled?
The Insurance Law and the Insurance Intermediation Law set out specific requirements to be observed by the sellers of insurance, both in respect of direct sales by insurance undertakings and sales by insurance intermediaries. Particular emphasis is placed on pre-contractual information, which must be provided to policyholders and insured persons. An additional set of rules governs sales of insurance-based investment products.
More specific and complex requirements for sales of insurance are set out in the Insurance Distribution Law. Prior to the conclusion of a contract, including in the case of non-advised sales, the customer should be given the relevant information about the insurance product to allow the customer to make a decision. In addition, in case of non-life insurance products, a standardised information document should be provided to the customer. An insurance intermediary should explain to the customer the key features of the insurance products it sells.
The KNF supervises and controls compliance of insurance distributors with these rules. It may carry out inspections at insurance undertakings in terms of their insurance sales as well as in terms of their cooperation with insurance intermediaries selling their insurance products. Under the Insurance Distribution Law, the KNF will also be allowed to directly inspect insurance intermediaries.
There are also other institutions authorised to take action with regard to irregularities in the activity of insurance distribution reported by customers, including: the Office of Competition and Consumer Protection, the Financial Ombudsman, and consumer organisations.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
There is wide range of provisions contained in the Insurance Law, the Civil Code as well as in the Act of 16 February 2007 on the protection of competition and consumers that apply to consumer (i.e. retail customer) policies. Additional requirements are set out by the KNF in its guidelines and recommendations regarding insurance distribution, bancassurance, product adequacy and product management system that introduce a number of obligations for insurance undertakings and intermediaries aimed at protecting customers (including consumers).
As a rule, all of the terms and conditions of insurance should be written in a transparent and unequivocal way. Any discrepancies or uncertainties are interpreted in favour of the customer (whether it is a consumer or not). There is a list of specific information that must be included both in the pre-contractual information as well as in the insurance policy and the terms and conditions of insurance.
Moreover, any unfair clauses in consumer contracts (i.e. ones that put the consumer in a worse position than that of the insurance provider) are forbidden. If such clauses are included in the terms and conditions of an insurance contract, which has not been negotiated individually with the consumer, such clauses are null and void.
More restrictions apply in respect of insurance-based investment products. According to the new Insurance Distribution Law insurance intermediaries and insurance undertakings that advise on, or sell, insurance-based investment products to consumers, should possess an appropriate level of knowledge and competence in relation to the products offered. They should assess the consumer's needs and offer a product that fits those needs.
Are the courts adept at handling complex commercial claims?
The courts in Poland are generally well-equipped to handle complex commercial disputes, although this much depends on the individual profile of the judge and the case management technique he/she decides to adopt.
The parties involved should bear in mind that:
- all evidence should be filed together with the statement of claim/statement of defence; the judge may be unwilling to accept evidence filed at a later stage of the proceedings (unless it was not possible or necessary to file it earlier);
- there are no written witness statements - witnesses must testify orally;
- typically hearings are split into several sessions at intervals ranging from a few to several months;
- there are separate court divisions for commercial disputes; and
- in order to rule on any technical or non-legal aspects of a dispute, judges typically appoint an independent expert or experts.
Is alternative dispute resolution well established in the jurisdiction?
Alternative dispute resolution in Poland has developed quite well in recent years. In the case of a dispute with an insurer the customer may seek assistance out of court in a number of ways.
Firstly, the customer may submit a complaint directly to the insurer with respect to a service it provides or a product it offers. The insurer is obliged to reply to the complaint without undue delay but not later than within 30 days from the receipt of the complaint or, in particularly complicated cases, within a deadline not exceeding 60 days from the receipt of the complaint.
Secondly, advice on disputes with a financial service provider such as an insurer can be obtained from the Financial Ombudsman and municipal or district consumer ombudsmen or non-governmental consumer organisations such as the Consumer Federation and the Polish Consumer Association. They provide advice free of charge, offer legal information on consumer protection, intervene on behalf of consumers and/or help them take legal action.
The Financial Ombudsman handles complaints and individual submissions in the case of complaints dismissed by a financial service provider, and may take legal action on behalf of a consumer.
There is also an Arbitration Court at the KNF to which the parties (if both agree to this) may submit their dispute regarding an insurance service or product for resolution.
What are the primary challenges to new market entrants?
The Polish insurance market is highly regulated. Some segments of insurance activity are even overregulated. The insurance regulations are dispersed in a number of legal acts, and overlap in a number of cases, which makes it difficult to apply them.
The legal environment is rapidly changing. The implementation of the new regulations, including those based on EU laws (such as IDD, General Data Protection Regulation, PSD II), will be quite challenging in the coming months.
On the investment side, one of the challenges for new market entrants may be the relatively low financial awareness of the majority of Polish society. This leads to a low level of insurance sales and, in turn, prevents insurers from applying lower prices. Nevertheless, in some segments, strong price competition can be observed.
At the same time, despite these challenges, the Polish market is relatively secure for insurers. Most of them have survived the financial crisis quite well. According to a market analysis all companies, including new entrants, need to look for new niches and increase the quality of their products as well as focus on customer needs. Therefore, there is room for development.
To what extent is the market being challenged by digital innovation?
Digital innovation is becoming more and more important on the Polish insurance market. Distribution of insurance is also becoming more multichannel. Internet and mobile applications have gained increasing market share, especially in the segment of standard products. Innovative tools are helping insurers and insurance intermediaries to analyse their customers' needs and are being used to assess the probability of insurance events (insurance mathematics).
Nevertheless, when compared to other European jurisdictions, the Polish insurance market is still quite undeveloped in terms of the use of digitalisation and digitisation. Some regulatory barriers still prevent Polish insurance companies from offering insurance protection or providing ongoing services to insured persons by means of electronic communication only. This is opposite to the banking market which is highly digitalised.
The main obstacle to the development of the digitisation of insurance services stems from the law. For example, there is the need to obtain written consents from customers at key moments related to insurance coverage. This also applies to written declarations and written consents to access medical data for the payment of benefits.
However, Polish insurers as well as the regulator are becoming more and more aware of this weakness. Many new initiatives and discussion forums have been developed recently with a view to adapt the insurance market to current trends and expectations of policyholders, who want to be able to acquire insurance services using electronic communication.
Therefore, the digitalisation of the insurance market in Poland is one of the key opportunities for the next few years.
Over the next five years what type of business do you see taking a market lead?
Observing current trends on the Polish insurance market shows that the most important challenges in the insurance industry for the next 5 years will be, among other things, adaptation to many new regulations (as noted above: IDD, General Data Protection Regulation, PSD II), progressive automation of the industry, emphasis on a more individual approach to the customer, building customer confidence and professionalisation of the services offered.
For the past several years, the approach of insurers in Poland was focused on building market share (sales' volume) rather than on the quality of the product. However, competition, customer awareness and knowledge are increasing. This is forced by the changes in the law (both at the EU and the Polish level), the KNF's approach and the activity of consumer organisations. This means that insurers are under pressure to implement new ideas, innovations and offer more specialised products dedicated to specific groups of recipients with lower prices. Competition between insurers and insurance intermediaries will force them to focus more on the quality of their offer with a wider range of specialised products, which will be better adapted to customer needs. Generally, market players are expected to pay more attention to their reputation and take more care of the image of the whole insurance industry.
Furthermore, with an aging and wealthier population one of the presumed trends for the future will also be the development of a range of health insurance or pension products, which at the moment are still undeveloped in Poland.