Customer’s demands and needs test
Proactivity and due diligence
The PFSA highlighted that customer’s demands and needs test plays a vital role in consumer protection since it prevents the mis-selling of insurance products. Therefore, an insurance distributor must be proactive and obtain all necessary information from the customer. The test should not be limited solely to obtaining a confirmation that the customer wants to buy a certain type of insurance. While performing the test, the distributor should pay special attention to the types of risks that a customer wants to insure and verify them against exclusions and limitations of insurance cover in proposed insurance products.
Documentation and archiving
Even though, the form of the customer’s demands and needs test is up to distributors, the PFSA stated that the test must be properly documented (e.g. for the purpose of customer disputes, supervision or control). The documentation should cover questions asked of the customer, the customer’s answers to these questions, proof that the consumer’s demands and needs test was performed and proof that the customer was presented with adequate insurance products. In the PFSA’s opinion, a customer’s statement that the insurance distributor identified his demands and needs and that the proposed insurance product meets these needs – in the absence of other supporting documents – is not sufficient. Such practices may violate the interests of customers.
Supervision over intermediaries
Insurance undertakings must verify whether intermediaries acting on their behalf (i.e. insurance agents) are properly performing customer demands and needs tests. Proper supervision should engage all three lines of defense:
- first line – the ongoing control of the insurance agents (which can be performed by the sales department);
- second line – periodic control of the insurance agents (chiefly performed by the compliance department);
- third line – having the audit department perform periodic control of the departments providing first and second level supervision.
Insurance intermediaries must also adequately supervise individuals acting on their behalf (i.e. natural persons carrying out agency or brokerage activities).
Obligations of entities acting based on “connected contract exemption”
Entities acting on “connected contract exemption” (CCE) are still obliged to apply certain requirements in the insurance distribution process. The PFSA states that insurance undertakings are responsible for ensuring that these obligations are in fact performed by these entities (including the customer demands and needs test or delivery of the IPID to the customer before concluding an insurance contract). Adequate mechanisms, including the right to carry out adequate inspections, should be included in distribution agreements between an insurance undertaking and the entity. Moreover, supervision over these entities should engage three lines of defence, as described above.
Informational obligations, including the requirement to provide the consumer with the standardised insurance product information document
Before the conclusion of an insurance contract, the customer should obtain objective information about the insurance product in a comprehensible form in order for that customer to make an informed decision. Polish legislation further stipulates that such information should be provided on paper or, subject to certain requirements, another durable medium or a website. Therefore, the PFSA outlined that it is not acceptable to provide such information verbally.
Moreover, insurance distributors should also provide objective information about the insurance product, including the standardised insurance product information document (IPID), in advance so that the consumer has sufficient time to analyse it. The IPID, however, should not be delivered before performing the consumer’s demands and needs test.
In this case, the PFSA expects that the three lines of defence described above would be applied by the insurance undertaking in relation to actions of the supervision of insurance agents and entities acting on the CCE. Similarly, the PFSA expects that insurance intermediaries will ensure proper supervision over natural persons carrying out agency or brokerage activities in relation to this matter.
For more information on the Statement and insurance distribution practices in Poland, contact your CMS client partner or local CMS experts – Ewa Świderska, Sylwia Raszplewicz-Czyżewska, Patrycja Sikorska-Tuğcu.