Rise of the Polish insurance market over the last decade.

In terms of insurance market reform and transformation, Poland is a leader among Eastern European countries. Since the insurance law was passed in 1990 and secondary regulations were published, Poland has been recognised as the most modern insurance market in Central Europe. During the last few years, the insurance sector has been undergoing a tremendous transformation from a centralised and monopolistic system into a liberalised one. In particular, the country's ambitions for European Union (EU) membership forced the Ministry of Finance to initiate an overall reform of the Polish insurance system in order to develop a contemporary insurance market. As a result, the insurance market regulations largely correspond to the system that is in force across the EU.

Certain key issues have served as the basis for the restructuring of the insurance sector:

  • opening the insurance market to new Polish and foreign insurers;
  • further market liberalisation based on the principle of mutuality towards other countries;
  • abolition of statutory insurance;
  • introduction of the solvency margin and guarantee capital as indicators of proper financial economy of the insurer;
  • establishing a guarantee fund, protecting the interests of victims of accidents covered by compulsory insurance;
  • setting up the insured persons' protection fund, protecting the policyholders in the case of the insurer's bankruptcy;
  • introduction of the prohibition to conduct simultaneously both life and non-life business;
  • introduction of mutual insurance companies;
  • limiting the form of insurance business to joint-stock and mutual companies; and
  • limiting economic activity in the insurance sector to insurance or insurance-related business.

    The most important insurance regulation is the Law of 28 July 1990 with further amendments. The law's key provisions included de-monopolisation of the insurance market, creation of general principles of starting and conducting insurance business in insurance of persons and property, and separation of life and non-life insurance sectors. Setting up a foreign branch office is subject to the same licensing process that Polish insurance companies follow. Only insurers from countries in which Polish insurance companies can operate are allowed to enter the Polish market (applicable to WTO, OECD and EU countries, as well as to all countries with which Poland has a trade exchange agreement).

    Market structure
    The Polish insurance market consists of insurance companies, insurance intermediates and co-operating institutions.

    Insurance companies can be divided into life and non-life insurers (based on the regulatory basis); joint-stock companies, mutual insurance companies and branches of foreign companies (based on the organisational basis); with foreign and domestic capital (based on the capital origin); and private and public (based on the ownership structure).

    Under the Polish insurance law, there are two types of service providers, brokers and agents. The law defines a broker as a specific insurance intermediary who executes and concludes insurance agreements on behalf of the insurer. By contrast, an agent is a physical person, a legal person or an entity not having a legal status who is authorised by the insurance company to conclude agreements on behalf of that company or to intermediate in concluding agreements.

    Currently, there are two institutions responsible for the supervision of the insurance sector: the Ministry of Finance and the State Office for Insurance Supervision (PUNU). The Ministry of Finance is responsible for: granting licenses for insurance companies; approving foreign investments in existing insurance companies or acquisitions involving a purchase of more than 15% of shares; licensing brokers; and generally supervising the insurance sector. The PUNU performs the supervision functions for the sector's company activities, and can intervene in cases when there is a question of improper or non-ethical functioning of the insurance market.

    The license process requires that a proposed new insurer makes a deposit in a Polish bank that will be used as a guarantee for future liabilities.

    The minimum amount of this deposit must be equal to half of the minimum guarantee capital. The foreign representative will not get a license if ‘the national economic interest will be danger' or ‘the foreign insurer will not give the proper warranty of running the insurance activity in Poland'. Foreign insurers are required to keep the necessary operating capital needed to cover their insurance liabilities within the country, and capital assets held in Poland must not be less than the predefined solvency margin.

    According to a new insurance law, which has been prepared by Polish government and is currently reviewed by the Polish parliament, a new Insurance Supervision Commission, KNU, will be created to perform both licensing and supervision activities. The new law is expected to come into force in the middle of next year.

    The Insurance Ombudsman is a separate institution appointed by the Finance Minister for a four-year term of office. His responsibilities include representation and protection of policyholder interests, preparation of draft normative acts, and training and information activities.

    Market profile
    Poland is the biggest insurance market in Central and Eastern Europe, and according to some analysts in ten years it will be the biggest insurance market in Europe. Economic development, a decreasing level of inflation and the progressive adjustment of legal regulations to EU directives create a good climate for investment opportunities in the insurance sector. Competition from foreign investors and the move towards a fully open and free market have started a trend towards consolidation in which large banks are taking part.

    The Polish insurance market experienced unprecedented growth between 1995 and 2000, more than tripling in volume. Increasing demand for insurance products, particularly in the life insurance segment, is due to a growing concern about the poor state of the Polish pension and health systems, and a growing understanding of the role of insurance services in society. Nevertheless, Poland is an under-subscribed insurance market. The average Pole spends only $80 on insurance, of which only 32% goes to life insurance, and only around 10% of the Polish population subscribes to life insurance policies.

    There were 69 licensed insurance companies in Poland in 2000, of which 35 in the life insurance sector. The share of foreign capital in the total capital of basic insurance companies amounted to more than 50% in 2000.

    In total, 50 insurance companies were supported by foreign capital, while 42 were majority-owned by overseas capital (23 in life business and 19 in non-life). Of the ten leading life insurance companies, nine are foreign-owned, as are seven of the ten leading non-life insurance companies.

    Major foreign insurance companies present in Poland include Allianz (Germany), Winterthur (Switzerland), Zurich Group (Switzerland), Nationale-Nederlanden (Dutch), Commercial Union (Great Britain), Amplico (US), Cigna and Prumerica (100% owned by Prudential).

    After a boom in insurance sector development in the second half of the 1990s, it has finally began to stabilize. The total income from insurance activity in 2000 was $5bn, 15.1% up on the previous year. The sector collected $4.8bn in premiums in 2000 (an increase of 12.4% from 1999).

    The non-life insurance segment reported better results in 2000 than life business, although the life insurance segment developed at a faster rate. Premium income for non-life business reached $2.86bn during 2000, an increase of 8.2% on 1999, compared to $1.9bn for the life sector (20.1% up on 1999). Foreign investments in the sector in 2000 increased by 52.5% compared with 1999.

    The net financial result of the sector was $152m (21 companies reported a net profit, while 44 firms reported losses). Life business showed a positive financial result of $69m, while non-life reported $83m profit.

    The five leading insurance companies, when measured in gross premiums written, represented 74% of the market in 2000; for life business this shot up to 93%. The leading companies in the life sector are: PZU Zycie (52.8% market share), Commercial Union (19.5%), Nationale- Nederlanden (10.1%), Amplico Life (10%) and Allianz Zycie (1.1%).

    In the non-life sector, the leaders were: PZU (57.1%), Warta (11.7%), Ergo Hestia (4.6%), Allianz (3.7%) and Daewoo (3.4%).

    PZU S.A. (Powszechny Zaklad Ubezpieczen) still dominates the Polish market with about a 57% market share. Its total premium income, both life and non-life, for 2000 came to more than $2.6bn. PZU previously was a monopoly company for life and non-life insurance, forming an integral part of the state administration during the communist economy in Poland. In 1999, PZU was privatised and 30% of company shares were sold to the consortium of pan-European insurance group Eureko (20%) and BIG Bank Gdansk (10%). According to its latest privatisation plans, the Ministry of State Treasury intends to sell an additional 50% of the company's shares through a public offering at the end of 2001 or the first quarter of 2002.

    Pension insurance system
    As of April 1999, the government of Poland introduced a new multi-pillar pension insurance system. The pension benefits system consists of three pillars: reforming ZUS (State Social Insurance Agency); regional pension funds; and private pension insurance funds in private sector companies.

    Participation in the first and second pension is mandatory. The first pillar is state-managed, while the second and the third are privately managed and overseen by the Pension Fund Supervision Office, UNFE. The government guarantees a minimum pension for participants who meet the requirements.

    The first pillar is managed by ZUS and funded on pay as you go basis, though pension benefits are linked to individuals' contributions. The second pension pillar is privately managed by universal pension fund societies, each of which manages an open pension fund, though assets are held by a custodian bank. An employee has the right to choose a particular universal pension fund based on performance or service. Many leading insurance companies have created their open pension funds. The third pension pillar creates voluntary Employee Pension Schemes or Programs and other voluntary savings arrangements. The Act of 25 June 1997 on Employee Pension Programs allows four options for employee pension programs: a group insurance contract with a life insurance provider; a mutual insurance plan; pension funds; and trust funds. Employees may choose whether or not to participate in a voluntary pension program.

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