Poland – a more than 20 mln fine for misselling life insurance-based investment products

On 13 January 2021 the President of the Polish Office of Competition and Consumer Protection (“OCCP”) issued a decision imposing a fine of more than PLN 20 mln on a Polish life insurer (“Insurer”) for misselling life insurance-based investment products (“UFK”). The decision is not yet final: the Insurer has the right to appeal it.

• it is the first time the President of the OCCP has imposed a fine for misselling UFK insurance contracts;
• the President of the OCCP imposed the fine even though: (i) the Insurer had already abandoned in 2018 the practices cited in the decision, and (ii) the Polish Financial Supervision Authority (“PFSA”), which conducted an independent audit in the same scope, dismissed the case as it had discovered no infringements of the law;
• in order to discourage other market participants from imitating the practices cited in the decision, the President of the OCCP refused to issue the so-called “remedy decision” (pl: decyzja zobowiązująca)* which would have allowed the Insurer to compensate the effects of the infringements and to avoid the fine;
• the Insurer was fined (among other things) for the actions of one of its multi-agents.**

OCCP’s standpoint

In the opinion of the President of the OCCP:

• the Insurer offered to conclude UFK insurance contracts with consumers which did not match their needs and resources as regards the preferred insurance contract term and acceptable level of investment risk;
• when offering to conclude the UFK insurance contracts, the Insurer asked consumers to sign a declaration that they were aware that the chosen UFK insurance contract did not meet their needs and resources that had been identified on the basis of an analysis carried out by the Insurer before the conclusion of UFK insurance contract. However, this UFK insurance contract was, at the same time, presented as meeting those needs and resources. This was misleading for the customers.

The President of the OCCP concluded that these practices violated collective consumer interests and so imposed a fine on the Insurer of over PLN 20 mln.

Penalty imposed by the President of the OCCP independent of PFSA’s standpoint

It is intriguing that the President of the OCCP decided to fine the Insurer even though the PFSA - which also conducted an independent audit related to the potential infringement of legal provisions on assessing a client’s needs and resources before concluding an UFK insurance contract - dismissed the case as it had found no infringements of the law. However, the President of the OCCP deemed that he is not bound by the factual findings of the PFSA, nor by its legal assessment of the Insurer’s practice. He highlighted the fact that his office pursues a different goal to that of the PFSA, i.e. protecting consumer interests, in the public interest. This approach adopted by the President of the OCCP should alert financial market players and make them more aware of the consumer aspect of their activity.

Penalty is to discourage

One of the motives behind imposing the fine on the Insurer and for refusing to issue the so-called “remedy decision” was that of protecting the public interest. The President of the OCCP emphasised that the proceeding conducted by the OCCP is aimed not only at making a given insurer cease employing practices considered to be unlawful but also to discourage other market players from imitating such practices. It is not the first time that the President of the OCCP has emphasised the preventive (dissuasive) function of the fine imposed on a business entity. However, such cases are rather rare.

Insurer’s administrative liability for multi-agent activities

It is also worth noting that the Insurer was fined (among other things) for the activity of one of its multi-agents. With regard to multi-agents, Polish law provides for an exception to the general rule that it is the insurer who is liable for losses caused by an insurance agent in connection with performing agency activities. Multi-agents themselves are liable for losses resulting from the performance of agency activities, suffered by the client or the person entitled under the insurance contract. Multi-agents are subject to mandatory third-party liability insurance in this respect. However, the President of the OCCP stated that this rule does not apply to administrative liability for practices which violate collective consumer interests. In the view of the President of the OCCP, in this case the multi-agent’s actions should be treated as actions of the Insurer itself. If this approach is upheld, it will have a significant impact on the rules of liability under insurance agency contracts. It may require that insurers review their insurance agency contracts and introduce appropriate mechanisms to protect themselves from administrative penalties imposed on them in connection with the agent’s activities.

If you are interested in receiving more details about the above-mentioned case or have any other questions related to the Polish (re)insurance market, feel free to contact CMS experts: Małgorzata Surdek, Ewa Świderska and Sylwia Raszplewicz-Czyżewska.

*The President of the OCCP may issue the so-called “remedy decision” at a business entity’s request provided that it is substantiated that such entity employs practices which violate collective consumer interests. In this decision the President of the OCCP: (i) imposes undertakings on the entity to take up or to discontinue certain activities in order to stop the violation or to remediate its effects, (ii) does not impose any fine on the business entity.

** A multi-agent is an insurance agent or ancillary insurance agent who performs agency activities for more than one insurer in the scope of the same group of insurance (life or non-life).