Author: Mrs Halina Olendzka, the Polish Insurance Ombudsman
After two years of holding an office of the Polish Insurance Ombudsman I would like to share my opinion concerning unethical, according to the consumers, acts of some insurance companies in Poland. I really hope that problems indicated herein will evoke some reflections among insurance services providers and induce them to treat consumers in a more friendly way. I am convinced, that in a longer perspective such positive changes will bring an improvement in a way that society perceives the insurance business. Hopefully, people will become more aware of the fact that insurance is a kind of help and support offered to them. This, in turn, will encourage more stable development of insurance business in Poland.
At the same time, I would like to stress the fact that this text does not aim to put negative colors on insurance business and discourage citizens from using this great boon which is known as insurance protection.
In indicating and estimating some unprofessional, in my opinion, matters observed in the activity of insurance companies my high-level goal is the well-being of citizens. Among them are: insured, policyholders, beneficiaries and other, entitled to insurance indemnification.
Together with my employees and the Foundation for the Insurance Education I try to promote insurance (using our office website, telephone consultations or e-mail) as a method of protection against unfavorable events, which might occur both in private and professional life. We do our best to make society aware how to effectively, and at the same time, safely make use of institutions of economic protection.
The last two years of my observation of relations between insurance services providers and policyholders have brought some disturbing remarks concerning the activity of the majority of insurance companies. My observations clearly demonstrate that some of these companies violate the law or present rather unfriendly, unprofessional and sometimes even immoral behaviour towards the consumers. All of the complaints, questions and claims addressed to the Insurance Ombudsman office are of great value being a source of knowledge concerning the actual functiong of the insurance market and how its activity is perceived and assessed by the society. Moreover, they can be used as helpful remarks indicating what should be changed in the insurance companies' activity to fulfill their goals and at the same time provide consumers with sufficient help in difficult situations.
The most frequent examples of immoral acts of insurance companies are presented here in reference to particular kinds of insurance starting from the most popular one in Poland: motor third party liability insurance. As far as proceedings taken in case of this type of insurance are concerned it seems undoubtedly immoral to use different criteria of damage evaluation and liquidation. Unfortunately, it is a frequent practice of the insurance services providers to classify a damage to the vehicle as a so called total loss. This may seem apparently right from the insurers' economical point of view but, on the other hand, can be immoral and not always well-founded from the legal and consumers' point of view. In the situation when a person who suffered a damage still wants to make use of his/her vehicle and declares to repair it with the use of cheaper spare parts in order to prevent costs of repair being higher than pre-accident value of a vehicle, he/she very often meets with a flat refusal to this way of damage redress. On the other hand, in case of a part damage the repair with the use of cheaper parts would have been accepted. Aiming to classify a damage in a vehicle as a total loss insurance service providers tend to establish costs of repair as high as possible. This is achieved by calculating the costs of repair based on prices of the most expensive original spare parts.
Preliminary calculations concerning the cost of repair prepared by the insurance company include: original elements with a producent' s logo and costs of repair based on the most expensive remuneration of car service stations. At the same time, insurance companies very often deliberately under-estimate pre-accident value of a vehicle, so it is more likely that costs of repair will be higher than value of a vehicle and so the repair becomes uneconomic. Surprising is the fact that the insurance companies act completely different when assessing the costs of repair in case of a part damage. Their attitude towards a damage liquidation changes drastically as the insurance service providers aim to diminish the costs. They suggest that a person who suffered a damage should use cheaper spare parts, even if in fact, original elements were broken during an accident. Moreover, the value of car parts is often diminished proportionally do the age of a vehicle (amortization) with taking the smallest rate of wages for mechanic's work at the same time. This way the consumer receives a sum of money that is insufficient to pay for the repair of his damages vehicle.
What happens quite often and what strongly shocks the parties to an accident is that they observe a wide variation in the assessment of the same damage (depending on the way a damage is classified: either a total loss or a part damage). This kind of dualism might result in unfinished damage liquidation and cause the feeling of huge harm among the majority of claimants. Such activities are described in many complaints received by the Insurance Ombudsman and are perceived as a standard practice among insurers. Actually, on the Polish market there are many favorable conditions for this practice to be continued like: variety of prices and different qualities of spare parts as well as the repair service.
Unfortunately, insurance companies overuse its stronger position on the insurance market and use some kind of unfair "dictate" even if in the civil and legal relations equality between the insurers and policyholders should be saved and cultivated.
Another, frequently observed activity of the insurers which is an example of the lack of simple human kindness, is the situation when the insurers refuse to help with written- off wreck of a vehicle (when classified as total loss with no right to repair). Many policyholders in such situation have got serious problems with the wreck or at least selling it for a right and fair price. In many cases the remainings of damaged car are assessed by the insurer to be quite valuable, but the opinion of the majority of potential buyers tends to be different in practice. This leads to a situation in which a claimant is forced to sell a wreck for much less than the value estimated by the insurer. Moreover, insurer may be unwilling to make any additional payment to compensate damage in full. Many consumers living abroad, observe completely different insurers' approach to this matter and wonder why in Poland a claimant has got such a big problem with selling a wreck of vehicle and receiving full compensation.
Another frequent practice of insurers is providing a policyholder with an information about a potential buyer of a wreck. Though, this offer quickly expires and a claimant is not able to make use of it. When he receives less money for selling a wreck than insurer's proposal includes, a price is not accepted by the insurance company.
One more immoral activity can be observed in a situation when insurer decides to diminish the indemnity because he finds a complainant's participation in causing a damage. Deciding to what extend a claimant should bear responsibility for a damage should be done with a special care as it has many consequences for policyholder, his relatives and other parties injured in an accident. Unfortunately, it happens quite often that an insurer overuses his power and overrates a complainant's contribution to a damage.
Good example for such kind of abuse can be a case investigated by the Insurance Ombudsman some time ago. Disabled man while crossing a very busy street was hit by a car. Although, court of first instance did not find any fault in victim's behaviour, as he was crossing the street through the pedestrian crossing, the insurance company determined a degree of damage contribution of 80%.
Another problem which is often investigated in my office is a delay in paying compensation without any valid reason. Usually, insurers explain that the delay is caused by a necessity to wait for a written confirmation concerning circumstances of an accident. Unfortunately, it happens also in situations when there is no need to clarify anything. Such behaviour is perceived in a very negative way by the claimants because it causes unnecessary delays in the payment of compensation. As far as this matter is concerned, insurers tend also to give an excuse that they need to wait for a judgment in a criminal proceeding against an accident perpetrator. Such anticipation evokes some doubts in case when no one questions the civil fault of a person and the only aim of the criminal proceeding is to punish an offender. Many allege that insurance companies hope that an accident perpetrator will be sentenced to pay the damage on one's own expense and this will diminish the sum of compensation the insurer is obliged to pay. But the situation of an injured person gets worse when a perpetrator is insolvent and an insurance company does not agree to cover this particular part of damage based on third party liability insurance.
Now I would like to pay some attention to a problem that seems to be unsolvable without a legislator's intervention: problem of double third party insurance of the owners of vehicles. This problem refers mainly to people changing the former insurance or purchasing a used vehicle. As the result of lack of proper knowledge or some kind of carelessness many consumers involuntarily become clients of two different insurance companies. Such policyholders feel aggrieved as they have to pay premiums to two insurers.
Unfortunately, in many cases insurers do not want to settle the matter amicably.
In my opinion the aversion to an insurer of whom a policyholder is involuntarily a client will last and will be gradually passed to the other citizens. It also happens that insurers aiming to recover their debts use the help of debt collection companies or turn a case to court.
In my personal opinion, it is especially immoral to recover premiums which are over limitation period. Doing it, insurers count that they will receive the money as most of the policyholders are unaware of the fact that they actually can avoid paying.
Another group of immoral practices observed in the activity of insurance companies concerns the comprehensive motor insurance. These are both unprofessional canvassing practices and groundless refusals of compensation observed in liquidation proceedings.
At the canvassing stage many doubts are evoked by an acceptance to cover a car which does not fit to the requirements necessary to start its insurance protection. Many disputes could have been avoided if, at the moment of signing an agreement, a vehicle would have been carefully examined. Including professional assessment of value of a car, confirmation of its legal ownership, checking the effectiveness of anti-burglary system and other requirements of the insurer. These activities are usually made by the insurer after a damage has occurred. In case when an insurance agent, although he is supposed to check the condition of a car before a client enters the insurance agreement, does not fulfill his duties, an insurer should not point at lack of suitable precautions after a damage has occurred. In this situation it seems obvious that an insurance agreement was signed with the omission of some requirements mentioned in the contract. Therefore they cannot be a basis for a refusal to pay compensation. Generally speaking, policyholders notice that while trying to obtain an insurance contract they are treated very well, without even lurking suspicion of dishonest declaration. This situation changes drastically when damage occurs and policyholders claim for compensation.
In consumers' opinion exclusions of insurance protection in comprehensive agreements is nothing else but making use of unawareness of the clients. A problem that is often reported in complaints is a refusal to pay compensation if there is a lack of due technical examination of a vehicle or placing the results of this testing in a document different than vehicle registration card. According to consumers, lack of technical examination of a vehicle can be a reason to refuse compensation in case when bad technical condition of a car was a direct cause of damage. In cases when damage was caused by thief or was an effect of vandalism acts, it is unacceptable to refuse to pay compensation on the basis of lack of proper technical examination.
Next group of immoral acts observed by the consumers in the activity of insurance services providers are these connected with individual insurance, life insurance and accident insurance.
A good example of it can be a type of insurance provided to students by schools and universities, which enter into agreement with insurance companies - so-called "group insurance". These are optional insurances in which the policy conditions are shaped by two parties of an insurance agreement. Though, in practice such agreements often provide the insured with inefficient protection and bring dissatisfaction of parents whose children were injured in an accident. It results mainly from the fact that premiums in such type of agreements are relatively low so the compensation paid after an accident is low as well. This introduces a false impression of insurance protection. In such cases we notice that parents are not provided with sufficient information about insurance coverage of their children. Entities who should be blamed for it can be both brokers and schools' headquarters as they do not include parents in the process of choosing an insurer and negotiation of term and conditions. Unfortunately, it happens quite often that bonuses offered by insurers have a big influence on choosing extent of cover. Among these "additions to insurance" frequently are: computers, gymnastic equipment, renovation of school's facilities, or discounts for teachers' insurances etc. If poor schools are endowed by insurance companies and at the same time the scope of insurance protection of children is not limited there are no grounds for criticism. However, if children lose due to the schools' and insurers' desire to gain more profits, it is obviously again a problem of insurance ethics. I am of the opinion that parents should actively participate in insuring their children in order to know what they will receive when an accident occurs. Thanks to that at least some parents will decide to choose additional insurance for their children in order to assure better protection of their health.
Many doubts are also evoked by the fact that the majority of the above contracts offer rather limited protection. Compensation is granted only for injuries included on a list being a part of insurance terms and conditions, for example: broken limbs or scalds. As the result, other injuries are not under the insurance protection. It refers even to inner injuries, which can be of serious danger for a person's health. According to such a contract some life threatening injuries are not the basis for compensation. Some insurers take even one step forward and introduce limitations on benefits paid for the most frequent injuries among children ( scolds or broken limbs).
Another big problem which consumers face as far as insurance business is concerned is connected with life insurance offered by banks to consumers who take credit (bancassurance). Potential borrower, no matter how high the loan is, is suggested that in order to obtain a loan he has to accept insurance conditions and pay for the insurance cover. As a client is determined to obtain a credit he will be inclined to accept every condition even life insurance if bank requires it. The Insurance Ombudsman receives many complaints from borrowers, or even more frequently, from their families concerning bancassurance industry. After the death of the borrower, families complain that banks refuse to provide any help in paying debts which their relative got into Such help is not offered by insurance company as well. These problems result mainly from: expiration of an insurance protection when a policyholder is over a certain age determined in an agreement, an insured dies as an effect of illness for which he suffered before entering into agreement or if the insurer did not obtain some information concerning health before entering the insurance agreement. What seems to be really suspicious and doubtful are the circumstances in which such a contract is usually signed. When a client comes to the bank in order to obtain a credit and there he is "forced" to accept an insurance contract it might be really difficult for him to concentrate on the conditions of the insurance. Insurances offered by banks are often too general and sold automatically without detailed analysis. This all makes an impression that banks offer insurances in order to profit from this additional source of benefit rather then assure real insurance protection for their clients. Office of the Insurance Ombudsman has been dealing with this problem for the last 3 years during which we managed to prepare two raports highlighting many problems connected with bancassurance industry. As the effect of our work on this subject a recommendation promoting an idea of "good practice" on the Polish bancassurance market was introduced. It includes better protection of insurance products offered by banks and a regular cooperation between the Banking Ombudsman and the Insurance Ombudsman.
Many misunderstandings appear also when accident insurances are sold together with credit cards or bank accounts. Premiums for this kind of insurances are really small and at the same time the insurance protection is rather limited. The truth comes out in a situation really unpleasant for the policyholder, when an accident occurs and he anticipates receiving help and compensation. No wonder that consumers feel harmed and cheated when they cannot count on any kind of indemnity for their loss. Many people wrongly think that every type of insurance assures one's self a good protection. However, it is essential for the policyholders to deepen their knowledge of the scope of insurance and the height of indemnity before signing a contract. This can be achieved by better education of policyholders. Sometimes a good, full information provided to the client before entering an insurance contract is enough to avoid such conflicts.
What I perceive as an important and serious problem is a lack of insurers' respect for decisions made by the Polish Supreme Court concerning the scope of their labiality for damages. According to insurance companies all of the illegal practices described above are acceptable as the Polish Supreme Court judgments are binding as to accidents that occurred after the date of Supreme Court's verdict. Insurers are unwilling to accept the fact that such judgments aim to remove variances observed in damage liquidation proceedings which were caused by some former divergences in jurisdiction of trial courts. That means that the procedures used have been improper ever since.
All of the examples of immoral practices by which insurance services providers undoubtedly violate the law created a need for the development of compensation offices (claim management companies). Consumers, instead of participating in an argument with insurer themselves, prefer to hire a professional who will assert their rights to receive a suitable compensation. According to insurance companies, service provided by such offices is useless as complainants are going to receive a fair indemnity anyway, without a need to pay a provision for a lawyer or a claim manager. In practice, however, it turns out that when a client is represented by a lawyer he receives higher compensation than when acting individually.
In essence, it should be underscored that insurances are of much importance for social and economic life in every free market economy. The role of insurance will be increasing for both single citizens and the whole insurance sector.
Appreciating the big importance and specificity of insurance business, it is described as an institution of public trust and so it should operate. To achieve this the insurance law should be effectively adjusted to practice. Definitely, even the best law will not repair a negative image of insurance companies if they will not take care of their harmonious development with a respect of law and consumers. Profit, at any cost, does not bring the best results, especially in public assessment.
The role of the Polish Insurance Ombudsman includes early detecting and indicating any illegal practices appearing on the insurance market. Moreover, the Insurance Ombudsman informs other members of insurance business about observed faultiness to initiate legal changes. Substantial value among the Insurance Ombudsman's competence is the right to turn to the Polish Supreme Court in order to remove any divergences observed in jurisdiction of courts within the insurance sector so that liquidation proceedings can be unified. A huge impact on the significant improvement in the quality of insurance services is our latest legislative initiative introducing an independent and professional car expert to liquidation proceedings. In my opinion most of disputes which appear at the stage of indemnification procedure concern fact-findings: circumstances of an accident, scope of damage, cost of repair etc. To diminish the time and the cost of these disputes we found more objective assessment of an accident essential. At the same time, we propose to give car experts more power simultaneously requiring more as far as their professional qualifications are concerned.
It would be an excellent step for the insurance companies to more willingly use help of conciliation courts and ADR's in resolving their disputes with consumers. This faster and cheaper way of reaching a settlement would undoubtedly improve the image of insurance services providers. It does not matter if disputes are solved by Arbitration Court attached to the Insurance Ombudsman office, supervision body or Banking Ombudsman. Many clients of insurance companies share rather negative opinions concerning insurance appeal proceedings and indicate that Polish court system is overloaded and what goes with it, does not assure fast and cheap process of dispute resolution. In case when insurers do not agree to resolve the dispute before arbitration court and action for damages does not bring any positive results, consumers might feel helpless. No wonder, why complainants prefer to turn to law firm in order to pursue a claim against insurer.
Comparing the conditions of Polish insurance market to other more developed countries
it seems essential to develop also other insurance sectors, apart from motor vehicle insurance which is the main part of the Polish insurance market today. This will be possible only if insurers will recover its reliability among citizens. To make it possible they should bear in mind that what counts the most is long-term effects rather than temporary financial results.
A matter of special importance in winning people's trust is increasing insurance awareness among citizens, especially young people, together with popularizing reliable insurance information. Indeed, gaining confidence of citizens, entrepreneurs and consumers presents a real challenge, but anyway, it is still possible to achieve. Providing that insurers' activities will be characterized by professionalism, ethics and will be adjusted to the variety of clients of the insurance market. That is, in my opinion, a key to the success for the whole insurance business and of course an excellent way to assure satisfaction of consumers . That is what I wish for all members of this specific business.