Over 12 months, average prices for Poland’s mandatory motor third-party liability (MTPL) insurance have shot up by about 47%. S&P Global Ratings attributes part of this spike in policy prices to the rising cost of bodily injury compensation claims in Poland over recent years. Polish motor insurers have also seen fierce competition and inflation in spare parts claims.
A 2008 change in the civil code, combined with subsequent developments in case law, has meant that Polish insurers are facing a material increase of new claims relating to policies written before 2008, which were priced to reflect the then-current claims regime. We expect the burden of compensating legacy claimants from this period to prevail, but to gradually dissipate over the next 10 years.
The effect has been exacerbated because historically, claims in bodily injury cases have been lower than those in more developed markets, such as Germany, France, Italy, or the Czech Republic. Case law practice in Poland is also still developing and in the past few years bodily injury settlements have become more frequent and unpredictable, making them harder to manage for insurers.
The Polish Financial Oversight Commission, which supervises financial institutions operating in the country (Komisja Nadzoru Finansowego; KNF), also published recommendations on the principles of servicing bodily injury claims in 2016. Although this will increase the cost of meeting these claims, the regulator’s intervention may also improve predictability.
We view product risk in Poland’s P/C insurance sector as moderate, which makes it a neutral factor in our insurance industry and country risk assessment (IICRA). This is in line with product risk in some more-developed insurance markets, such as those in Germany, France, Italy, or Czech Republic. The key difference is that individual bodily injury claims in Poland have historically been lower than in other markets. Average bodily injury claims in 2016 were about 26% of total MTPL claims.
Over the past few years, claims settlement risk has risen. We chiefly attribute this to Poland’s still-developing case law, which has increased uncertainty around bodily injury settlements, making it more difficult for insurance companies to manage these risks. Since 2014, the unpredictable claims settlements and higher frequency of bodily injury claims has started to weigh on the performance of the Polish insurance sector. In addition, uncertainty regarding the legal framework has increased the sector’s vulnerability. These factors could lead us to revise down our view of product risk if they persist at a level that sustainably affects the industry’s operating performance.
