Recommendations on the Settlement of Claims from Motor Insurance

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Financial Supervision Authority
Recommendations regarding the settlement of claims from motor insurance Warsaw, July 2022

Table of Contents
I. Introduction......................................................................................................................................................... 3
II. Glossary of Terms............................................................................................................................................ 6
III. List of Recommendations ................................................................................................................................. 9
Organization, management, supervision and control of the motor insurance claims settlement process......... 9
Method of conducting claims proceedings........................................................................................ 11
Method of determining the amount of benefits ........................................................................................................ 12
IV. Recommendations ........................................................................................................................................ 14
Organization, management, supervision and control of the motor insurance claims settlement process....... 14
Method of conducting claims proceedings........................................................................................ 22
Method of determining the amount of benefits ........................................................................................................ 27

I. Introduction
The Financial Supervision Authority (hereinafter: the supervisory authority), in order to ensure the compliance of insurance companies' activities with legal provisions, prevent infringement of the interests of policyholders, insured persons, or beneficiaries under insurance contracts, and limit the risks occurring in the activities of insurance companies, issues on the basis of Article 365(1)(2)(a-c) of the Act of 11 September 2015 on insurance and reinsurance activities (consolidated text: Journal of Laws of 2021, item 1130 as amended; hereinafter: the Insurance Act) the Recommendations regarding the settlement of claims from motor insurance (hereinafter: the Recommendations). The Recommendations also aim to realize the goals set for the supervision of the financial market, specified in Article 2 of the Act of 21 July 2006 on the supervision of the financial market (consolidated text: Journal of Laws of 2022, item 660 as amended; hereinafter: the Financial Market Supervision Act), such as ensuring the proper functioning of the market, its stability, safety, and transparency, trust in the financial market, as well as ensuring the protection of the interests of its participants, as well as taking actions that serve the proper functioning of the financial market in accordance with Article 4(1)(2) of the Financial Market Supervision Act. The Recommendations replace the Guidelines regarding the settlement of claims from motor insurance, which constituted an annex to Resolution No. 414/2014 of the Financial Supervision Authority of 16 December 2014 on issuing Guidelines regarding the settlement of claims from motor insurance (Journal of Official Announcements of the KNF of 2015, item 11; hereinafter: the Guidelines). The content of the Recommendations contains requirements resulting directly from current legal provisions, from unambiguous rulings of the Supreme Court indicating the desirable manner of conduct for insurance companies, from the need to protect the individual interests of policyholders, insured persons, or beneficiaries under insurance contracts, and from supervisory expectations regarding insurance companies in terms of organizing and managing the claims settlement process. It should be emphasized that an insurance company should build and nurture good relationships with the client (in particular, with the person entitled to benefits from the insurance contract), with the aim of increasing trust not only in a specific insurance company or the insurance market, but in the entire financial market. The category of motor insurance covers a range of insurance products; however, the Recommendations express supervisory expectations regarding the resolution of the most important issues, from the perspective of the supervisory authority, in the scope of claims settlement from contracts for civil liability insurance of vehicle owners, CASCO insurance contracts, as well as accident insurance contracts and assistance insurance contracts. The
Recommendations cover the following key areas previously included in the Guidelines:

• timely payment of benefits,

• payment of benefits in accordance with the principle of full compensation,

• respecting informational obligations towards entitled persons,

• supervision and control over the claims settlement process by the bodies of the insurance company,

• internal control in the claims settlement process,

• supervision and control by insurance companies over external entities entrusted with activities in the scope of claims settlement.
  Furthermore, the Recommendations have been expanded to include new areas, regarding which it is appropriate to indicate the proper practice of conduct, concerning in particular:

• organizing by the insurance company the settlement of damage ensuring the restoration of the vehicle to its pre-accident state within the so-called comprehensive motor insurance claims settlement service,

• offering damaged parties the rental of a replacement vehicle,

• reimbursement of expenses incurred in connection with the commissioning by the entitled person of an opinion (expert report) by a third party,

• concluding settlements.
  The Recommendations indicate supervisory expectations regarding the prudent and stable management of the area of motor insurance claims settlement, including also the risk associated with this area. This risk can be defined as uncertainty related to the proper and efficient conduct of claims proceedings by insurance companies. It is primarily associated with operational risk and reputational loss risk. It should also be noted that irregularities in the process of settling motor insurance claims expose the insurance company to specific financial losses related to the necessity of incurring legal costs of dispute and, in case of defeat, the necessity of paying court costs and costs of legal representation, as well as interest for delay in paying compensation. All Recommendations are addressed to domestic insurance companies within the meaning of the Insurance Act, as well as should be applied by main branches of foreign insurance companies, taking into account their organizational specificity. The Recommendations regarding the method of conducting claims proceedings and determining the amount of benefits from civil liability insurance contracts of vehicle owners for damages arising in connection with the movement of these vehicles, referred to in Article 4(1) of the Act of 22 May 2003 on compulsory insurance, the Insurance Guarantee Fund, and the Polish Motor Insurance Bureau (consolidated text: Journal of Laws of 2022, item 621 as amended; hereinafter: the Compulsory Insurance Act), should also be applied by foreign insurance companies having their registered offices in member states of the European Union or member states of the European Free Trade Association (EFTA) - parties to the Agreement on the European Economic Area and conducting insurance activities on the territory of the Republic of Poland, in the scope of motor insurance on the terms specified in the Insurance Act. The document contains 25 Recommendations, which have been divided into the following areas:

• organization, management, supervision and control of the motor insurance claims settlement process,

• method of conducting claims proceedings,

• method of determining the amount of benefits.
  Recommendations 1 to 13 apply to the settlement process of all claims from motor insurance. The remaining Recommendations apply to the settlement process of claims from civil liability insurance of vehicle owners, in which vehicle damage occurs.
  Furthermore, the supervisory authority recommends that in the event of implementing outsourcing, the insurance company should make every effort to ensure that service providers perform entrusted activities in accordance with the Recommendations. The supervisory authority indicates that contracts concluded by insurance companies with service providers should contain appropriate clauses guaranteeing that the activities of insurance companies, also in the scope entrusted to these providers, will meet the standards specified in the Recommendations. The supervisory authority expects that insurance companies will apply the Recommendations no later than from 1 November 2022. The supervisory authority expects that decisions of insurance companies regarding the method of implementing solutions indicated in the Recommendations will be preceded by in-depth analysis and supported by appropriate argumentation. The "apply or explain" principle applies to the Recommendations. According to Article 365(5) of the Insurance Act, insurance companies that do not apply the Recommendations nor intend to apply them inform the supervisory authority of the manner in which they intend to achieve the goals for the realization of which the supervisory authority issued the Recommendations. The above information will be published on the website of the supervisory authority.

II. Glossary of Terms
Amortization – reduction of the value of a spare part that is a component of the benefit under a motor insurance contract in connection with damage to a vehicle, resulting from the difference between the value of the new part used for vehicle repair and the value resulting from the degree of operational wear of the part destroyed as a result of the accident. ASO – authorized vehicle service station – a vehicle repair service possessing authorization from the vehicle manufacturer or importer. O Parts – new spare parts, original, directly from the vehicle manufacturer. P Parts – new spare parts, non-original, of comparable quality, covered by the warranty of their manufacturer, who simultaneously certifies that they are of the same quality as the components that are or were used for the assembly of the given vehicles. Q Parts – new spare parts, of the same quality as parts directly from the vehicle manufacturer (produced according to specifications and production standards established by the vehicle manufacturer), produced by the same manufacturer who supplies the vehicle manufacturer with parts for vehicle assembly or spare parts (also called parts equivalent to original). Claims Adjuster – a person performing activities during the claims proceedings, in particular in the scope of: collecting necessary documentation in this proceeding, conducting inspections of the subject of damage, determining the scope of the insurance company's liability, contacting the person entitled to benefits from the insurance contract during the claims proceedings, determining the value of the benefit. Whenever the Recommendations refer to a claims adjuster, this also means a team of persons performing activities during the given claims proceeding, if in a given insurance company a team of persons is responsible for settling the claim. Cost Estimation Method – a method of determining the amount of benefits for vehicle damage, based on a calculation adopted by the insurance company, specifying the planned cost of repairing the damaged vehicle. Service Method – a method of determining the amount of benefits for vehicle damage, based on an invoice or receipt issued by a repair workshop that performed the repair of the damaged vehicle. CL – Civil Liability. Supervisory Authority – Financial Supervision Authority. Outsourcing – a contract between an insurance company and a service provider, on the basis of which the service provider performs a process, service, or action that would otherwise be performed by the insurance company, as well as a contract on the basis of which the service provider entrusts the performance of such a process, service, or action to other entities, through which it performs the given process, service, or action.

Vehicle – a means of transport, the owner of which is obliged in accordance with the provisions of the Compulsory Insurance Act to conclude a contract for civil liability insurance of vehicle owners.
Claims Proceedings – a process encompassing activities aimed at clarifying circumstances necessary to determine the insurance company's liability for the event and possibly the amount of benefits, and to fulfill or refuse to fulfill the benefit within the time limit required by current legal provisions or the concluded insurance contract.
Procedure – a document regulating the manner of conduct, adopted by the competent body of the insurance company, ensuring unambiguous determination of the scope and period of validity, distributed in a manner established in the insurance company.
Internal Control System – a system encompassing in particular administrative and accounting procedures, organization of internal control, appropriate arrangements regarding the preparation of reports at all levels of the organizational structure of the insurance company, and the compliance function.
Management System – a management system operating in the insurance company, encompassing the risk management function, the compliance function, the internal audit function, and the actuarial function, which ensures proper and prudent management of the insurance company and includes at least an organizational structure in which scopes of responsibility are clearly and appropriately divided, an effective information transmission system, and compliance with other requirements specified in the Insurance Act. Total Loss – in CL insurance of vehicle owners, vehicle damage to such an extent that the value of expected repair costs, determined on the principles indicated in the Recommendations, exceeds the market value of the vehicle before the event causing the damage. Partial Loss – in CL insurance of vehicle owners, vehicle damage to such an extent that the value of expected repair costs, determined on the principles indicated in the Recommendations, does not exceed the market value of the vehicle before the event causing the damage. Motor Insurance – civil liability insurance of vehicle owners, CASCO insurance, accident insurance, assistance insurance. Assistance Insurance – voluntary insurance of costs for providing assistance in the event of occurrences specified in the insurance contract in connection with the use of a vehicle. CASCO Insurance – voluntary insurance of the vehicle against the consequences of events, in particular against damage, destruction, and loss. Accident Insurance – voluntary insurance of the consequences of accidents in the form of bodily injury, health disorder, or death of the driver or passenger of the vehicle.

Civil Liability Insurance of Vehicle Owners – insurance of civil liability of vehicle owners for damages arising in connection with the movement of these vehicles, referred to in Article 4(1) of the Compulsory Insurance Act.
Entitled Person – person entitled to benefits from a motor insurance contract.
Insurance Act – Act of 11 September 2015 on insurance and reinsurance activities (consolidated text: Journal of Laws of 2021, item 1130 as amended).
Compulsory Insurance Act – Act of 22 May 2003 on compulsory insurance, the Insurance Guarantee Fund, and the Polish Motor Insurance Bureau (consolidated text: Journal of Laws of 2022, item 621 as amended).
Loss of Commercial Value (Market Value Reduction of the Vehicle) – loss of vehicle value due to an event concerning this vehicle, resulting in the liability of the insurance company. It is defined as the difference between the market value of the vehicle before damage and its value established under the same market conditions, taking into account the post-accident repair performed correctly, in accordance with the technology recommended by the manufacturer, in a repair workshop meeting technical and personnel requirements for performing such work. Insurance Company – domestic insurance company and foreign insurance company, which conducts activities in the scope of motor insurance on the territory of the Republic of Poland. Principle of Full Compensation – in CL insurance of vehicle owners, a principle specified in Article 361 § 2 of the Act of 23 April 1964 Civil Code (consolidated text: Journal of Laws of 2022, item 1360), according to which, within the limits of an adequate causal link, compensation should, as a rule, correspond to the amount of damage suffered by the damaged party and compensate for the detriment that affected their legally protected goods or interests. Event – a random event within the meaning of the Insurance Act. Claim Notification – notification to the insurance company of the occurrence of an event covered by civil liability insurance of vehicle owners, CASCO insurance, accident insurance, assistance insurance.

III. List of Recommendations
Organization, management, supervision and control of the motor insurance claims settlement process Recommendation 1 The insurance company should have an appropriate organizational structure serving the proper functioning of the motor insurance claims settlement process.
Recommendation 2
The Board of the insurance company should ensure effective management of the area of motor insurance claims settlement.
Recommendation 3
The Supervisory Board of the insurance company should effectively supervise the functioning of the area of motor insurance claims settlement.
Recommendation 4
The insurance company should develop and adopt procedures specifying the method of conducting claims proceedings, constituting an element of the insurance company's management system, and ensure their proper functioning.
Recommendation 5
The insurance company should ensure the functioning of an effective internal control system, encompassing the compliance function, and an effective internal audit function in the area of motor insurance claims settlement, in such a way that they support the Board, persons designated by the Board responsible for this area, and the Supervisory Board in fulfilling obligations related to managing and supervising this area. Recommendation 6 The insurance company should develop, adopt, and ensure the functioning of a management information system regarding the motor insurance claims settlement process, adapted to the scale of conducted activities and the size and risk profile associated with this activity, being an integral part of the insurance company's management system, allowing for the identification of risks occurring in this process.

Recommendation 7
The insurance company should ensure that outsourcing does not lead to a deterioration in the quality of functioning of the motor insurance claims settlement process and the insurance company's management system, in particular excessive exposure to operational risk and reputational loss risk, as well as to a deterioration in the ability of the supervisory authority to monitor the insurance company's compliance with its obligations in this scope. Recommendation 8 The insurance company should develop, adopt, and ensure the functioning of a claims adjuster remuneration system, ensuring an efficient course of the motor insurance claims settlement process. Recommendation 9 The insurance company should ensure that persons performing activities in the area of motor insurance claims settlement possess appropriate competencies and knowledge, in particular through access to training concerning this area.

Method of conducting claims proceedings
Recommendation 10
The insurance company should conduct claims proceedings in a manner ensuring the fulfillment of benefits or taking a final position on the refusal to fulfill them in whole or in part within time limits resulting from legal provisions and the concluded insurance contract.
Recommendation 11
Communication of the claims adjuster with entities during the claims proceedings, in particular with the person filing the claim, the entitled person, the policyholder, the insured, and the perpetrator of the event, should be conducted with due care related to the professional nature of the insurance activity conducted by the insurance company. Recommendation 12 The insurance company should develop and adopt procedures specifying the manner of contacting between the claims adjuster and entities during the claims proceedings, constituting an element of the insurance company's management system, and ensure their functioning. Recommendation 13 The insurance company should collect documentation of the claims proceedings, encompassing in particular claims documentation and justification for the amount and updating of the reserve for unpaid compensation and benefits for the given claim, with due care related to the professional nature of its insurance activity. Recommendation 14 The insurance company, determining the amount of benefits from the civil liability insurance contract of vehicle owners, should ensure that the entitled person receives full and understandable information about the method of determining the amount of benefits, including its undisputed part.

Method of determining the amount of benefits
Recommendation 15
In the event of a partial loss, the insurance company should determine the benefit from the civil liability insurance contract of vehicle owners in an amount that ensures the entitled person the restoration of the vehicle to its pre-accident state.
Recommendation 16
The insurance company, determining the amount of benefits from the civil liability insurance contract of vehicle owners, may, with the explicit consent of the entitled person, organize the repair of the vehicle in a repair workshop, the result of which will be the restoration of the vehicle to its pre-accident state (comprehensive motor insurance claims settlement service), however, it may not make the payment of benefits conditional on using this service. Recommendation 17 The insurance company should determine the benefit from the civil liability insurance contract of vehicle owners in an amount taking into account the reasonable and economically justified costs of new parts and materials serving to repair the damaged vehicle. If the insurance company proves that the repair performed using new parts and materials led to an increase in the value of the vehicle, relative to its value before the event causing the damage, it may reduce the value of the benefit by an amount corresponding to this increase. Recommendation 18 The insurance company, determining the amount of benefits from the civil liability insurance contract of vehicle owners, should take into account the value of parts qualified for replacement, which ensures the restoration of the vehicle to its pre-accident state. Recommendation 19 Benefits from the civil liability insurance contract of vehicle owners determined by the cost estimation method should be determined based on the value of available parts. Recommendation 20 The insurance company should not determine benefits in an amount resulting in limiting the possibility of repairing the vehicle within the scope of the benefit due to the entitled person from the civil liability insurance contract of vehicle owners, when a total loss has not occurred. The insurance company should apply identical criteria for determining the costs of vehicle repair and the value of...