"Among others, it was introduced a mechanism enabling the supervisory authority to impose specific penalties on foreign insurance companies in the event of failure to pay compensation under civil liability insurance within the statutory deadline or failure to comply with the information obligation towards those entitled to compensation. The Act enters into force 14 days after its announcement, i.e. on 17th July 2020," Piotr CZUBLUN, legal advisor, senior partner at Czublun Trebicki Law Firm erites in the article.
The changes are meant, at large, to correct an issue that many supervisors face especially in the emerging markets where numerous insurers choose to operate on the basis of a single license, establishing branches or operating only on the basis of notification, without opening a branch. As market players are subjected to the supervision in their domicile country, the local authorities of the host countries have little to say as to how the business will be conducted, depending in fact on the effectiveness and decision of the supervisors in the domicile countries of the insurers.
While for many insurers operating on the principle of a single license is not only more effective in costs terms, but also providing for the company the opportunity to use the full financial power of the mother company to sustain its operations locally, for the local market there is always the risk that eventual disputable business practices cannot be prevented or stopped shortly.
"In my opinion, the single-license principle applied in this way can also be considered a type of unfair competition. Everyone today is well aware that the area of ensuring compliance with the law, but also with the requirements of the supervisory authority, is one of the major items in the budgets of national insurers. Also the risks associated with it (e.g. reputational risk or exposure to possible financial penalties) generate additional costs associated with mitigating such risks. Therefore, if some of the entities operating on a given market will be to some extent exempted from complying with local regulations, it can undoubtedly mean significantly lower costs of conducted activity, and this in turn may have an impact on maintaining fair competition on a given market," CZUBLUN says.
Besides several administrative tools, in case of an urgent case, in order to immediately remove or prevent the occurrence of further irregularities, the Act allows the Polish Financial Supervision Authority (KNF) to treat the foreign insurers as a domestic one, using all rights vested in the Polish Financial Supervision Authority in accordance with the Act on insurance and reinsurance activity in relation to domestic insurance undertakings or domestic reinsurance undertakings. In such a case, the KNF will not be required to exhaust the procedure of implementing recommendations and communicating with the supervisory authority of the European Union Member State in which the company is established. However, in such a case, the KNF is obliged to notify such a supervisory authority of measures taken under this procedure as a matter of urgency towards a foreign insurer.
More legal details are available in the source article available here.