Heading in the right direction?

Following the provisions of the Directive 2002/92/EC on insurance mediation, Poland implemented an act relating to insurance intermediaries in 2003. Now that the act is nearly five years old, it is perhaps an appropriate time to review its role.

The EC Directive on insurance intermediaries emphasised the necessity for a free performance of insurance activities in the EU.

‘The coordination of national provisions on professional requirements and registration of persons taking up and pursuing the activity of insurance mediation’ (point 8 of the preamble of the directive) was supposed to unify the market for insurance services and let insurance intermediaries from different EU countries freely pursue their practice across all member states. As underlined in point 5 of the preamble: ‘However, there are still substantial differences between the national provisions, which create barriers to the taking up and pursuit of the activities of insurance and reinsurance intermediaries in the internal market.’

Freedom of services within insurance mediation can be construed as a key factor of the directive. However, there are some differences between the assumptions and aims of the directive and its functioning in Poland.

The directive defined the ‘insurance intermediary’ as any natural or legal person who commences or conducts an activity of insurance mediation for remuneration. Furthermore, the directive introduced the term of a ‘tied insurance intermediary’, who conducts the activity for the benefit and on behalf of one or more insurance companies. What is worth mentioning is that the directive does not divide the insurance intermediary into additional categories; the Polish act does.

According to the Polish act, the profession of insurance intermediary is divided into two: insurance brokers and insurance agents. The main difference is their legal status and the legal basis of conducting their activity.

Insurance agents are entrepreneurs (hence natural persons or firms that are not categorised as legal persons who conduct a business activity) who conduct an agency activity based on an agreement between the agent and an insurance company. Thus, a principal-agent relationship is created, which is mainly governed by the provisions of the Civil Code, not by the act itself. The agents must be registered in the register of insurance agents. The insurance company will be liable for any damage caused by the action of the agent in connection with its insurance activities if the agent was acting for the benefit of the company. However, if an agent acts for the benefit of more than one insurance company (a so-called ‘multi-agent’), the agent will be liable for the damage under civil liability cover.

Insurance brokers are defined as natural or legal persons who have permission to conduct an activity of insurance brokerage issued by the applicable supervisory body (in Poland the Financial Supervision Commission) and who are entered in the register of insurance brokers. Insurance brokers have to have civil liability cover in respect of their activities in Poland and other EU member states. They can perform their activities in other EU member states providing that they are registered in their member state.

In respect of entering into the profession, the directive does not stipulate detailed requirements, leaving the matter to be resolved by the member states. Nevertheless, the insurance intermediary ‘shall be of good repute and thus shall have a clean police report’. Furthermore, the directive states that: ‘insurance intermediaries shall possess appropriate knowledge and ability, as determined by the home member state of the intermediary’. Thus, member states were given relative freedom in respect of entrance into the profession.

The requirements of knowledge and ability can be construed in various ways. The Polish act stipulates the following for insurance brokers:

they must have full capacity for legal actions

they cannot have been convicted for crimes against life and health, the justice system, protection of information, credibility of documents, property, economy, money and securities turnover, or for fiscal crimes

they have to provide a warranty of diligent conduct of a brokerage activity

they must have at least secondary education

they must have passed an Examination Commission for the Brokers exam

they have to have at least three years professional experience in relation to their insurance activity

they must have entered into an insurance agreement in respect of civil liability in respect of the legal persons, all members of the management board have to fulfil the general requirements, and at least half of the board must meet the specific requirements.

Insurance agents must possess a clean criminal record, have had at least secondary education, provide a warranty of diligent conduct of a brokerage activity and pass the final exam of the course prepared by an insurance company.

Love of qualifications

The Polish requirements are specified in some detail compared, for example, to the UK. In the UK, insurance broking is covered by the Financial Services and Markets Act 2000 and the new regime introduced by the Financial Services Authority (FSA) in 2005. The FSA is the supervisory body. It appears to me that there are no specific requirements regarding entering the profession, although the person concerned must be authorised to act as an insurance broker. However, people wishing to advise on long-term insurance contracts have to hold a certificate in financial planning and long term care insurance.

As for the professional requirements, it seems that the guidelines in the directive have beentreated somewhat too religiously by Polish legislators. The directive leaves member states the freedom to regulate entrance into the profession, and Poland seems to be adhering to a very strict policy. Limited access to the profession may well diminish the possibilities for its development.

It might be argued that the aim of Poland’s strict policy is to protect the interest of clients and provide them with the best of service. But does that mean that other EU states are not concerned about this?

If, following the provisions of the Polish act, a broker from another EU member state wishes to operate in Poland, it could do so providing it is registered in its country of origin.

Thus, one could argue that there is a big difference in the professional and educational level of the Polish insurance broker and a broker from an EU country where the entrance requirements are less strict. Does it mean that they are not going to be equally good insurance brokers – or does it mean that the Polish love collecting qualifications too much?