In the insurance business, 2018 was a year in which many regulations took effect to enhance client protection and equip the regulator with powers and resources to control more effectively and enforce compliance with the established rules:
On 1 January 2018, Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) took force GLOSSARY. The Regulation requires that a key information document (KID) on an insurance-based investment product must be drawn up and provided to the client. Violations of the Regulation are punishable by severe administrative sanctions. In the solutions adopted in the Act of 29 September 2017 amending the Financial Market Supervision Act and the Insurance and Reinsurance Activity Act, which is used to apply the said regulation, the regulatory authority may impose fines in the amount up to PLN 21,569,000 or 3% of net revenues on the sale of goods and services and financial operations, and, in the case of an insurance undertakings, 3% of the gross written premiums reported in the most recent financial statements for the financial year as approved by the approving body, or twice the amount of benefits obtained or losses avoided as a result of the violation, if they can be determined.
On 3 January 2018, provisions of Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments (MiFID II) came into effect. They imposed new obligations on financial market entities in respect of, among others, protection of investors, market transparency and corporate governance. The new regulations force changes in the market infrastructure and envisage a number of new powers for the regulators.
The regulations of the MiFID II directive were entered into the national legal system by amending the Financial Instruments Trading Act, of 29 July 2005, which took effect on 21 April 2018.
On 25 May 2018, Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC also referred to as the “General Data Protection Regulation” or “GDPR”. The new regulations introduce a number of changes and broaden the scope of responsibility of data controllers and data processors. The purpose of these changes is to ensure transparency of information transmitted to the person providing the data and to govern issues related to the right to remove certain data from the database at the request of their provider. These new regulations are also intended to provide natural persons and regulatory authorities with effective tools to react properly to any breaches of the Regulation. In the operations of insurance and reinsurance undertakings, the new regulations affect processes involving the processing of personal data, both from the legal perspective and in terms of IT systems, and will cover the majority of processes and areas of insurance activity, most notably sales and client service, on-line services, cross-selling, underwriting, marketing, CRM, counteracting insurance fraud and IT systems supporting business processes.
On 1 October 2018, the insurance distribution act of 15 December 2017 took effect. It implements in Polish law the regulations of Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (Insurance Distribution Directive, abbreviated as IDD). The act increases the protection of customers concluding insurance agreements, which entails imposing additional requirements on entities offering insurance, mainly reporting duties. The new rules are supported by strict administrative sanctions applied in the event of breaches of sales obligations and rules. The regulatory authority may impose fines on an insurance undertaking in the amount up to PLN 21,827,500 for specified violations or 5% of the gross written premium reported in the most recent financial statements for the financial year, or twice the amount of benefits obtained or twice the amount of losses avoided as a result of the violation, if they can be determined.
To strengthen consumer protection the President of the Office of Competition and Consumer Protection obtained additional powers in the Act of 16 February 2007 on Competition and Consumer Protection. He may impose a financial penalty up to PLN 5 million on a management board member of a financial institution if that person, within the framework of discharging his or her function at the time of the breach found by UOKiK GLOSSARY deliberately permitted, through his or her action or inaction, a financial institution to violate bans against practices violating the collective interests of consumers or the ban against the usage of impermissible contractual clauses.
In addition to strengthening client protection, other regulations were accepted that have exerted or will exert an impact on the functioning of the PZU Group. Some of them are presented below:
The new approach to tasks to combat money laundering has defined the Act of 1 March 2018 on counteracting money laundering and financing of terrorism (it took effect on 13 July 2018). The act defines anew the principles and procedure for preventing money laundering and financing of terrorism. The process of identifying and analyzing risk associated with combating money laundering is supposed to incorporate material factors from the vantage point of a given client as well as from the view point of a given institution’s risk of money laundering. Groups are obligated to implement group procedures defining the rules for sharing and protecting information among the entities in a group in connection with performing their duties to combat money laundering and financing of terrorism.
Employee Capital Schemes (ECS) GLOSSARY are a solution to increase future pensions. Their organizational rules have been laid down in the act of 4 October 2018 on Employee Capital Schemes. These schemes involve the obligation of employers to administer capital schemes for their employees’ retirement. Their launch will take place on 1 July 2019 and sequentially they will apply to businesses with more than 250 employees, small and medium-sized companies and public finance sector entities. Every employer has an obligation to set up an ECS and offer it to its employees, while the participation of employees is not mandatory. They can opt out of participating in a scheme at any time. The main contribution in an ECS is paid by the employer (1.5%) and the employee (2.0%) alike. Additionally, the state is to make a welcome contribution to an employee’s ECS in the amount of PLN 250 and an additional annual contribution of PLN 240. Moreover, employees and employers will have the option to make an additional contribution. The employee’s additional contribution is to be 2.0%, while the employer’s is 2.5%. Mutual funds managed by mutual fund companies, pension funds managed by pension fund management companies, employee pension management companies or life insurance undertakings may be a manager of an ECS.
The indemnities for third party liability insurance for vehicles and farmers were raised in the act of 22 May 2003 on mandatory insurance, the Insurance Guarantee Fund and the Polish Motor Insurers Office. The indemnities in these insurance policies cannot be lower than the PLN equivalent value (per event whose consequences are insured regardless of the number of injured parties: in personal injuries – EUR 5.21 million (previously EUR 5 million) while in property related lossed – EUR 1.050 million (previously EUR 1 million).
The prescription periods for claims in civil cases were shortened under the amendment to the Civil Code of 13 April 2018. The prescription period in cases whose prescription period up till now was 10 years has been truncated to 6 years. The law also bans the pursuit of claims against consumers after the elapse of the prescription period. The act does not shorten the prescription period for consumers’ claims in existence prior to the effective date of the act that have not yet expired on that day.
As a consequence of the act of 20 July 2018 on transforming the perpetual usufruct right to developed land for residential purposes into the right of ownership to this land, the perpetual usufruct right to developed land for residential purposes was transformed by the power of law into the right of ownership as of 1 January 2019. The act treats as developed land for residential purposes single family or multi-family residential buildings in which at least one half of the units are residential units, including commercial-purpose buildings, garages, other construction facilities or construction equipment making it possible to utilize residential buildings correctly and reasonably. By virtue of transformation, the new land owner incurs a fee to the owner to date equal to the annual perpetual usufruct fee charged to date, to be paid for 20 years from transformation. A land owner who is a commercial undertaking, in reference to real property used to do business may submit a declaration to the authority of its intent to remit a fee for 99 years, 50 years or 33 years from the date of transformation if the annual fee rate stated as a percentage for perpetual usufruct is 1%, 2% or 3%, respectively, or of its intent to remit the fee for the period in which the sum total of these fees will not exceed the market value of the real property if the fee rate stated as a percentage for perpetual usufruct is higher than 3%. The regulations of the act are applicable while giving consideration to public aid regulations, where the provision of public aid requires the fulfillment of conditions for extending de minimis aid as prescribed inter alia by Regulation no. 1407/2013 of the EU Commission on 18 December 2013 in the matter of applying articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid.
2018 was also a period in which numerous changes were adopted in the tax area, with the following being among them:
Regulations concerning the identification and transmission of information regarding tax schemes (in English referred to as Mandatory Disclosure Rules, or MDR) took force on 1 January 2019. Reporting pertains to tax schemes, or actions (including ones that are just at the planning stage) in which at least one party is a taxpayer or that exert or may exert an impact on a tax obligation. According to these regulations, PZU is obligated to introduce and apply a procedure to prevent non-compliance with the duty to transmit information regarding tax schemes. A financial penalty (with a maximum of PLN 10 million) may be imposed on obligated entities in the event of failing to meet the obligation of applying the procedure.
In reference to corporate income tax, the amendments concern, among other things, changes to transfer prices (raising limits and changing the mechanisms for defining thresholds above which there is an obligation to prepare transfer pricing documentation), the exemption from the documentation obligation for transactions executed by domestic related parties (provided certain conditions are met) and changes to the approach to settling the costs of cars used in doing business.
In reference to the tax on revenues from buildings the scope of taxation has been extended to all buildings (residential and non-residential) that have been commissioned for usage (entirely or partially) pursuant to a lease contract, tenancy contract or some similar contract. The new scope of the tax means that PZU Group companies will also be subject to it.
Drafted legal regulations that may have a significant impact on the PZU Group’s business
Legislative work is underway on the act on rendering services to pursue compensatory claims. The bill aims to regulate the rules for commercial undertakings active in the business of pursuing compensatory claims to conduct their business. The bill calls for curtailing the fees for activities related to pursuing these claims, introducing a requirement for clients to approve the legal actions executed by their advisors to waive a claim, disbursing damages directly to injured parties and introducing compulsory TPL insurance for losses caused in the course of pursuing compensatory claims.
The act on the liability of collective entities for illegal acts under the threat of a penalty aims to enhance the effectiveness of tools to mete out sanctions against collective entities, especially when combating grave economic and treasury criminal activity. In comparison with the regulations to date, this bill extends the grounds for the liability of collective entities by incorporating thereunder conduct deemed to be the own conduct of collective entities bearing the markings of an illegal act. The liability of a collective entity for all illegal acts under threat of penalty as a crime or treasury crime, except for private treasury crimes has been introduced. The requirement of first obtaining a prior ruling (a judgment condemning a natural person) has been abandoned.
Selected Supreme Court rulings affecting insurance activity issued in 2018
In reference to the term for responding to a client complaint and the consequences of failing to meet it, pursuant to the act of 5 August 2015 on the examination of complaints by financial market entities and on the Financial Ombudsman, the Supreme Court ruled that in such a situation the financial market entity may challenge the justification for the claim pursued by the client (case file III CZP 113/17).
The Supreme Court also considered the issue regarding the rights of the closest relatives of an injured party who as a result of an illegal act has suffered grave and permanent dismemberment to receive general damages for the injury. The Supreme Court indicated that general damages are due solely when it comes to the gravest and irreversible losses of health in which the injury is comparable to the total loss of a relative (case file III CZP 60/17, III CZP 69/17, III CZP 36/17). The stance taken by the Supreme Court, by stating the prerequisites for a claim to be due, should contribute to unifying case law in the common courts.
The Supreme Court also explained the doubt concerning the term for the prescription of claims resulting from unit-linked insurance policies recognizing that this period is 10 years (case file III CZP 13/18, III CZP 20/18 and III CZP 22/18).
The Supreme Court adopted a resolution to determine according to what state of affairs the assessment is made on whether a contractual clause is illegal – the Supreme Court indicated that this assessment should be made as at the time of entering into the agreement (case file III CZP 23/17).