MUTUAL INSURANCE COMPANIES ON THE BACKGROUND OF SOCIAL INSURANCE

Transcription

1 MUTUAL INSURANCE COMPANIES ON THE BACKGROUND OF SOCIAL INSURANCE Keywords: Insurance, mutual companies, social and health insurance 1. Development history of mutual insurances in Poland Historically mutual help was the oldest form of organised insurances in so-called Brackie cash desk, acting in XV of age on Upper Silesia (Upper Silesia region of Poland), and then created in XVII of age so-called Fire cash desk (Fire Fund). Initially fire cash desks came into being voluntarily, later compulsorily by virtue decision of local power or national one. Activity of fire orders had preventive insurance character. In Polish Republic there was not favourable conditions for rise of insurance institution, because it was in state of political and economic disintegration. On the grounds of Prussian annexation first institutions of fire insurances were organised. They became an example for later insurances in Poland. They acted here on the basis of a mutual fire society: 1803 year - Fire for Cities, 1804 year - Fire for Village, In year 1836 society for cities and villages became joint, In 1873 "Vesta" Bank of Mutual Insurances on life came into being. On the grounds under Russian annexation Fire came into being. Running compulsory insurances of building from fire in cities and country were entrusted to Mutual Gubernialne Insurances of buildings from fire. In year 1868 Management of of Mutual Insurances folded General Meeting relate declaration of permission of running protection on life in various combinations and conditions. Life insurance section started its activity in On terrain of Polish Kingdom and many cities of Russian empire acted from 1870 year Varsovian of Insurances. In 1876 it started reinsurance relations with Polish of Mutual Insurances, acting on the Austrian annexation, which was based in Cracow, so-called "Florianka". In the beginning of XX century the following companies came into being : of Mutual Insurances from hailstorm "Ceres" as well as of Mutual Insurances "Sheaf". On terrain of Austrian annexation there were not favourable conditions for development of insurances (lack of tradition and experiences as well as general poverty of local population). Just in 1869 of Mutual Insurances "Florianka"1 came into being year. On terrain of Austrian annexation they came into being and acted: "Dniester" and Galicyjskie of Insurances "Wisła". 1 Florianka diminution name of this Mutual Insurance. This company s name comes from Saint Florian (Patron who protects people against fire), whose effigy was placed on company emblem.

2 In the beginning of XX century numerous important insurance acts appeared, on which activity of insurances was from between war period was based on. At that time acted: General Institution of Mutual Insurances (PZUW) and Institution of Mutual Insurances (ZUW) in Poznan. In years of II world war the main task of PZUW was help to Polish society with survival of war storm. In 1952 National Institution of Mutual Insurances (PZUW) was transformed into National Institution of Insurances (PZU), which is a fully national institution. To 1984 existed formal, and to the year 1989 actual monopoly of the state to run insurance activity. Act on insurance activity from 1990 (Dz. U. Nr. 59, poz. 39) it created conditions to start "true" market of insurances and reactivated the activity of mutual insurances. 2. The essence of the Mutual Insurance Companies Reform of social-economic system caused development of institution, which main aim it is not increasing of profit, but assurance of some social needs. They are non-profit organisations. Companies of Mutual Insurances are relationships of people, who decided to gather together and to organise a system of social and health insurances. In other words institution of insurances, which insures its members on principles of mutuality is company of mutual insurances2. The main idea of non - profit organisations, like TUW, is " Not for profit, not for charity, but for service ". Mutual companies are enterprises of additional values, democratic and social ones. Companies act on the basis of four basic rules (Figure 1), which are: Figure 1. Four main rules in polish Mutual Insurance Companies TUW Nature Solidarity Democracy Freedom Independence and Elasticity Source: elaborated by authors 2 Art act of 22 May 2003 about insurance activity Dz. U Nr.124 poz.1151

3 solidarity There is no distinction in dependence the height of fee from individual risk of every members of TUW. The contributions are identical for all members of the group who are in the same situation. Solidarity means also permanent looking for the lowest contribution and the highest quality of services the best relation between height of fee and, on the one hand, quality and satisfaction, on the other hand. democracy All members of TUW make a decision about creating a new product, or else investing financial surpluses, and causesd by this paying lower members fees. freedom All members have right accession or resignation from participation in company in any time. Freedom means also possibility of creating new companies or expanding the range of services. This rule means also liberty in creating union or federation. This liberty is not only for individual, but it has collective nature (all people groups can establish separate mutual insurance company and build it around of member union, local council or working place). independence and flexibility Mutual insurance company is independent from certain intellectual currents. provides services for its members. Everyone has possibility to leave organization at any time. Nobody enters insurance company, with which he is obliged to be depended on whole life. 3. TUW activity in Poland Mutual insurance companies can be a huge competition for others organizations. This form is quite different from normal insurance companies, which activity is based on profits. First, the need of safety is not the source of profit for them, as in joint-stock insurance companies. It means that capital input in the mutual company doesn t work for other person's capital. Second, mutual company offers the same range of insurances, at lower level of fees. Third, in case of damage liquidation and financial compensations mutual company gives a better guarantee (is more honest) than anyone of its competitors. In this case, sufferer is here both member and one of the owners of the mutual company, and not like in other insurance companies a troublemaking customer. The community of business creates power of this company. The feeling of property leads to decrease the number of damages. Each insured person is aware that the less damages happen the bigger will be surplus to divide. Nowadays, there are nine mutual insurance companies in Polish insurance market (see Table 1).

4 TAB. 1. Mutual insurance companies in Poland L.p Name of Establishment date 1 Mutual Insurance 27 February 1992 TUW in Warszawa 2 Mutual Insurance CUPRUM in Lublin 3 Mutual Insurance of Credit Unions in Sopot 4 Mutual Insurance REJENT LIFE in Poznan 5 Mutual Insurance Wielkopolska in Poznan 6 Mutual Insurance FLORIAN in Warszawa 7 Postal Mutual Insurance (TUW Pocztowe) in Warszawa 8 Mutual Insurance TUZ in Warszawa 9 Mutual Insurance MACIF Życie in Warszawa Source: elaborated by authors based on 11 June May September February November January September January 2004 Main Founder Cooperative banks and BISE Bank KGHM Polish Copper S.A. Activists of NSZZ Solidarność Main activity (APPENDIX 1) Group II, sections 1-3, 7-10,13, Group II, sections 1,2, 7-9,13 Group II, sections 1, 2, 8, 9, 13, 14, 16 Authority of notarial council Group I, sections 1-5 GBW Bank, A.Boboli Fundation and others Fire Max Ltd., Insurance Samopomoc, Union of voluntary fire guards Republic of Poland State enterprise of public utilities Polish Post Group II, sections 1-3, 7-10, Group II, sections 1-3, 7-10 and 13 Group II, sections 1, 16, 18 Consolidated group of church organizations PROVISIO Group II, sections 1-3, 7-10, Mutual Insurance MACIF (headquarters in Niort in France) and Group I, sections 1-5 MUTAVIE (Life Mutual Insurance ) which belongs to MACIF According to table 1, there are only three mutual insurance companies, which offer additional health insurance: TUW Rejent life (only for notaries), TUW TUW, and MIC MACIF Życie. One of the products, which is offered by MACIF, is Acti Plus - product with guaranteed rate of return. Guaranteed rate of return is especially important in social security aspect because the products like Acti plus provides long-term saving aims e.g. pension, buying a house or children education (Acti Plus 1). The next product which is going to be offered by MACIF is individual pension account (some kind of supplement of 3th pension pillar).

5 TUW TUW leads activity in insurance of medical expenses (individual or groups insurance policies). This insurance is offered to people who are less than 60 year old. Contribution level is computed annually. The insurance bid of TUW TUW includes 3 products: 1. DLA PRZEZORNYCH (FOR PRUDENT) (6 health categories), 2. W RAZIE POTRZEBY (IF NEEDED) (9 health categories), 3. BEZPIECZEŃSTWO (SAFETY) (14 health categories). The rage of insurance protection is different in each product. But the main rule is: when the medical service will exceed the sum of insurance, insured has to himself cover the overage surplus. 4. The role and meaning of TUW on mutual insurance market The pension reform introduced in 1999 allowed to set up in work places, so called Employee Pension Programs (EPP)3, called 3th pension pillar. Such program is created by employer who offers it to his employees. Employee Pension Program can work as a Mutual Insurance 4. Main rules of getting permission to lead activity in TUW form are almost the same like in insurance company case5. To establish TUW it is necessary to create a founder's fund, called in this case ownership or basic capital (see table 2). Ownership capital requirements for TUW are quite high, but ownership capital of TUW can be lower than in case of normal insurance company. Ownership capital cannot be lower than the maximum of minimum level of guarantee capital which is demanded for sections of groups and kinds of insurances in which company leads its activity (paragraph 46). The level of ownership is marked in the Minister of Finance decree6. 3 in Polish: Pracownicze Programy Emerytalne (PPE) 4 Such program can also work in another form, for example as an employee pension fund 5 TUW activity is regulated by act on insurance activity (Dz.U nr 124, poz.1151) 6 Minister of Finance decree - 28 September 2003 (DZ.U Nr 211, poz. 2060) On method of enumeration margin solvency level and minimum level of guarantee capital for sections and groups of insurances ( 8, 9 i 10 of this decree)

6 TAB 2. Minimum level of basic capital Guarantee capital 1 KG1= 3mln EUR Guarantee capital 2 KG2= 2mln EUR Guarantee capital 3 KG3= 3mln EUR Normal insurance company ( 8) Big TUW ( 9) KG1 KG2 KG3 risks only in section 1-9 i In Group II risks even if only 1 risk belong to section % of KG1 KG2 KG3 risks in Group I risks only in section 1-9 i in Group II risks even if only 1 risk belong to section If small TUW fulfills requirements given below (together): 1) In the statue it is written down that company can gather Small TUW additional contributions or can reduce benefits. ( 10) 2) TUW which leads activity in Grup II: a) doesn t lead activity in liability insurance except, when liability insurance is connected with main risk and is covered by the same insurance contract, b) doesn t lead activity in section c) at least 50 % of collected written premium in the last circulation year comes from members who are entitled to voting on shareholders meeting. Source: elaborated by authors Table 2 shows that ownership capital for TUW is 25% (2,25 mln EUR) lower than ownership capital which is required for normal commercial insurance company 3 mln EUR. In addition there is a possibility to create so called small mutual insurance companies. In this case capital requirements are even lower guarantee capital regulations don t apply to small mutual insurance (some conditions have to be fulfilled). To set up a small mutual insurance company it is necessary to get Minister of Finance permission, if one of the requirements comes true: its activity is limited by a little amount of members, its activity is limited by a little number of insurance policies or when insurance policies have low insured sum, its is limited by a small range of activity (for instant: city).

7 Members of a mutual insurance company are its owners and, they are the employees of the firm, which created this mutual insurance company. The employer incur costs only by paying basic contributions to the program. The other costs like: registration and normal activity, are paid by employees. Mutual insurance company activity is much cheaper than insurance company, because costs structure is much more transparent. Mutual insurance company usually doesn t incur acquisition sales costs or doesn t advertise its products these costs are reckon in administrative costs (see table 3). TAB 3. The part of acquisition costs in written gross premium [%] Year Acquisition Sales Costs Whole market 9,53 10,55 10,51 10,43 11,15 Whole Grup I 10,93 13,79 14,52 13,71 12,75 Rejent Life 0,00 0,00 0,00 0,00 0,00 Whole Grupa II 8,80 8,89 8,53 8,70 10,17 TUW Cuprum 0,00 0,08 0,88 1,91 1,53 Source: In TUW case it is more easy to control costs of compensations and benefits. If there appears shortfall of funds in TUW, members are obligated to cover this deficit by paying e.g. higher contributions. Mutual insurance company is perceived as an out of fashion form. Contributions collected by TUW are less than 0,5% written premium in whole insurance sector in Poland. Written premium collected by TUW Rejent Life (the only life TUW) is even token 0,05% of total written premium in whole life insurance sector. For example, in U.S. mutual life insurance companies, using financial criterions, take 35% of life insurance market. From beginning of existence of regulations about Employee Pension Programs, in UNFE7 registry there has not been registered any mutual insurance company. UNFE, in its report, shows four main probable causes of lack of TUW: 1. To establish EPP in this form it is necessary to set up own mutual insurance company or joint to already existing. 2. Mutual insurance companies as insurance organizations hadn t been present before Second World War, and after this war, so they are not popular insurance form in Poland. 3. Existing commercial life insurance companies intensely develop products and services for EPP. 7 the old name of insurance market supervisor

8 4. Gather enough capital. Although, ownership capital requirements for TUW are smaller than in case of commercial life insurance company, but sum 2,25 mln EUR is a huge problem for an employer. Abstract The aim of this paper is to show the role and meaning of a mutual insurance company on social insurance market. The most important thing is non profit activity where the insured is joint owner and members of company. Dr.Eng.Małgorzata Rutkowska & MSc.Eng. Przemysław Kozyra Wroclaw University of Technology Institute of Organization and Management ul. Smoluchowskiego Wroclaw, Poland malgorzata.rutkowska@pwr.wroc.pl, przemyslaw.kozyra@pwr.wroc.pl

9 APPENDIX 1 RISK DIVISION ACCORDING TO SECTIONS OF GROUPS AND KINDS OF INSURANCES Group I - Life insurances Section 1. Life assurance. Section 2. Child s deferred assurance, children s endownment assurance. Section 3. Life insurance connected with insurance capital fund. Section 4. Annuity assurance. Section 5. Sickness and accident insurances if they are supplement of insurances mentioned in points 1-4. Group II Others personal insurances and insurances against loss (on the others words- non-life insurances) without sections 6,11 and 12 Section 1. Accident insurances include workmen s compensation insurance and professional insurances: 1) single benefit, 2) constantly benefits, 3) combine benefits mentioned in point 1 and 2, 4) persons' transport. Section 2. Insurance of disease: 1) single benefit, 2) constantly benefits, 3) combine benefits. Section 3. Land transport vehicles insurances, without rail vehicles (trams, trains etc.), which cover: 1) automotive vehicles, 2) land vehicles without own engine. Section 4. Rail vehicles insurances which cover damages in rail vehicles. Section 5. Air vehicles insurances which cover damages in air vehicles. Section 7. Insurances of goods in transport. Section 8. Insurances against natural hazards, which cover material damages not mentioned in sections 3-7, caused by: 1) fire, 2) explosion, 3) storm, 4) other element, 5) nuclear energy, 6) ground movement. Section 9. Others material damages (if they hasn t been mentioned in sections 3,4,5,6 or 7) caused by hail, frost or others causes (for instant: robbery) Section 10. Liability insurances all types, coming from having and using land vehicles with own engine, including liability insurance of transport agent. Section 13. General liability insurances (not mentioned in sections 10-12) Section 14. Credit insurance, including: 1) general insolvency, 2) export credit, waiver of premium, mortgage repayment, agricultural credit. Section 15. Insurance guarantee: 1) direct, 2) indirect. Section 16. Insurances of different financial risks: 1) against unemployment, 2) against insufficient income, 3) bad weather conditions, 4) loss of profits, 5) regular general expenses, 6) unforeseeable trade expenses, 7) loss of marketable value, 8) loss of regular source of income, 9) indirect trade loss not pointed before. Section 17. Legal expenses insurance. Section 18. Insurance of service of help for people which fell in difficulties during the trip or during theirs absence in place of staying.