On March 31, 2016 the Financial Ombudsman presented the second Report on unit-linked products. Beinsured could not miss this important event.
The latest report covers the analysis of these products, especially in terms of respecting the consumers’ rights and fair practices in the distribution and the nature of these insurance products. The report aims to summarize the actions taken so far by regulators against defects of the so called “investment policies” and the assistance provided by the Ombudsman for consumers lodging complaints as to the terms of the unit-linked products.
The first Report on investment policies was issued in December 2012. As a result of the enormous amount of consumer complaints against unit-linked insurance products, the Ombudsman decided to take a look at these offers. The first Report mainly focused on the analysis and the development of the characteristics of the products themselves. In the opinion of the Ombudsman the first Report had some effects. First of all, it aroused the interest of the public opinion and other bodies striving the rights of consumers are respected. In particular, the President of the Office of Competition and Consumer Protection (UOKiK) noted the Report and closely examined the rules and circumstances of the investment policies. On the basis of this Report there have been some regulations introduced, such as the U Recommendation on bancassurance issued by the Polish Financial Supervision Authority (KNF). The FSA has also implemented control activities in respect of this type of insurance products. Some new regulations on the unit-linked products were also introduced in the new Act on insurance and reinsurance activity. The insurance companies themselves have taken up to self-regulate in this regard. Another effect after the publication of the Report was a significant increase in the number of complaints lodged by consumers against products analysed in the Report. According to statistics of the Ombudsman in the period of 2013-2015 consumers submitted more than 3 700 complaints, for comparison, in 2010 there were only 103.
In the opinion of the Financial Ombudsman the new recommendations and regulations have not proved effective, and thus de facto the problem is not resolved, especially in the case of unit-linked insurance contracts, which were concluded backwards, i.e. before the date of the new regulation entered into force. According to the Ombudsman, the problem of investment policies still affects many people. According to Ombudsman’s estimates investment policies, which are not covered by the regulatory activities of the President of the UOKiK, constitute 2/3 of all of the investment policies concluded. On the other hand, the insurance companies have neglected the process of making the necessary changes in their products. 17 insurance companies reached an agreement with the President of the UOKiK on the reduction of surrender fees. However, despite the broad activities of the President of the UOKiK consumers still incur damage and losses due to these products.
According to the Ombudsman crucial is the question whether the customer is able to gain benefit from this type of product, especially if in case of low interest rates. Well, the authors of the Report respond that in the case of unit-linked life insurance products we are dealing only with investment product in which the word “insurance” is only an argument for the distribution of these products by insurance companies. According to the analysis, the profits of holders of such policies are minimal or even none, by taking into account numerous fees and other costs that are associated with these products, as well as the overall macroeconomic situation.
The authors of Report, basing on data collected from consumers and court judgments, pointed out the shortcomings in the sale of investment policies. The Report listed abuses such as grossly high commissions for insurance agents, the phenomenon of missselling.
The Financial Ombudsman mentions in its Report suggestions for persons who feel adversely affected by the unit-linked products. First of all, they were offered contact with the Ombudsman – telephone shifts, e-mails, or the submission of written complaints. In view of the growing disputes of the injured parties with insurance companies the Insurance Ombudsman established a department of non-judicial proceedings. Insurance companies are obliged to join the mediation organized by the Financial Ombudsman under the request of the consumer. Within 3 months of 2016, 12 mediations have been initiated, and according to estimates, there are approx.. 20 mediation requests lodged per week. The regulations in this regard are quite detailed, so the verification of applications for commencement of the mediation procedure is time-consuming and requires a great deal of work, and the timing as of receipt of application to commencement of mediation is extended.
Another initiative undertaken by the Financial Ombudsman is participation in court proceedings by presenting a significant opinion. In 2015 the Ombudsman issued 116 opinions on issues concerning life insurance unit-linked products. In addition, the Ombudsman boasts that more than 80% of cases in which it has issued an important opinion, ended up by acknowledging the consumer’s action against the insurance company.
The Report also includes an analysis of court proceedings initiated by consumers against insurance companies. As determined the authors of the Report, the plaintiffs most commonly base their actions on arguments regarding the abusive clauses in contractual provisions. In addition, there are arguments of no links between the costs actually incurred by insurance companies and the amounts deducted, and of no grounds to charge customers with the costs associated with the execution, operation and termination of the insurance agreement.
Poland is not an unusual event. The authors of the Report examined the actions taken by the respective regulators in other countries, including the UK and Germany. Among the practices applied by the British Financial Services Authority (FSA) there are high penalties (e.g. 2 million £), numerous meetings with representatives of insurance sector, creation of common recommendations to the practice of unit-linked insurance products. Their activities contributed to the fact that in a period of 6 years investment policies have been withdrawn from the UK market.
The Report also indicates organizations where consumers can seek help outside the institution of the Financial Ombudsman. Among them, the Ombudsman lists organizations a community group of people who collectively want to help consumers in getting out of unit-linked insurance contracts with unit-linked as well as initiatives affecting the regulators – the KNF, the UOKiK, initiating the public discussion. There are also compensation companies and law offices appeared in market, specializing in actions against insurance companies in cases involving surrender fees, often employing former insurance agents.
To summarize, the Financial Ombudsman Aleksandra Wiktorow noted that the unit-linked insurance products are not products deducted to everyone because of their nature, strong appealing to sophisticated economic indicators, which cannot be known to the average consumer.
The Ombudsman concluded that in her opinion, addressees of the unit-linked insurance should be at most persons with knowledge of financial markets.
In the opinion of the Ombudsman it is unacceptable that the risk in unit-linked products is entirely on the side of the customer. The Ombudsman recommends further regulatory works, especially in terms of defining the protective part of such products, and therefore creating a new definition of these products in accordance with their actual status – „how much insurance is in these insurance”. In addition, the Ombudsman will seek to introduce changes in the Civil Code regarding the rules on insurance on another person’s account, which still does not regulate many aspects of these products.
That is what results from the official presentation of the Report. How are thesis presented by the Financial Ombudsman true? In part probably yes, but certainly it is worth to take a closer look at the contents of the Report, what we of course will do immediately, and will share our conclusions at the pages of Beinsured.
The Report is available on the official website of the Financial Ombudsman at: