Supervision of the insurance industry
A credible and stable insurance industry is one of the basic preconditions for a functioning economy. Such credibility and stability cannot be guaranteed by market mechanisms alone, so the activities of insurance companies, reinsurance companies, insurance intermediaries and independent loss adjusters are governed by restrictive and injunctive regulations, which chiefly take the form of legal rules governing insurance, reinsurance and insurance intermediation. Overseeing adherence to these rules and ensuring accountability for any contravention of them is known as supervision of the insurance industry, which is performed by the Czech National Bank. Supervision of the insurance industry pursuant to the Act on Insurance is performed in the interests of maintaining the financial stability of insurers and reinsurers and protecting policyholders, insured parties and beneficiaries. This broadly defined objective means in particular promoting the sound development, market discipline and competitiveness of insurers and reinsurers, preventing systemic crises, protecting policyholders, insured parties and beneficiaries and strengthening public confidence in the insurance industry.
It is not the aim of supervision of the insurance industry to prevent the failure of individual insurers or reinsurers at all costs, to substitute for courts and arbitrators in deciding on private law relationships between service providers and their clients, or to substitute for law enforcement authorities. The bodies of an insurer or reinsurer are responsible for ensuring that its internal control mechanisms and risk management system are functioning. The supervisory authority’s job is to carry out subsequent checks focused on compliance with the regulations. The supervisor cannot itself prevent an insurer or reinsurer from entering into loss-making transactions or an insurance intermediary from breaching the rules of conduct towards clients. If the supervisory authority uncovers any shortcomings, however, it is obliged to apply its remedial instruments, which can include revoking the licence or imposing conservatorship. These public law measures are intended to protect the financial market as a whole and to reduce the possibility of similar unlawful conduct happening in the future.
Under the Act on the Czech National Bank, supervision of the insurance industry includes decisions on licence, permit and registration applications and prior approvals pursuant to special legal rules; inspection of adherence to the conditions stipulated in licences and authorisations; inspection of adherence to laws, insofar as the CNB has the power to conduct such inspections under the law or special legal rules; inspection of adherence to the decrees and provisions issued by the CNB; collection of information needed to perform supervision and its enforcement, and verification of whether it is true, complete and up-to-date; the imposition of remedial measures and penalties; and proceedings regarding administrative offences.
Regulation of the insurance industry involves laying down the framework for prudent performance of insurance activities by insurers and of reinsurance activities by insurers and reinsurers, and for the performance of insurance intermediation. It also involves checking compliance with this framework. The activities of insurers and reinsurers are governed mainly by Act No. 277/2009 Coll., on Insurance, as amended, and by implementing decrees specifying certain prerequisites related to the fulfilment of the obligations laid down in the Act, prudential rules and disclosure duties (Legislation).
In addition to the activities of insurers and reinsurers, the activities of insurance intermediaries and independent loss adjusters are subject to regulation and supervision. The activities of insurance intermediaries and independent loss adjusters are governed mainly by Act No. 38/2004 Coll., on Insurance Intermediaries and Independent Loss Adjusters.