Tomasz Mintoft-Czyż
President, Polish Insurance & Reinsurance Brokers’ Association
Secretary General of the European Federation of Insurance Intermediaries BIPAR

Polish Insurance & Reinsurance Brokers’ Association
Address: Al. Jana Pawa II No. 34, 00-141 Warsaw, Poland
tel:  (+48) 22 620 90 22; fax: (+48) 22 826 71 18

Role of Intermediaries in the Development of Insurance Market in Poland

Insurance mediation is considered an important activity for the development of insurance markets and for the benefit of the consumers and buyers of insurance products. Experience of the most developed insurance markets proves that in the countries which provided most favorable conditions for the activities of independent intermediaries insurance business is the strongest, the markets are most competitive and the consumers receive the best products on the best financial conditions.

A. Legal background

EU Level
• The directive 2002/92/EC of the European Parliament and of the Council dated 9th December 2002 (IMD):
“insurance intermediaries play a central role in the distribution of insurance and reinsurance products in the Community”.

• The IMD defines insurance mediation as “the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim” (activity based approach).

The two most essential principles on which the directive is founded are:
1. protection of the consumers
2. creation of a level playing field for all persons, natural or legal, engaged in the business of insurance mediation

Local level - Poland
• Act on Insurance Mediation May 22nd 2003 contains all the main features and requirements of the IMD including registration, professional and information requirements.
• In opposition to the IMD, the non-activity based definition of insurance mediation has been preserved in the new legislation. Agents and brokers are the only two groups of intermediaries permitted to conduct insurance mediation activities in Poland.
• Possible difficulties in registration of various unnamed entities who engage in the insurance mediation incidentally or sporadically.
• Threat of different treatment by law (or by the fiscal authorities) of the various groups of intermediaries.

B. Role of the broker
In the insurance market, policies are sold through brokers or direct channels controlled by insurance companies.
• Direct distribution channels are more suitable for personal lines and small commercial risks.
• Brokers act on behalf of the insured, typically serving corporate clients with complex and large exposures. Brokers help clients determine their risk exposures, structure their insurance programs, negotiate rates, terms and conditions, and place their risks with insurers. In addition, they provide various services throughout the life of an insurance contract.

The significance of the broker distribution channel varies widely by country.
In most of the “new” Community Member States, but also in the Scandinavian countries and on some other continental markets, the demand for broker services and understanding of the role they play in the development of the market and in assisting the clients in obtaining the best terms of insurance at the lowest available price are still modest or low.

During the last two decades, the role of the broker has evolved from market-matcher to service provider to clients and insurance companies. These services include claims management and risk management services that go beyond the structuring and placement of insurance cover.
Increasingly, in recognition of many non-transactional services provided by the brokers to the marketplace, broker revenues are based on fees for services rather than solely on commissions. This trend is observed in the large and multinational corporation’s business service sector.

C. Self-governance of the Polish Brokers
• The Association of Polish Insurance and Reinsurance Brokers was founded in 1992. Today, the Association has 600 active members.
• There are now about 1000 registered broker entities in Poland. Most of them – over 80% - are one man operators. Approximately 2500 persons obtained qualifications required by law to practice broker profession.
• It is estimated that some 10%-12% of all non-life premium is generated by the brokers. In the life insurance sector this number is much lower – about 1,5%.
Main activities of the Association
In the field of legislation and taxation
• The Association took active part in the discussions leading to adoption of the rules mandating the brokers to meet special professional qualification requirements (training, examinations, PI liability insurance).
• In 1997 the Association was successful in persuading the Government officials to abolish the VAT tax on broker services.
• The Association was actively involved in all stages of the negotiations and discussions which led to the final passing of the Act on insurance mediation of May 22nd 2003 by the Parliament.
Integration of the insurance professionals
• integration of the broker community and creation of positive image of the profession are major statutory goals of the Association. This area requires a broad range of actions and initiatives in the fields of professional education, business ethics, rules of best practice. 
• Since 1998 Polish Brokers’ Association has been organizing annual meetings of the insurance professionals on national scale. Polish Broker Congresses  are  attended by more than 1200 participants each year. The attendees are brokers, underwriters – insurance companies’ board members and line managers, as well as other insurance professionals – loss adjusters, computer software specialists, engineers and the like.
• Major agreements reached at the broker congresses include Code of Ethics and the Rules of Best Practice – defining standards for cooperation of insurance brokers with insurance carriers.
• For the past three years the leaders of BIPAR, the European Federation of Insurance Intermediaries attended brokers’ meetings in Mikołajki. These visits were an important factor in preparing our broker community for the new concepts contained in the newest EU Directive on Insurance Mediation (IMD). They gave Polish brokers a first hand opportunity to learn how our profession is seen and treated on other European Markets.
Professional education
• Association organized a number of training sessions for brokers
• plans for the future involvement in the professional training for brokers.

International cooperation.
• Since the first year of its existence, Polish Brokers Association has been a member of BIPAR.
• The Association maintains close contacts with other national brokers’ organization, especially from our region.

D. Current problems and challenges
Professional Liability Insurance
• As of January 15, 2005 new liability limits came into force in the local regulations (€1 million per loss occurrence, €1,5 million in an annual aggregate). The cost of PI insurance became too high for many small brokers.
Transparency and conflict of interest issues
• Recent developments in the USA (Spitzer investigation) triggered a global wave of questions and doubts as to adequacy of the traditional model of broker remuneration.
• While market positioning of the broker may on occasion give grounds to fears of creating conflict of situation problem, the fact remains that the markets have not yet found any better model to replace commission system.
• Any remuneration or compensation for services of an intermediary should be considered as an issue between the parties. BIPAR opposes any legislation or regulation that would interfere in the free market determination of the remuneration / compensation of insurance intermediaries.
• a basic tenet of any competitive marketplace is access to good information to enable informed decision-making by (potential) policyholders.
• Intermediaries play an important role in making and keeping the insurance market competitive. 
• Modern legislation implemented on 15 January 2005 in all EU markets introduces new guarantees for consumer protection in the insurance sector. High norms of professionalism are imposed by law on anyone acting as an intermediary or distributing insurance.
• This new regulation also imposes a very high level of information that must be provided to the consumer when being advised or being offered insurance.
• BIPAR is convinced that the IMD will highly improve the transparency and understanding of our sector and will take away concerns of our clients and the public in general with regard to our activities.
• The only type of intermediary compensation paid by the client directly is fees. The vast majority of clients do not pay fees, and the vast majority of intermediary compensation is paid by the carriers under agreements between the carriers and the intermediary. At any rate, the entire compensation paid to an intermediary is funded by the client either through direct payments or through the client’s premium payments (commissions).

BIPAR adopted and supports the following 4 principles on remuneration:

1. Every insurance intermediary has the right to be remunerated fairly for his or her services.
2. Any remuneration or compensation for services of an intermediary should be considered as an issue between the parties.
3. Legislation or concerted market agreements (or behaviour) limiting or imposing the rate or the means of remuneration is considered by BIPAR as a serious infringement of basic free market principles and would be against international market practice.
4. Intermediaries may charge fees in addition to, in lieu of, or in combination with, commissions.  In such case, the customer should be informed.

It is noted that there might be categories of clients who will remain concerned and who may continue to be confused about the role of intermediaries, their added value or their compensation. There also may be questions about the cost structure of insurance distribution in general.  
In a sector that is based upon trust, confusion should be avoided. Brokers, underwriters and market regulators, acting in the best interest of the market development and in the interest of the consumers, should make strong efforts to explain role the intermediaries play on insurance markets and to avoid any situations in which conflict of interest may be present.
At the same time, the idea and principles ensuring continuation of existence of a fair competitive level playing field for all market participants should be promoted.