Regulations pertaining to the insurance market and the financial markets in Poland

The most important regulatory changes which entered into force or were announced in 2019 pertained to pension savings, liability for annuities in the case of obligatory third party liability insurance for motor vehicle owners and farm operators, amendments in the Act on Offerings and issues associated with climate, environmental protection and sustainable development.

On 1 January 2019 the Act on Employee Capital Schemes of 4 October 2018 entered into force. It establishes a private long-term saving scheme in which employee savings are built jointly by employees, their employers and the state. Such savings are to be invested by financial institutions selected by employers in communication with employees. The ECSs were launched on 1 July 2019, initially in the largest employers employing over 250 people. From 1 January 2020 the ECS obligation covered also employers employing over 50 employees. Ultimately, as of 1 January 2021, the schemes will be introduced in all employers (with the exceptions specified in the ECS Act).

In addition to Employee Capital Schemes, the next element shaping the growth of private long-term savings is the planned conversion of open-end pension funds, scheduled to take place still in 2020. The changes provide for converting OFEs into specialist mutual funds operating individual pension accounts to which OFE assets will be transferred. Universal pension fund management companies are to be transformed into mutual fund companies. Each person insured in OFE will be able to choose whether the monies accumulated in OFE are transferred to a mutual fund (default option) or recorded on a personal account kept in ZUS. Monies transferred to a mutual fund will be private monies of the saving person (currently the assets accumulated in OFEs are public funds).

From the perspective of operation of the PZU Group and execution of PZU’s parent obligations the amendment of Article 105 sec. 1 of the Banking Law Act of 29 August 1997 was desirable. In accordance with this regulation the bank is obligated to provide the insurance undertaking with information constituting banking secret to the extent required for the insurance company to comply with the regulations pertaining to group supervision applicable to such undertaking, as specified in the Insurance and Reinsurance Activity Act and the regulations pertaining to supplementary oversight exercised pursuant to the Act of 15 April 2005 on supplementary oversight over credit institutions and insurance undertaking, reinsurance undertakings and investment firms comprising a financial conglomerate.

Another regulation of importance for insurance companies was the amendment of the Insurance and Reinsurance Activity Act of 11 September 2015 which came into effect on 4 May 2019. It allows insurance companies to process data concerning health of the insureds or beneficiaries contained in insurance agreements or declarations submitted before an insurance agreement is concluded, for underwriting purposes or in order to perform the insurance agreement, to the extent required given the purpose and type of insurance. Consent of the data subject is not required for the processing of data in the above extent.

On 28 September 2019, the Act of 19 July 2019 on Special Rights of Injured Persons with an Exhausted Indemnity Determined on the basis of Applicable Regulations Prevailing before 1 January 2006 (Journal of Laws 2019, Item 1631) came into force. After the indemnity is exhausted, up to the amount of liability of the insurance company for the damage, in the case of obligatory third party liability insurance for motor vehicle owners and farmers on account of operating a farm, the injured party will be entitled to a claim for payment of an annuity against the Insurance Guarantee Fund. The claim is limited to the amount of the indemnity determined as at the date of submission of the claim in a situation where the insurance undertaking was not required to pay an annuity on the basis of a court ruling setting a different amount of indemnity than that specified in the TPL insurance contract. This may take place in the event the indemnity is increased by the court pursuant to Article 3571 of the Civil Code, which creates the possibility of modification of an existing obligation relationship. The claim for the payment of an annuity will apply to periods following the date of the Act’s entry into force.

Additional obligations for, among others, insurance companies, follow from the Act of 16 October 2019 on amending the Act on Public Offerings and the Conditions for Offering Financial Instruments in an Organized Trading System and on Public Companies and some other acts which entered into effect on 30 November 2019. The Act aims to establish legal regulations encouraging shareholders of public companies to long-term engagement and enhancing transparency of the legal relationships between companies and investors. It introduced, among others, an obligation for life insurance undertakings investing assets in the equities of companies admitted to trading on the regulated market to prepare and publish an engagement policy to describe how the engagement of the shareholders of such companies is taken into account by such entities in their investment strategies. Insurance undertakings will be obligated to draw up and publish an annual report on the implementation of this policy. In addition, the amendments pertain to, among others (i) the requirement to put to a vote at the Shareholder Meeting (by 30 June 2020) the compensation policy, comprising a description of all components, criteria, conditions used to determine fixed and variable compensation for management board and supervisory board members, and (ii) preparation, by the supervisory board, of an annual compensation report to be audited by the auditor and subject to an opinion of the Shareholder Meeting (the first report should cover the years 2019-2020). In addition, the provisions of the act, which will enter into force on 3 September 2020, will enable companies to know the personal data of all its shareholders as part of identification of the shareholder structure.

Environmental protection and sustainable development will play an increasing role in insurance activity. This trend is manifested by Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector, which is expected to enter into effect as of 2021. The Regulation establishes harmonized regulations for financial market participants (including insurance companies that offer investment products) with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability-related information with respect to financial products. Financial market entities will be obligated to, among other things, publish on their websites information about their strategies on the integration of sustainability risks in their investment decision-making process. In addition, the EU conducts advanced work on a regulation establishing the so-called taxonomy of investments in terms of their impact on sustainable development, which will apply among others to the aforementioned disclosures (it will amend Regulation 2019/2088). On 17 December 2019, a close-to-final version of the draft of this regulation (comprise proposal of the Presidency) was published. Preliminary proposals for consideration of issues related to sustainable financing in prudential regulations, i.e. in Solvency II regulations, have already been prepared for the insurance sector.

2019 was also a period in which numerous changes entered into effect in the tax area, with the following being among them:

• In January 2019, new insurance activity regulations (MDRs) came into force, which introduced the obligation to report tax schemes. These regulations are aimed at increasing effectiveness in combating dishonest taxpayers and at eliminating aggressive tax optimization schemes. They impose additional obligations on tax advisors, financial institution employees as well as on clients of these entities.
• Pursuant to the amendment to the Act on exchange of tax information, starting on 1 September 2019, clients of financial institutions have to submit a tax residency declaration for the period of 1 January 2016 to 30 April 2017. A criminal liability clause for tax residence declarations also came into effect on 1 September, 2019. This clause replaced the warning about criminal liability for making factually incorrect declarations.
• On 1 November 2019, the split payment procedure, which has been voluntary since July 2018, became mandatory for deliveries of selected groups of goods and services, for the payment of invoices documenting transactions concluded between taxpayers, whose one-time value, regardless of the number of resulting payments, exceeds PLN 15 thousand or equivalent.
• 31 December 2019 marked the end of the “transition period” for entry into force of the regulations on the “white list”, which have been prevailing since 1 September 2019, allowing for verification of the VAT status of business partners in a list maintained by the Head of the National Tax Administration Authority. From January 2020 if a payment for a transaction between commercial undertakings documented by an invoice issued by an active VAT payer exceeds PLN 15 thousand, the taxpayer is obligated to pay the amount due to the business partner’s account specified in the “white list”. If they fail to do so, they may be subject to sanctions. The sanctions may be painful – in the event of a transfer to an account not listed on the “white list” the purchaser will not be able to classify the part of the expenditure exceeding PLN 15 thousand as tax-deductible expense. In addition, the purchaser will be liable jointly and severally with the supplier/service provider for the VAT that has not been paid, pro rata to the amount applicable to the relevant delivery/service. In practice the new regulations obligate taxpayers to verify the business partner each time when ordering a payment in order to make sure that the payment is made to an account known to the Ministry of Finance. What is important, in verification of the transaction settlement, the “white list” data on the transfer order date are taken into account.
• The changes to the regulations not only impose new obligations on taxpayers but also provide for certain simplifications. These include removal, as of 2020, of the obligation submit separately VAT tax returns in the current form and the existing JPK_VAT report.
• From 2020, the solution that has already been tested in social security contributions will be applied to taxes. PZU Group Companies will pay their PIT, CIT, VAT and non-tax state budget dues to an individual tax account. Consequently, it will no longer be required to make several transfers to different accounts used for specific taxes.

Selected Supreme Court rulings affecting insurance activity issued in 2019

From the Supreme Court rulings handed down in 2019 with regard to insurance, one should mention the most important ones pertaining to: general damages for the injured party’s relatives, liability of the insurance undertaking for expenses incurred for lease of a replacement vehicle and prepared expert valuation, and imposition of penalties by the President of the Office of Competition and Consumer Protection for applying abusive contractual clauses.

In the resolution of 22 October 2019, in case I NSNZP 2/19, the Supreme Court concluded that a relative of an injured person who has suffered a serious and permanent injury is not entitled to general damages in cash pursuant to Article 448 of the Civil Code. This resolution is a turning point compared to earlier Supreme Court resolutions adopted in similar cases. The future will show whether the stance presented in it will be accepted in the line of rulings.

On 15 February 2019, in the case with file ref. no. III CZP 84/18, the Supreme Court noted that insurer’s liability in third party liability insurance of a motor vehicle owner comprises also necessary and economically justified expenditures, incurred by the injured party for rental of a replacement car in the period of a prolonged repair, unless they result from circumstances attributable to the injured party or a third party. The resolution pertains to factors driving the necessity to use a replacement vehicle, disruption of the causal effect and liability of different entities for the necessity of using a replacement vehicle.

On 29 May 2019, in the case with file ref. no. III CZP 68/18, the Supreme Court declared that the person acquiring, by way of transfer, a claim for damages in a motor insurance loss, is entitled to reimbursement from the third party liability insurer of justified costs of an expert valuation commissioned from a third party only when its preparation was in the circumstances of the case necessary to effectively pursue the damages.

On 10 September 2019, in the case with file ref, no. I NSK 54/18, the Supreme Court concluded that the President of the Office of Competition and Consumer Protection may impose a penalty on the commercial undertaking for application of abusive contractual clauses listed in the abusive clause register, but only in the cases in which the clause was previously entered in the register as a result of proceedings with regard to the same commercial undertaking.