Last week on beinsured we promised more information on the latest KNF’s recommendations. We keep our word, and from today in the following issues of beinsured magazine and on our webpage, we will present reviews of each recommendation, starting with the assessment of product’s adequacy (“Recommendations”).
It would have been a good start to shed some light on origins of Recommendations – why were they introduced. As stated by KNF in the introduction to the Recommendations – products offered by insurance companies that Recommendations aim at – i.e. insurance investment products – can often be distinguished by their very complex nature. As a rule, they do not provide a capital or profit guarantee. The lack of an adequate information policy of insurance companies or insurance agents acting on their behalf, along with complexity of these products results in a situation where clients are not always aware of what kind of contract they have concluded, what are the risks associated with it, what are their obligations and under which conditions they can obtain benefits under the contract. In particular, clients of insurance companies are not always conscious of the investment risk associated with the possibility of obtaining smaller profits than forecasted or even of losing a part or all of invested resources.
It happens that offered products are not fit for clients need’s and their financial capabilities. This is why Financial Supervisory Commission prepared Recommendations, which are aimed at increasing the level of protection of those interested in concluding this kind of agreement, or – in the case of insurance contracts on another person’ s account – in joining the insurance agreement as the insured party.
As life insurance investment products are concerned, in insurance contracts on another person’s account – the Recommendation must be applied towards the insured party. In such case, insurance companies must fulfill their obligations before insured person makes a declaration on joining the insurance agreement.
The Recommendations are addressed to both domestic and foreign insurance companies carrying out insurance activity on the territory of Poland. The supervisory authority requires that foreign insurance companies from EU member states, operating in Poland in a form of a branch or under freedom of services principles will implement Recommendations from 5 to 18.
Recomendations are introduced based on „comply or explain” principle. It means that these insurance companies, which do not plan to comply with the contents of the Recommendation, are obliged under art. 365 point. 5 of the act on insurance and reinsurance activity to inform the supervisory authority of this fact. At the same time, in such case insurance companies should provide the supervisory authority with an explanation on how they plan to obtain objectives, for the realization of which the Recommendation was introduced. In Practice, the “Comply or explain” rule allows the insurance companies to apply their own rules and procedures aimed at addressing clients’ needs and offering adequate products, regardless of KNF expectations in this matter.
Time will tell, how this rule will be interpreted by KNF and if “explain” de facto means – do everything in order to apply the Recommendation directly. Many questions can be also raised regarding the relation between the contents of Recommendation and the provisions of the new act on insurance and reinsurance activity, which provides separate regulations on the assessment of client’s needs. This problem will be discussed in detail in the following days.
The supervisory authority expects that Recommendations will be implemented by insurance companies not later than 1st July 2016. As insurance contracts on another person’ s account which were concluded before 1st July 2016 are concerned – Recommendations apply to those who apply for insurance or join the agreement after that date.