Aspects of the implementation of insurance rules and ensuring insurance supervision after enlargement

1
Aspects of the implementation of insurance rules
and ensuring insurance supervision after
enlargement

• Marcin Kawinski
• The Insurance Ombudsman Office Poland

Seminar on Financial Services (INT MARKT 20590 )
Sofia, 14-16 September 2005
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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

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The Insurance Ombudsmans 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.

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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

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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.
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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
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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 lt 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
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Road to accession

• Amendment of Act of 28 July 1990 on Insurance
  Activity
• Regulations for branch of foreign insurance
  company
• Obligation
• Principle of mutuality
• New definitions some of security norms

1990
1995
1998
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Road to accession

• Amendment 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
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Missing elements

• full freedom of cross-border services
• single license
• supplementary supervision of insurance
  undertakings in insurance group
• insurance intermediares
• third party liability insurance

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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
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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

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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

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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)

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Polish regulation concerning insolvency

• Indicators
• Mechanisms
• Institutions

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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

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Polish regulation concerning insolvency -
mechanisms

• own funds gt solvency margin
• solvency margin gt own funds gt guarantee fund
• guarantee fund gt own funds

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Polish regulation concerning insolvency
institutions

• Insurance and Pension Funds Supervisory
  Commission
• The Insurance Guarantee Fund

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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

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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.

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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.

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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 informations required by
  such bodies to perform their statutory duties in
  the field of supervision (article 16 Act on
  insurance supervision and Insurance Ombudsman)

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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) 

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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)

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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) 

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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)

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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.

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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

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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.

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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.

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Expanses of the Fund (in PLN)
II. Expanses of the Fund (in PLN)
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Problems?

• No insolvency no cry
• Polish case

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Polish market overview life insurance

• Premium
• Concentration
• Products

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Polish market overview premium
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Polish market overview products
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Polish market overview products
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Polish market overview insurance agents
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Potential problems

• Macroeconomic situation
• New products

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Macroeconomic situation

• Capital market
• Technical rate

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Capital market - structure of assets covering
technical provisions
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Capital market - structure of assets covering
technical provisions
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Capital market - structure of insurance
companies' investments by place and maturity dates
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New products

• Old data
• No data

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Insolvency before and after the accesion

• Cases
• Causes
• Effects
• Conclusions

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Old regulation What went wrong?

• Dumping
• Illegal investment
• Risky business

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Real problems

• Market situation
• Main products
• Others

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Polish market overview non-life insurance

• Premium
• Concetration
• Products
• Profits

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Polish market overview non-life insurance
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Polish market overview non-life insurance
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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

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Would new ragulation had helped?
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Others problems

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

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Thank You

• Marcin Kawinski
• m.kawinski_at_rzu.gov.pl