Insurance Undertakings Research Articles

Chains of supplies in insurance services

Insurance activity involves the work of several entities, aimed at creating an insurance product, which is then offered to clients. In traditional terms, the management of chains of insurance services supplies focused on ensuring that actions taken by external entities in respect of insurance undertakings were not detrimental to the stability and security of insurance sector. The number of challenges faced nowadays concerning social and environmental issues results in a pressure from the public on major enterprises, including those from the insurance sector, that their and their subcontractors’ activities give rise to the least negative effects possible. The result of such pressure is also that the insurance and reinsurance undertakings are starting to implement the system of supplies chains management.The aim of this article is to present the legal provisions in force concerning chains of supplies in insurance services, as well as to analyse non-normative sources that may be a basis for the management of chains of insurance services supplies in accordance with the ESC principles. The article also discusses EU legislation proposals concerning sustainable development that have a direct impact on the chains of supplies in insurance sector

The Principle of Proportionality: Unraveling the Practical Application of Proportionality in the EU Regulations and the Solvency II Directive for Insurance Undertakings

Proportionality, pivotal to EU regulations and Solvency II, tailors rules to insurers’ size and complexity. Inconsistent application by supervisory authorities (NSAs) necessitates clarity to prevent undue costs. This study examines the issue via a review of the literature and industry discussions, emphasizing Solvency II’s introduction of proportionality and the varied interpretations it evokes. Transparent communication is crucial, and regulatory evolution must align with market dynamics, with the European Insurance and Occupational Pensions Authority (EIOPA) fostering convergence. Assessing proportionality mandates a comprehensive evaluation of an insurer’s nature, scale, and complexity. Regulatory distinctions between first-party and third-party risks could enhance market efficiency. Ultimately, a holistic, market-oriented approach is essential for proportionate regulation in the insurance sector, requiring concerted efforts to elucidate frameworks, foster transparency, and align regulatory evolution with market dynamics.

Consideration of the proxy modelling validation framework

Abstract Solvency II requires that firms with Internal Models derive the Solvency Capital Requirement directly from the probability distribution forecast generated by the Internal Model. A number of UK insurance undertakings do this via an aggregation model consisting of proxy models and a copula. Since 2016 there have been a number of industry surveys on the application of these models, with the 2019 Prudential Regulation Authority (“PRA”) led industry wide thematic review identifying a number of areas of enhancement. This concluded that there was currently no uniform best practice. While there have been many competing priorities for insurers since 2019, the Working Party expects that firms will have either already made changes to their proxy modelling approach in light of the PRA survey, or will have plans to do so in the coming years. This paper takes the PRA feedback into account and explores potential approaches to calibration and validation, taking into consideration the different heavy models used within the industry and relative materiality of business lines.

Medical error and complication. Gloss to the Judgment of the Court of Appeal in Szczecin of 11 May 2017, I ACa 560/15

This gloss discusses the issues related to complications and medical error, notably the distinction between the error covered by third party liability versus undesirable results of treatment, commonly referred to as a complication or a medical failure. In medical practice, the latter gives rise to a number of practical and legal questions, at the same time being of considerable importance for insurance undertakings offering third party liability insurance. Taking into account the facts of the case and deliberations of the Court of Appeal in Szczecin in its judgment of 11 May 2017 (I ACa 560/15), the author of this gloss indicates that in the event of an error, irrespective of its nature (diagnostic error, therapeutic error, prognosis error, executive error), the doctor may be held liable for negative consequences that occur to the patient (health disorder, bodily injury or even death). However, if a doctor proves that in the case concerned a complication has occurred and that the complication is prognosed by the current medical expertise, the following mechanism applies: if the patient concerned has been advised of the possible occurrence of the complication and has given his or her informed consent to the treatment, the doctor bears no liability for negative results thereof. The cause of liability in the above case would not be a medical error, but the failure to obtain the patient’s informed consent that he or she is aware of possible complications of certain type. A distinction needs also to be made between the occurrence of a complication, the failure to provide a correct diagnosis and/or the failure to take remedial action in respect of the patient who exhibits negative effects of the treatment applied.

The Impact of the Bankruptcy of the Insurer Operating in the EU under Freedom of Establishment Rules on the Performance of the Insurance Guarantee Fund in the Compulsory Motor Third-Party Liability Insurance System

Cross-border activities of European companies, including insurance undertakings, constitute the major component of EU legal system. The freedom of establishment and the freedom to provide services rules are the crucial foundations of the single internal market, as they enable EU entrepreneurs to take up and pursue economic activity in the territory of another Member State. Unfortunately, the EU market has its weaknesses, one of which has been recently experienced by the Polish insurance market. This is due to the lack of a uniform guarantee system which would coherently deal with the issues related to the European insurer’s insolvency and, above all, to the settlement of claims of entitled persons and to the payment or refund of benefits, which has particular consequences for entitled persons holding motor third-party liability insurance, being the most popular insurance product.Given the above, the performance of the Polish Insurance Guarantee Fund is of the utmost importance. The legislator has failed to precisely regulate several issues related to the organisational aspects of the institution’s activities of in the event of bankruptcy or compulsory liquidation of an insurance company operating in Poland on a cross-border basis. Therefore, some demands for amendments to the Compulsory Insurance Act have been presented. The most urgent demand, however, is about providing for unambiguous method for determining which Member State’s guarantee scheme should satisfy the claims of entitled persons, i.e. whether it should be the scheme of the insolvent or bankrupt insurer’s home Member State or rather the scheme of the Member State where it conducted its cross-border operations. Besides, the determination of the mode of reimbursement by the guarantee scheme of the insolvent or bankrupt insurer’s country of origin will increase the level of responsibility of supervisory institutions of that country for the operation of entities subject to their supervision and conducting cross-border business.

The resolution plan for insurers in France: Being prepared in case of a failure

The failure of an insurer may affect policyholders as well as the broader economy. This explains why a resolution regime is useful, with the objective of making it feasible to maintain vital economic functions and activities, which are needed, without disruption and without exposing taxpayers to loss. The resolution regime is a core element of the policy measures adopted by the G20 in the wake of the global financial crisis and applies to banks in most countries, with France being one of the first EU member states to adopt a regime for the recovery and resolution of insurance undertakings. The work undertaken to prepare resolution plans consists of first identifying the functions deemed to be critical which should be maintained. For the resolution to be effective, this work needs to be complemented with analysis of the level of separability of these critical functions from the rest of the undertaking or group, as this is necessary to ensure operational continuity in the event that a resolution action is applied. The next step consists of specifying resolution strategies that could be applied to groups or bodies performing critical functions, in accordance with different possible crisis scenarios and taking into account different resolution tools used separately or in combination. Based on these elements, Autorité de Contrôle Prudentiel et de Résolution has adopted the first resolution plan for 13 insurers, but this needs to be complemented by additional analyses and additional information in order to cover all the topics needed to operationalise resolution strategies and ensure the resolvability of undertakings.

Penalty Points for Violation of Traffic Rules versus Motor Insurance Premium. Analysis of New Legal Solutions

An amendment to the Polish Road Traffic Code introduced a possibility for the Insurance Guarantee Fund and insurance companies (offering motor liability and motor hull insurance) to access information in the Central Drivers Registry relating inter alia information concerning road traffic offences and to penalty points imposed as a result of committing such offences. Insurance companies may consult the Registry with the Funds assistance. At the same time, under the amended Polish Insurance and Reinsurance Act, insurance undertakings may process those data (i.e. driving offences or violations of road traffic regulations and penalty points issued as a result thereof) only for the purpose of insurance risk assessment and pricing with a view of concluding motor insurance contracts (excluding carrier's liability insurance). Similar solutions have been adopted in other countries, including EU Member States. The article is an attempt at explaining and conducting an initial evaluation of the new mechanisms, as well as at answering a question about possible impact thereof upon motor insurance premiums.

Efficiency Assessment of General Insurers in Malaysia Through Data Envelopment Analysis

This study aims to get an overview about the efficiencies of the general insurance companies operating in Malaysia. Data Envelopment Analysis (DEA) approach is used to evaluate the management efficiency and profitability of general insurers either local or foreign insurance companies for the period 2015-2018. Indeed, a two-stage approach to data envelopment analysis (2S-DEA) methodology is used to decompose the typical two-stage operating process of general insurance undertakings in a single intermediate operation. Based on the result, the companies seen not very efficient from the past four years. In addition, the general insurance companies in Malaysia shows a declining trend in their efficiencies. However, in between local and foreign insurance companies, it seen that the foreign companies are more efficient than the local companies since it has the large range of efficient value. These findings would benefit consumers and Malaysia 's insurance societies such as insurers and policy makers

Product diversification as a performance boosting strategy? Drivers and impact of diversification strategies in the property‐liability insurance industry

AbstractWe investigate the relationship between product diversification and performance in the Dutch property‐liability (P&L) insurance industry for the period 2007–2018. We control for endogeneity by employing a two‐step approach: we first investigate the drivers of diversification and, as a second step, we investigate the impact of diversification on risk and return. We find that the impact of diversification is twofold, as it reduces an insurer's risk but is also associated with lower returns. Our results suggest that the relation between diversification and performance is not straightforward, but is influenced by the size of an insurance undertaking. Specifically, only smaller companies' performance is significantly impacted by diversification.

Gloss to the Judgment of the Court of Justice of the European Union of 24 February 2020 in Joined Cases C-143/20 and C-213/20 on the Information Disclosure of Life Insurance Undertakings in Unit-linked Insurance Contracts

The gloss refers to the judgment of the Court of Justice of the European Union of 24 February 2020 in joined cases C-143/20 and C-213/20 concerning information disclosure of life insurance undertakings in unit-linked life insurance. This judgment provides guidance on information obligations in this type of insurance with respect to entities whom the information is to be communicated and as regards the scope of the information provided. Said issues seem to be essential for insurance practice, yet they fail to be clearly defined by legislation in force or in case law. The gloss does not address all the questions that have been submitted to the Court, focusing only on the scope of the information obligations in unit-linked life insurance contracts.

The questionable scope of the Commission's proposal for a framework for recovery and resolution of (re)insurance undertakings

The questionable scope of the Commission's proposal for a framework for recovery and resolution of (re)insurance undertakings

Key Problems of Customers in the Era of COVID-19 Pandemic – Insurance Market Diagnosis

The article aims at presenting selected issues related to customers’ problems which have become apparent in the era of COVID-19 pandemic. The authors seek to answer the question about the way the pandemic situation has influenced the scope of insurance coverage offered by insurance undertakings. Accordingly, they pay particular attention to the attempts made by insurers to expand insurance coverage by introducing pandemic-related provisions into the GTC. The analysis focuses on types of insurance that relate to risks which are of vital importance during the pandemic and to the restrictions introduced as a result thereof (travel insurance, life insurance and BI insurance). As the research covers the current situation, the article is a preliminary diagnosis indicating problems which ought to be thoroughly examined in the future

"Good Practices in Brokerage Activity" – Selected Dilemmas

The article examines the publication "Good Practices in Brokerage Activity" published in 2021 by the Association of Polish Insurance and Reinsurance Brokers. The project aims to update good practices in the brokerage activity (hereinafter: Good Practices) and should be considered a positive initiative, because the existing Broker's Code of Ethics which was adopted on 23 May 2013 as well as the Principles of Good Practices and Cooperation of Insurance Brokers and Insurance Companies published in 2000 do not solve all problems which the market is currently facing. In addition, brokerage activity has been scarcely regulated under private law. Given the above, established customs and principles of social coexistence are particularly important for brokerage services in connection with Article 56, Article 65 § 1 and Article 354 of the Polish Civil Code. Not only do the draft Good Practices refer to the conduct of brokers, but they also contain a number of standards of conduct meant for insurance companies. As a result, this document ought to be acknowledged by insurance undertakings (their professional associations). On the other hand, it should be emphasized that Good Practices will not be binding on brokers who are not members of the Association of Polish Insurance and Reinsurance Brokers. Although Good Practices contain a lot of recommendations that deserve an unequivocally positive assessment, there are some provisions therein that may provoke controversies. The purpose of the article is to draw attention to the provisions which may require further work and discussion.

Designing a Model for Testing the Effectiveness of a Regulation: The Case of DORA for Insurance Undertakings

Technology is sometimes seen as a disruption that although provides opportunities for growth and development, also provides opportunities for deception, theft, and fraud. On the other hand, automation can make it easier to identify and protect from threats. Hence, a proposal was made by the European Commission to enact a digital operations resilience act. Therefore, our objective in this paper is to lay out the perceived characteristics of effective regulation by using DORA as our case study. We do this by carrying out a literature review and extracting using the thematic analysis approach propositions for these characteristics. Then, we test these using exploratory factor analysis and design a model for perceived effective regulation (PERM). We test the reliability and validity of this model by using the Cronbach alpha. Results show that according to our model, an effective regulation should have four characteristics, specifically “Flexibility and Integration”, “Proportionality and Cost”, “Reliability and Transparency”, and “Relevance and Timeliness”. Findings laid out in this paper and PERM can be used to test other proposed regulations to ensure that they are effective before being enacted and also to determine when there is a need for a revamp in specified areas of current regulations and requirements.

Violation of Recommendations Issued by the Polish Financial Supervision Authority as a Basis for Imposing Sanctions Pursuant to Article 362(1) of the Insurance and Reinsurance Activity Act of 11 September 2015

Pursuant to Article 361(1) of the Insurance and Reinsurance Activity Act of 11 September 2015, the Polish Financial Supervision Authority (PFSA) may issue recommendations for insurance and reinsurance undertakings. In the case of non-compliance, such recommendations may give rise to the imposition of administrative sanctions. The purpose of the article is to decide to what extent the violation of supervisory acts, such as the PFSA’s recommendations, determines the administrative liability of insurance and reinsurance undertakings. Furthermore, the article aims at discussing to what extent a breach of non-authoritative acts of a supervisory nature, such as the PFSA’s recommendations, may constitute the basis for administrative liability provided for in Article 362(1) of the Act. The author conducts his analysis in the context of constitutional standards applicable to administrative responsibility. Those standards are compared with the decisions of the PFSA rendered as a result of the violation of its recommendations. In addition, the article presents de lege lata and de lege ferenda conclusions which relate to ensuring compliance with constitutional requirements of the procedure for sanctioning violations of recommendations issued by the PFSA.

Insurer's Performance in Unit Linked Life Insurance Plans

The aim of the article is to comprehensively discuss the performance to be made by parties to the unit linked life insurance plans (ULIPs), with a particular emphasis being placed on the performance on the part of insurance undertakings. The specific nature of this contract results in various types and methods of paying benefits in unit linked insurance plans. Due to the lack of detailed legal regulations in this area, it seems reasonable to present legal characteristics of the particular types of benefits. Determination of the amount of latter, taking into consideration first and foremost the investment nature of the contract, which makes it different from common life insurance policies, requires a thorough discussion in ULIPs.

Pan-European Personal Pension Product – Insurance Perspective

The article presents the regulatory arrangements adopted so far for a Pan-European Personal Pension Product (PEPP) at both European and Polish levels. What is more, it provides a preliminary analysis of the proposed regulations in terms of the opportunity for insurance undertakings to offer PEPPs, taking into consideration the pension schemes currently available on the Polish market. The subject of the article is consistent with the discussions conducted for several years about life insurance contracts as savings and investment tools. The author also points to a number of uncertainties that will be of vital importance for the success of the PEPP project – especially tax arrangements in individual countries that under the PEPP Regulation are to be decided discretionally at a national level, as well as tax issues when changing a PEPP provider to another Member State.

Machine learning techniques in nested stochastic simulations for life insurance

AbstractThe insurance regulatory regime introduced in the European Union by the “Solvency II” Directive 2009/138, that has become applicable on 1 January 2016, is aimed to safeguard policyholders and beneficiaries by requiring insurance undertakings to hold own funds able to cover losses, in excess to the expected ones, at the 99.5% confidence level, over a 1‐year period. In order to assess risks and evaluate the regulatory Solvency Capital Requirement, undertakings should compute the probability distribution of the Net Asset Value over a 1‐year period, with a financially inspiredmarket consistentapproach. In life insurance, given the peculiarities of the contracts, the valuation of the Net Asset Value distribution requires anested Monte Carlosimulation, which is extremely time‐consuming. Machine learning techniques are considered a promising candidate to reduce the computational burden of nested simulations. This work investigates the potential of well‐established methods, such asdeep learning networksandsupport vector regressors, when applied to the valuation of the Solvency Capital Requirement ofparticipating life insurance policies, by empirically assessing their effectiveness and by comparing their efficiency and accuracy, also w.r.t. the “traditional”least squares Monte Carlotechnique. The work aims also to contribute to the global process of renewal of the European insurance industry, where Solvency II has made the board of directors fully responsible of the choice of evaluation techniques and algorithmic processes, under the periodic monitoring of national supervisory authorities.

Importance of the Amendment of the Act on Compulsory Insurance and the Act on Insurance and Reinsurance Activity of 28 May 2020

The Act of May 28, 2020 amended the Act on Compulsory Insurance, the Insurance Guarantee Fund and the Polish Motor Insurers’ Bureau as well as the Act on Insurance and Reinsurance Activity in order to introduce efficient mechanisms and instruments to supervise foreign (re)insurance companies from the European Union Member States other than the Republic of Poland pursuing activity on the territory of Poland through a branch or in any other way under the freedom to provide services. This amendment under which the Polish Financial Supervision Authority (KNF) obtained new powers towards these entities introduced a significant change to the legal system. The KNF has been empowered to apply certain sanctions (fines) for exceeding statutory deadlines for the payment of compensation by foreign insurers, and in particular it may apply the prompt intervention mechanism if it proves necessary to remove irregularities immediately, without having to notify the competent home state supervisory authority beforehand and having to wait for its proper response. In this case, the KNF will be authorised to apply all the powers to which it is entitled towards domestic (re)insurance undertakings.

The Impact of Sustainable Finance on Insurers’ Activity

The article contains an analysis of the impact of the sustainable finance provisions either currently being developed at the European level or already partially implemented on the activities of insurance companies. These regulations will affect insurers’ activity as they play an important role in adapting the EU economy to climate change, above all, acting as long-term investors and risk managers, but also through appropriate management of the provided insurance cover. At this stage, the system seems to be quite complicated. The adopted sustainable finance regulations impose a number of obligations on insurance undertakings, particularly those offering insurance investment products, e.g. additional disclosure obligations, either general or addressed to individual clients. Moreover, insurance companies will have to comply with the restrictions on their investment policy. Besides, it should be emphasised that the adopted solutions do not fully consider the specific nature of insurance activity or individual character of national EU economies. As a consequence, the introduction of the sustainable finance regulation will certainly pose a significant challenge for insurance companies operating in Poland.