Allegations of corruption in the insurance distribution of company pension plans
The most recent investigations by the public prosecutor against insurance sales in connection with the bAV-IVECO affair weigh heavily: an insurance broker was able to bribe a confessed works council with six figures from lavish commissions presumably amounting to millions. The insurance industry denies any involvement – but with an effective dissociation from the insurance intermediary concerned, they apparently have a hard time?
Obligation for risk management according to § 91 II AktG
The annual general meeting had refused to discharge a management board – and rightly so, as the Munich Regional Court I decided in its ruling of 5 April 2007 (Case No. 5 HK O 15964/06): The company in question did not have a functioning risk management system, there was no comprehensible written documentation and thus no functional and system audit could be carried out by the auditor.
Withdrawal of the sales director’s license – BaFin application is sufficient
The law already forces the management of a medium-sized GmbH to comply with its responsibility to safeguard the company’s existence. In the event of violations, there is not only the threat of damages from shareholders and partners, § 92 AktG. In this case, no D&O insurance will regularly intervene, because even in the case of conditionally intentional conduct, no cover is provided here. Rather, due to a withdrawal of the license by BaFin, the sales director risks not only liability with his private assets but also the loss of the retirement pension from the insurer as employer.
Risk management in insurance distribution: reporting and monitoring obligations
Insurance companies must not only monitor the reliability of their intermediaries, but also report irregularities and complaints to the supervisory authority, §§ 80 ff. VAG: Since 22.05.2007, some management boards have been acting contrary to the EU Insurance Mediation Directive by acting as the managing director of an intermediary office on the side, or by having their own intermediaries approve a dual function as broker and agent. In Circular 9/2007, BaFin reminded insurers of their duty to manage risks in sales, i.e. the duty to have suitable control instruments at their disposal that enable risk to be identified at an early stage: This is because cooperation with intermediaries is associated with not inconsiderable risks for insurance companies. But how then can it be explained that insurance companies only deny their own direct “involvement in corruption in occupational pension insurance mediation” instead of recognising it at an early stage, preventing it and actively distancing themselves from it?
Commission system encourages bribery
The enormous commissions and brokerage fees that insurers offer in the field of occupational pension schemes are a lucrative source of income for distributors, as the advice given to individual employees can be provided very efficiently. The only thing that needs to be done is to first win over the employer who is to insure his employees. In the case of deferred compensation, this costs the employer nothing, but he – or the works council or the head of personnel – is of course aware of the high commission sums involved.
It would be naïve of an insurer not to expect parts of the commission to be passed on to those responsible in the company. Finally, with the cost transparency from 01.07.2008, the insurers also assume that the customers want to participate in the now disclosed commission. This means that contracts can be brokered that would otherwise not be considered due to their high acquisition costs. It is helpful that the acquisition costs do not have to be disclosed to the employee. After all, he is not a policyholder and the process of his “persuasion” is not insurance mediation.
False promises in insurance sales put the insurer at risk
If unsuitable insurance contracts for occupational pension schemes are advertised to employees and employers, the accusation of advertising non-existent profit opportunities can be made later. This is then not only due to zillmerisation, but also affects those occupational pension tariffs where the employee receives no or hardly any “value” instead of the promised supplementary old-age pension.
Employers who are liable for such differences are also harmed. Then it is only a small step to the deliberate immoral damage, § 826 BGB (LG Tübingen, 08.07.1998, Az. 7 O 1996/97). In the case of occupational pension corruption, prima facie evidence already suggests that unsuitable tariffs were selected for the pension scheme. The Federal Court of Justice is therefore increasingly holding intermediaries personally liable – even if they act through a limited liability company, for example. In addition, in the case of yield deception by agents, liability of the product provider for vicarious agents also comes into question, § 823 BGB (OLG Cologne, judgement of 05.04.2005, Az. 15 U 153/04).
But also sales directors and their training managers can easily be held personally liable as “assistants”, § 830 BGB. This presupposes neither a communicative agreement with the adviser/intermediary on a plan of action nor participation in the execution of the wrong advice. Contributory causation of the result of the offence is not required either – any deliberate promotion of the immoral damage is already sufficient (BGH judgement of 26.10.2004, file no. XI ZR 279/03).
Frankfurt Administrative Court: Insurance Board dismissal is not a fiction
In its ruling of 8 July 2004 (Ref. 1 E 7363/03), the VG Frankfurt/Main confirmed the BaFin decision on the withdrawal of the license of an insurance executive due to unsuitability, § 87 VAG. BaFin demanded that the Supervisory Board dismiss the Management Board: here, too, there was a lack of an early risk detection and monitoring system!
Practical case on typical bVA employer liability:
An employer had recommended that its employees take out a direct insurance policy (pension insurance) with salary conversion in order to improve their pension provision, according to the main argument. The employer arranged for the consultation through a brokerage firm. The following facts emerged in the follow-up to the consultations:
1.) The employees were not informed that the background of the company pension scheme is the provision of the insured person and not the provision of the surviving dependants.
2.) It was not pointed out that there is no full inheritability of the benefits from the insurance contract, but that in the event that the insured person should die before the start of the pension or during the duration of the pension guarantee period, only the surviving dependants entitled to benefits can receive the benefits from the surviving dependants’ pension in accordance with the contractual agreements of the insurance contract. This includes the spouse and dependent children (up to a maximum age of 27).
3.) No reference was made to the fact that, in principle, the same conditions for survivors’ benefits apply to occupational pensions as apply to widows’ and orphans’ pensions under the statutory pension scheme. In the event that the employee entitled to pension benefits were to die before his wife and before the start of the pension or before the end of the pension guarantee period, the children over 27 years of age would only receive a death benefit of currently a maximum of EUR 1,000,000, irrespective of the amount paid into this contract. 8,000, as they no longer count as surviving dependants entitled to a pension. Original quote from an insurer: “The difference goes to the insured community.” – How nice for the children!
4.) Furthermore, it was not pointed out that due to the exemption from social security and taxation for the contributions used, this salary component is not taken into account for statutory pension insurance and unemployment insurance (thus reducing the vested rights in the GRV and unemployment insurance) and that the occupational pension withdrawal is taxable and subject to social security contributions. Thus, the employee often pays back the upstream subsidy by charging taxes and social security contributions on the occupational pension as well as reduced social pensions to such an extent that even a private pension financed from the taxed net income and taxed only with the share of earnings would have brought him more.
5.) Nor was any reference made to the fact that, in the event of prolonged illness, the sickness benefit is calculated on the basis of the amount reduced by the salary conversion.
6.) Nor was any reference made to the fact that the relevant income falls as a result of deferred compensation and the employee remains below the compulsory insurance limit in the statutory health insurance scheme for longer – the consequence is the obligation to pay maximum contributions in the statutory health insurance scheme if it is impossible for many years to switch to the significantly cheaper private health insurance scheme earlier.
Most employers do not realise that they have a seat at the table with the intermediary or insurer when advising their employees on occupational pensions. Even if the benefits under such an insurance contract are “assigned” to the employee, the employer’s status as policyholder gives rise to a special duty of care with regard to the terms of the contract, premiums, rates and brokerage fees. When entering into a framework agreement with intermediaries or insurers, very few employers think of expressly releasing themselves from liability towards their employees. However, it is often suggested to them – as a mere non-binding opinion – by the sales department that they are not liable if the sales department advises the employees.
by Dr. Johannes Fiala, Dieter Olejar and Dipl.-Mathematiker Peter A. Schramm
With friendly permission of
www.udp-verlag.de (published in KFO-Zeitung, Augabe 7/2008, page 12)
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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