Damian JAWORSKI
Director, Analyses and International Cooperation Department
Polish Financial Supervision Authority

XPRIMM: How would you describe the current state of development of the Polish insurance market?
Damian JAWORSKI:
The level of penetration and insurance density in Poland is about 3% - which is much below the world average. The average expenses on insurance products in Poland are 5 times lower than of the average European Union resident. In this sense one can say that the Polish market is still developing and highly dependent on the welfare of the society.


Due to the size of the country the Polish insurance market has a leading position in Central and Eastern Europe with 44% share in total premium of the region. Poland is classified in the middle of the scale of UE markets - ranked 12th in the EU with a 1.2% share in terms of gross written premium. In absolute terms gross written premium exceeded EUR 13 bn. in 2015, with more or less equal share of life and non-life business. Comparing with previous year results the Polish insurance market entered into a slight stagnation period.

XPRIMM: What are the main challenges the insurers in Poland are facing?
D.J.:
The key challenge is still misselling. There are still pending issues relating to insurance premium adequacy, especially in the motor insurance resulting in particular from compensation as a result of bodily injury and high pricing competition among insurance companies.

Last but not least implementation of Solvency II requires a lot of efforts in preparing the KNF as well as all market participants. It is not so much a pressure point, but rather an organizational challenge.

XPRIMM: January 1st, 2016 has market the introduction of the Solvency II all across the European Union. What is the current status of implementing this Directive into the national legislation in Poland?
D.J.:
Transposition is completed. The relevant Polish legislation was amended and published in November 2015.

XPRIMM: Consumer protection is becoming more and more important for all national competent authorities in Europe. What efforts have been made in this regard?
D.J.:
It is an issue of significant importance in Poland and a subject of due care of more authorities than just the KNF. From our perspective we believe that consumer protection becomes more efficient when it is focused on the origins of problems. Thus the KNF issues guidelines regulating internal processes of insurers. In April 2015 the KNF adopted guidelines on motor claims handling. Although these guidelines are non-binding I am happy to say that they are observed nevertheless and they give insurers a push to take a turn for more client-friendly practices. The law was recently changed and starting from 2016 KNF can officially issue recommendations for insurers. A week ago KNF has issued recommendations on product management and examining suitability and appropriateness of insurance products.

XPRIMM: What tools are used by KNF in order to monitor the level of consumer satisfaction on the insurance market?
D.J.:
Our primary source of information are clients' complaints. Sometimes even a single letter can indicate a serious problem concerning a particular insurance company. All complaints are analysed and adequate actions are take. For instance, the risk assessment framework includes this factor in scoring the company.

XPRIMM: How many cases of non-Polish companies interested in operating on the Polish market have you had so far and what are the consequences of their actions upon the market and the consumers?
D.J.:
Irrespective of a still significant share of PZU in the Polish insurance market, its large part is dominated by subsidiaries and branches of foreign companies. Currently 59,49% of the market in life and 81,94% in non-life is represented by foreign capital. In absolute terms there are 20 life and 23 non-life insurance companies with foreign capital authorised in Poland. From my personal perspective foreign investments stimulated market development and competition in the market as well as providing necessary stimulus for growth to our local companies. There are substantial differences between local markets in the EU. The Polish one has been developing in its own way and foreign companies have been contributing to its development rather than changing it in any particular way. From the consumers' as well as supervisory perspective there are challenges which relate mainly to cross-border business.

XPRIMM: The claims ratio for mandatory third party liability insurance has been challenging for a number of CEE insurance markets. Is this an issue in Poland and if so, how has the KNF reacted so far and what is the outlook for the years to come.
D.J.:
Bearing in mind the adverse results in the compulsory motor insurance in the years 2014-2015 KNF decided to conduct a study of the adequacy of the premiums in motor insurance (MTPL and casco). In 2015 KNF presented its position highlighting to the insurance companies the need to take a series of measures ensuring that the calculation of insurance premiums is done correctly and that sales process must be improved. In relation to 6 insurance companies KNF initiated proceedings to impose a fine due to the determination of premiums in violation of the law, namely the premiums were insufficient to cover all anticipated obligations and costs arising from insurance contracts. In the first quarter of 2016 KNF again asked the undertakings to present the status of implementation of actions improving the adequacy of premiums and determine the date of bringing viability of these lines of business.

KNF activities are aimed at achieving the correct determination of the insurance premium at the level that covers the risks involved and the operating costs which in turn would improve the loss ratios and profitability in the motor insurance.

XPRIMM: There have been some debates in Romania about the introduction of a direct compensation scheme for MTPL insurances. Poland is often given as a positive example in this regard. Could you please explain how this systems works in Poland? How satisfied are you with the results so far?
D.J.:
This system has been introduced in Poland on a voluntary basis as a market driven initiative. In this sense it is a very positive sign of cooperation among insurance companies in Poland. Still until now not all companies joined it.

The main identified advantages of the DCS are the acceleration of the loss adjustment process, the decrease of the loss adjustment costs because mutual settlements between insurance undertakings prevent them from inflating costs, the decrease in the number of fraudulent claims and improvement of the image of the insurers. Moreover policyholders also benefit from receiving adequate compensation, increasing the quality of customer service and the lack of necessity to determine the perpetrator. As a consequence the number of clients' claims and lawsuits against insurers decreases.

The recent data show that more than 60% of clients determine the choice of insures on whether or not they offer DCS.

XPRIMM: What are the main catastrophic risks that affect Poland and what is your proposal (or the markets') for mitigating and/or transferring them?
D.J.:
The main catastrophic risks affecting Poland have their source in forces of nature. The most common one and with potentially wides impact is flood risk. Other catastrophic risks concern man-made disasters such as transportation or construction accidents.

The main risk mitigation technique is outward reinsurance, mainly non-proportional one. In cases of significant single events polish companies use facultative reinsurance.

XPRIMM: Insurance companies in Poland have been rumoured to be interested in further expanding their presence within the CEE region. What are your comments on this?
D.J.:
The Polish insurance companies have been operating within the CEE region for some time now. At first this has been done through branches. Similarly to some of the foreign companies operating in Poland, in time, with growing size of operations these companies decided to incorporate their branches into companies under the local law and subject to local supervision. In addition to that our companies do seek new investment opportunities. From our perspective we care about them doing so in a manner that does not exceed their financial capacities. We also cooperate closely with our partners from other EU countries to make sure that their operations are up to their expectations and in line with local market specificities.

XPRIMM: Financial education is a key issue in many markets. What efforts has KNF made in this direction?
D.J.:
In order to fulfil its statutory task which include popularising knowledge of the financial markets, since 2009 KNF has been developing its Educational Centre for Market Participants (called CEDUR), under which it organises trainings and publishes many educational materials. Last year KNF held more than 100 seminars and training workshops, which were addressed mainly to the representatives of regulated entities from all financial market sectors, representatives of the judiciary and law enforcement agencies, teachers of Basic Entrepreneurship and Economy in Practice as well as methodologists of these subjects at upper secondary school level. These meetings were attended by nearly 9 thousand participants. Referring to publishing activities, in 2015 eleven educational brochures were published under the imprint of the KNF including 24 financial literacy class scenarios and a "financial guidebook" for seniors. In 2015 KNF initiated a new programme called "Let's talk about finance" dedicated to primary and secondary school pupils offering financial education workshop/lectures, publishing activities. We have also launched a the competition for the best short movie on financial markets.

XPRIMM: How many companies have accessed your market on the FoS and/or FoE and what are the consequences of this from the consumer protection perspective?
D.J.:
Being a Member of EU brings some challenges in this regard. Currently we have 640 companies operating under the freedom to provide services and 26 under the freedom of establishment. The presence of non-Polish insurance undertakings has an impact on the Polish insurance market, especially in terms of MTPL insurance. As a result a very strong pricing competition exists between domestic insurance companies and the non-Polish insurance companies. As a consequence the KNF receives a substantial number of complaints from customers mostly concerning problems with loss adjustment or delays in pay-outs. Very often customers are not even aware of the fact they conclude an insurance contract with the company not supervised by the KNF. This leads to many practical problems in case of any legal dispute. Additional question on the prudential side is a mismatch between the price of policies and risks arising from MTPL business.

At the same time I'm happy to take note of the fact that with the observed growth in gross written premium from FoS activity, recently in three cases the entities decided to transfer the insurance portfolio from the branch operating in Poland to domestic insurance company under direct supervision of the KNF.

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