On 26 June 2023, the Polish Financial Supervision Authority (KNF) adopted the new Recommendation U on good bancassurance practices, which will replace the previous Recommendation U of June 2014.
Key areas covered by the new Recommendation U
A reading of Recommendation U shows that the main areas of intervention by KNF relate to the competitiveness of insurance products offered by banks, the reliability of information, adequate internal policy and risk assessment, as well as protection of customer interests. Issues of the design and characteristics of insurance products are also included, with a particular emphasis on credit protection insurance (CPI) products.
Through the various iterations of Recommendation U, KNF provides its interpretation of the standards already in place. The recommendation is not a source of controlling law. However, it is certain that in potential inspections and regulatory disputes, the Polish regulator will expect financial institutions to comply with the guidance in Recommendation U. Indeed, such actions by KNF can be observed in insurers’ incorporation of recommendations on adjustment of claims under motor insurance.
Who is Recommendation U aimed at?
According to the recommendation, it is aimed directly at:
- Domestic banks and Polish branches of foreign banks
- Credit unions
- Branches of credit institutions
cooperating in the area of bancassurance with domestic and foreign insurance companies performing insurance activities in Poland.
Indirectly, however, Recommendation U is aimed at insurance companies, as effective implementation of the recommendation requires cooperation at both levels.
Deadline for implementation
KNF expects banks to implement the new Recommendation U by 1 July 2024 at the latest, applying the version from June 2014 until then.
For credit unions (SKOK), the implementation deadline has been extended to 1 January 2025.
Recommendation U vs. existing contracts
Recommendation U is applicable to insurance contracts entered into by an entity after the date of implementation by that entity. Some derogations to this rule are foreseen.
In the case of renewal or automatic continuation of insurance coverage for the benefit of a specific entity, when the coverage, exclusions of liability, tariff or method of calculating premiums do not change, recommendation no. 20, relating to consideration of the customer’s interests and the cost of insurance coverage in the case of an intermediation fee, does not apply to such contracts.
Key elements of Recommendation U
There are a number of new definitions in the new Recommendation U, such as “customer,” “financing insurance,” “renewal and automatic continuation,” and “CPI product.” These definitions play a key role in understanding each recommendation.
Protection of insurers
First, Recommendation U points to the principle of proportionality, which is not expressly defined by the regulator. Proportionality appears to manifest in an entity offering more insurance products being required to conduct more complex policy and risk assessments than an entity offering fewer insurance products. Therefore, the measures are to be proportionate to the scale and complexity of the activity.
However, the principle of proportionality should not affect the extent of customer protection, which should always be adequate, regardless of the instruments put in place by a given entity to implement bancassurance policies.
Control obligations and transparent bancassurance policies
The regulator expects entities to evaluate the implementation of bancassurance policies with increased frequency. This means that insurers should put in place appropriate mechanisms enabling periodic internal audit of bancassurance procedures. Essentially, this makes the regulations already in place more precise.
Wider cooperation with insurance companies
An example of the indirect impact of Recommendation U on insurance companies is the agreement governing the entity’s relationship with the insurance company. KNF requires such an agreement to specify the basic terms and conditions, including the division of liability between these entities, the role of the entity, the rules for remuneration, and the rules and scope of information exchange between the parties.
CPI products (entity fee)
From the perspective of the insurance distribution market, recommendation no. 20 is key, as it regulates the value of the products offered, and thus the entity’s fee for insurance intermediation, which should be determined by taking into account the customer’s interests and the cost of insurance coverage.
This is particularly important in the case of CPI products, as the value of compensation and claim costs under a CPI product should be at least 30% of the equivalent gross premium.
Also, it should be remembered that the Polish Insurance Association and the Polish Bank Association, in consultation with the Office of the Polish Financial Supervision Authority, are developing best practice for mortgage and loan repayment insurance. This is a kind of self-regulation of the market that the entire insurance and banking sector is waiting for.
Implementation of Recommendation U will require a number of actions from the entities covered by it in order to meet the requirements of the Polish Financial Supervision Authority. It appears that the new Recommendation U may lead to market decentralisation by carving out new entities within existing capital groups.
Mateusz Kosiorowski, adwokat, Filip Marcinkowski, attorney-at-law, Insurance practice, Wardyński & Partners