Life insurers do not have to inform about reduction possibilities, but they are liable for incorrect advice due to legal advice obligations.

Members of the German Bundestag posed the following question: “What are the legal obligations of life insurance companies to inform their customers about the possibility of reducing claims before the contract is concluded, and what is the practice of life insurance as established by the Federal Financial Supervisory Authority (BaFin)?

The answer of the Federal Government of 11 January 2016 (BT-Drucksache 18/7221) to this question is: “There is no express obligation of life insurers to inform their customers about the possibility of reducing claims before the conclusion of the contract. However, an (not explicit, but resulting) duty to provide advice follows from the statutory provision of § 6 of the German Insurance Contract Act (VVG).

This obligation applies not only to the insurer itself, i.e. its dependent employees, but also to its sales department (insurance agents, agencies, insurance brokers).

This is because up to the conclusion of the contract of insurance, prior to the conclusion of the contract, the distributor must provide the customer with documentation (§§ 61, 62 VVG) – otherwise he is liable for damages (§ 63 VVG). Scientific studies show that up to more than 85 percent of all consultations are not even documented – this can even lead to a reversal of the burden of proof for the customer. Later, the intermediary or insurer will realise that the customer is in error, e.g. because he says

“I therefore assume that the guaranteed benefit will be provided under all circumstances.”

Or: “I attach importance to the fact that my contributions are 100 percent covered. ”

Numerous insurer statements misleading

Similarly, misleading advice is harmful, for example, if it is not only said: “This is the guaranteed expiry benefit”, but added: “This means that you are sure of it in any case”. Even the mere reference that the insurance is covered by protector would be misleading, because it would make it possible to understand a 100 percent protection.

The German Association of Actuaries has already drawn up an information document, which is currently being coordinated with all the actuaries in its association, on how surrender values can be reduced for a limited period of one year for the insurers concerned (in accordance with § 169 Para. 6 VVG).

After such a reduction period, however, the original surrender values do not exist, but it is decided whether and how much the reduction is extended. This is intended to take countermeasures in the event of a reduction in the value of the investments or to prevent a “run” on life insurance surrenders by reducing the surrender values in such a way that the termination becomes at least as unattractive as the continuation of the life insurance.

Misalignment caused by the insurer?

Here, the German Association of Actuaries expressly points out that the reduction is also permissible if the imbalance was caused by the insurer, e.g. through miscalculation, and even if this was foreseeable. Neither the insurance supervisory authority nor an independent trustee needs to be consulted for this. The consequence of incorrect advice and instruction may be that the policyholder may contest the contract, e.g. on the grounds of deception, or may first sue the agent for a declaration that the agent is liable for the personally given guarantees, or that the agent must reimburse the policyholder for the premiums (e.g. of the basic pension), step by step against transfer of the benefit received.

For years now, customers with private pension insurance have been finding that they receive less than half of what they were originally calculated or “promised” as a prospect. Since the BGH-Bond-judgement (Az. XI ZR 12/93) credit institutions and financial advisors have the obligation to provide “investor and property-oriented” advice when brokering capital investments. On the one hand, this means investigating customer needs, on the other hand, the investment product or investment object.

The Federal Court of Justice (BGH) has already “supplemented” this in its 2007 decision (ruling of 14 June 2007, case no. III ZR 269/06), in that, for example, insurance brokers are obliged to pay compensation if they broker an annuity or life insurance policy to the customer which does not “meet his needs and financial capacity”. At the time, the BGH-Bond-judgement was thus extended to the brokerage of pension and life insurance policies.

by Dr, Johannes Fiala and Dipl.-Math. Peter A. Schramm

with friendly permission of www.bindereport.de

published in “Bindereport” (issue 05/2016), page 46