Poland - The OCCP takes action on insurance-based investment products
Poland’s Office of Competition and Consumer Protection (UOKiK) has imposed fines exceeding 50 million PLN on four financial institutions for violating consumers’ collective interest. The Authority concluded that the companies misled consumers by withholding information on complicated insurance-based investment products (referred to in Polish as polisolokaty) as well as the rights and obligations binding both sides of contracts signed with clients.
The OCCP has found four financial institutions (one insurance company and three intermediaries) to be in violation of consumers’ collective interest in the sale of complicated insurance-based investment products. The decisions concern Aegon TU na Życie and Idea Bank, which have been ordered to discontinue the practice deemed to be in violation, as well as Open Finance and Raiffeisen Bank Polska (formerly Polbank EFG), both of which have discontinued the practice. The fines imposed totalled 50,414,411 PLN. The decisions are not final and are subject to appeal in court.
“The high fines imposed on these four institutions are appropriate for the scale of their violations. They are additionally justified by the fact that we did not see on the part of these institutions a meaningful effort to answer the complaints of aggrieved clients. That is a sign of a lack of commercial integrity and indicates that self-regulation of the financial sector has failed”, explained Adam Jasser, President of the OCCP.
Numerous consumer complaints to the OCCP and other institutions including the Polish Insurance Ombudsman formed the basis for opening proceedings against the companies.
In its decision on Open Finance and Idea Bank the OCCP questioned the failure to deliver to consumers important information on the conclusion of contracts and misleading consumers on matters of risk. In the case of Aegon TU na Życie, the Authority concluded the insurer had acted unlawfully at the stage of execution of contracts, while it found Raiffeisen Bank Polska (formerly Polbank EFG) to be using unfair practices during the pre-contractual stage as well as at the conclusion and implementation of contracts.
The OCCP is conducting further proceedings against another 24 financial institutions that may result in issuing decisions concerning prohibited practices that violate consumers' collective interest.
In the light of the above mentioned cases, both the OCCP and the Insurance Ombudsman postulate regulatory changes to 'civilize' insurance-based investment products. The OCCP also seeks to impose on financial institutions involved in their sale the obligation to undo damages incurred by misled clients. The OCCP put forth these proposals in the framework of the government's work on insurance and reinsurance activity. The Authority proposes that the new regulations should, among other things, obligate those offering insurance products with an investment element to analyse client needs by determining both their knowledge about investing and their financial situation. It also seeks to establish the maximum fees that may be charged by those offering products of this type. Further regulatory proposals concerning that market will be put forth to the Minister of Finance and the Minister of Justice shortly.
FURTHER INFORMATION ON THE OCCP’S DECISIONS:
According to the OCCP analysis, Idea Bank and Open Finance failed to disclose to clients both the risk involved in their products and the high early termination costs. Representatives of these firms presented their product as a standard term-deposit or as a savings programme, emphasizing the benefits while withholding information about possible losses. The OCCP also determined that the companies misled consumers as to the amount of risk involved in purchasing such insurance-based investment products. Open Finance, fined 1,673,546 PLN for its violation, discontinued the practice during the proceedings against it. It had been selling its policies for 6 years. Idea Bank was fined 4,172,571 PLN, and ordered to change the rules governing its investment sales, which had been in place since 2011.
Raiffeisen Bank Polska (formerly Polbank EFG) was fined 21,122,088 PLN. The company was found to have concluded agreements by phone without having sent information in advance, as required by regulations governing the concluding of agreements at a distance. It also did not honour consumers' requests to withdraw within the first 30 days after purchasing the product, as required by law. The company failed to inform consumers that its Kumulatus programme was in fact an investment policy agreement, not a 'savings programme', as its consultants had been telling potential clients. The bank further concealed the fact that the redemption value in the first years of the agreement was considerably lower than the contributions clients would make. As a consequence, many did not know what kind of product they were deciding to purchase.
Aegon TU na Życie, itself fined 23,446,206 PLN, was charged with misleading clients as to the effectiveness of changes in their life insurance contract in the course of its duration. Clients also faced the possibility of incurring a liquidation fee calculated on rules determined solely by the company. Aegon TU na Życie had followed a procedure by which clients lost all of their savings if they terminated their agreement in the first or second year. The Court for Competition and Consumer Protection prohibited the practice in 2012, ruling that the company must discontinue its use with clients with whom it had concluded agreements. The OCCP determined that instead of ceasing to charge the fee prohibited by the court, Aegon TU na Życie took it upon itself to change how it was calculated. When clients subsequently sought to terminate their contracts, the insurer charged them a liquidation fee determined on the basis of new rules. However, according to the law on life insurance contracts, such rules cannot be changed during the lifetime of the contract. The OCCP stated that informing consumers of the alleged setting of new rules for calculating liquidation fees in binding agreements may mislead consumers. Fearing higher fees, some clients may have opted not to terminate their contracts, or have agreed to incur the liquidation fee calculated on new rules.