1. 1 Life insurance with an investment component. Unit-linked products. Ph. D. Małgorzata Więcko-Tułowiecka Attorney At Law The Polish Insurance Ombudsman Office Bucharest, March 2014

2. The Polish Insurance Ombudsman - created in 1995, - represents policyholders, beneficiaries of life insurance and victims of accidents claiming compensation from insurer, - represents consumers and non-consumers, - main tasks: alternative dispute resolution (ADR): 16.516 complaints in 2014, - other tasks: issuing legal opinions of legislative proposals, informing the Supervision Authority about unfair practices of insurers and intermediaries, education, 2

3. 3 Unit-linked insurance in Poland - available on the Polish market since 1995 as life insurance with a supplement of an investment; - evolved into strict investment products with almost no life protection  whole premium paid to insurer is invested into insurance investment funds and amount paid to beneficiary is no more than premium paid + income from investment - new unit-linked insurance introduced a LIQUIDATION FEE  if consumer quits the agreement before it’s final date, the liquidation fee is calculated from the premiums paid and customer receives only a part (if any) of his investment. Fee for liquidation of the agreement in the first year and second year is 100% of the premium paid. „Decreases” in next years to 90%, 80% etc. - high commission paid to intermediaries for selling unit-linked – usually total amount of premium paid in the first year by customer

4. 4 Consumer problems with unit-linked in Poland  in 2011 and 2012 an increase of consumer complaints received by the Polish Insurance Ombudsman Office (2011 – 146 complaints (1%), 2012 – 516 complaints (3,4%)),  consumers complaining about misstatements of intermediaries – non-disclosure of information about liquidation fees, non- disclosure of information on the risk of the investment,  consumers were informed about high profits – 10% per annum, 15% p.a.,  consumers were informed that the money is paid into a safe deposit additionally insured,  consumers that resigned from the agreement lost all their money due to the liquidation fee.

5. 5 Actions undertaken by the Insurance Ombudsman  - revision of complaints and unit-linked products,  - identified unfair selling practices but also problematic issues regarding construction of the products  - decided to prepare and publish an in-depth report  REPORT PUBLISHED IN DECEMBER 2012 (144 pages in Polish)  - submitted to:  1. Polish Supervision Authority  2. Polish Competition and Consumer Protection Office  3. Polish Prime Minister  4. Polish Ministry of Finance  other

6. Report on unit-linked insurance - identifies some unit-linked insurance as strictly financial instruments that should not be distributed by insurance companies, - identifies the common practice of mis-selling of these products in banks and „independent financial advisors’” offices, - identifies violation of IMD directive and supporting Polish provisions as unit- linked insurance are offered in the form of a group insurance – no qualifications needed to „sell” unit-linked insurance, consumers are not parties to the insurance agreement, but members of a group scheme (limitation of many rights for the consumer and limitation of obligations of the seller), - identifies the use of unfair contract terms previously banned by the Polish Consumer Court (as to the liquidation fees), 6

7. 7 Report on unit-linked insurance - identifies the problem of over-pricing of initial value of the investment fund’s unit, - identifies some unit-linked insurance as highly complicated, not designed for average consumers, - identifies loss of millions of PLN, - identifies two insurers with the most unfavorable products, - requests actions of the competent authorities.

8. 8 - the first public information on new unit-linked insurance, - allegations and threats of insurers, - an impulse for actions of competent authorities. 1. Letter of the Polish Supervision Authority to the Ministry of Finance approving the report with a proposal for amendment of provisions concerning group insurance, 2. Draft proposal of the soft law on information practices introducing a Key Information Document by the Polish Association of Insurers (to be in force as of May 2014), Results of the report

9. 3. Decision of the Competition and Consumer Protection Office issuing a fine on one of the banks involved in selling unit- linked (around 1,5 mln Euros), 4. Draft proposal of the Polish Supervision Authority of soft law on bancassurance introducing information obligations related to unit-linked insurance but also prohibiting banks to accept high commissions from insurers in group insurance (to be in force as of November 2014), 5. First two class actions against insurers – Insurance Ombudsman is providing a legal opinion to the court 9

10. 10 Results of the report 6. More complaints resolved in favor of consumers – banks and insurers are more willing to settle disputes and return money, 7. More complaints to Insurance Ombudsman in 2013 – 1.216 (7,4%), 8. Greater avareness about unit-linked insurance among consumers, 9. Total mount of premiums collected by insurers in 2013 related to unit-linked’s did not decrease.

11. 11 Thank you for your attention www.rzu.gov.pl