Jan Monkiewicz

Developments in the regulation and supervision of the Polish insurance market (1990-2005)

 The contemporary Polish insurance market goes back to 1990 when the first modern insurance law based on the first and second EU coordination directives were adopted. Until that time insurance was a part of the state monopoly and insurance activity was covered only by two companies: PZU (for local business) and Warta (for export related business). Supervision, ownership and regulation were all concentrated in the hands of the Ministry of Finance. Assets of the insurance companies were by law deposited with the central bank of Poland and much of  the insurance business was placed under compulsory insurance lines.
 The new law of 1990 introduced really revolutionary changes: The state monopoly was dismantled, principal prudential regulations were installed (licensing, capital requirements, technical provisions, separation of life and now - life etc), a supervisory function was separated from among other duties of the state and policyholder protection was introduced.
 In subsequent years this principal building blocks remained unchanged however were continuously upgraded and modernized. The last touch was happened at Polish EU accession. /Law of 22 nd May 2003/. The new regulation that was adopted aimed at:
- opening of the insurance market for EU undertakings
- strengthening of the prudential requirements
- reinforcing the direct consumer protection
- strengthening of the supervisory powers .
Parallel to the regulatory developments the market  witnessed the evolution of the supervisory model, supervisory principles and policies. The insurance supervision organizationally independent from MoF since 1995 and merged with pension funds supervisor in 2002 is a part of the “supervisory troika” (banking supervision, securities market supervision and insurance and pension funds supervision) existing in Poland. Since 2004 it is no longer split between KNUiFE and MoF since all supervisory duties  have been transferred from MoF to KNUiFE.
KNUiFE authorizes and licences institutions and people, carries out inspections and off site supervision as well as is responsible for the enforcement and sanctions. Its decisions are subject to the court control. 
 Implementing its supervisory functions the Commission is faced with a number of  challenges.
Supervised institutions – I.e. insurance and pension – are extremely young. Apart from PZU and Warta – the two dinosaurs of the Polish insurance industry – most of the remaining 70 insurance  companies are less than 15 years old. Therefore their shareholders, management structures, corporate values and internal procedures are still far from stabilization. Their local business experience is also quite limited. Hence the supervision is confronted frequently with erratic changes, resulting from random factors. To understand them on site inspections must be used. Maturing of the industry will inevitably change the situation. The same is true with regard to the pension companies which were set up only about four years ago. Currently there are 15 mandatory pension funds and about 600 voluntary pension plans.
 Insurance and Pension Funds Supervisory Commission needs to monitor these development, try to understand, modify and if necessary take appropriate actions. Therefore the supervisory agency becomes also actively involved in the search for new investors.
 Polish insurance and pensions industries are heavily dependant on foreign shareholders which control over 80% of assets. In many cases these shareholders are large international groups applying specific management structures and styles that create some problems for the transparent corporate governance.
 In particular we face in many cases the process of weakening the position and responsibilities of the management board to the benefit of the supervisory board or even sometimes to some executive centers outside the jurisdiction. 
The supervisory agency hence misses its principal partner – the management board – and is faced with the necessity of building up new communicat6ion channels. It certainly also justifies the demands for more influence of supervisory agency on the quality of staffing of supervisory boards. In the recent proposal for the new insurance law this issue is given important attention and Insurance and Pension Supervisory Commission is expected not only to authorize the qualifications of the management boards members but also of the supervisory boards.
 Another  challenge  facing  Commission  is  a  rapid  development  of outsourcing  operations. It raises an important practical questions as to what extent – if at all – outsourced organizations should be monitored, controlled and inspected by the Commission. Should the Commission restrict its attention to the insurance and pension companies or go beyond them?  
 To be more efficient supervisory agency cannot act alone. It should always make use of the services of the external institutions . This is sometimes used as a criteria for defining supervisory regimes which by and large should be consistent with the accounting and actuarial standards as well as industry practices. Important role is also played by the experience and skills of the management of the companies and the supporting infrastructure of advisors to the insurance industry.
The external institutions which are most relevant include auditors, accountants, industry associations, policyholder protection arrangements, capital markets system banking system and actuaries.
 The better the development of this “technical infrastructure” the more efficient and the more focused operation of the supervision which could rely to a substantial degree on the work of other professionals.