Are insurance brokers without power of attorney risking their livelihoods?

– Reasons for the implementation of a “Code of Conduct” imposed by the insurer -.

In principle, the principle of freedom of contract also prevails in insurance mediation. If an insurance broker refuses to comply with certain specifications of the insurer and to undertake to do so in advance vis-à-vis the insurer, the insurer may refuse to grant him a brokerage commission, since there is no obligation to contract. This is the case, for example, with broker distribution, which reserves the right to submit insurance contracts even without a broker’s power of attorney. Such a voluntary commitment by insurers – as in an industry code – can also mean that they commit to certain controls on the broker and simply stop working with brokers who do not meet certain requirements or commit to certain conduct.

Self-commitment of a broker:

An insurance broker could also paraphrase this to his client relationships: He also does not oblige anyone to come to his office when he tells them that if they want advice, they must come to his office. The customer is welcome to ask what forces the broker to proceed in this way – namely nothing at all except that he has voluntarily undertaken to do so. The client may readily infer that because the broker’s procedure is merely voluntary, he cannot be compelled to appear at his office. However, he must expect not to be advised then either.

Obligate insurance brokers to do anything and everything?

Recently, a broker complained about the Code of Conduct: “Here, however, the customers are supposed to be obligated to give insurance brokers a (random?) power of attorney “at the beginning of the business relationship”. Unbelievable!”. Then he adds: “But why should a customer give us a power of attorney at all, if we wanted to broker his occupational disability insurance to Cxxx, for example? Regrettably, such accusations are based on legal errors.

Brokers without customer power of attorney may not receive a response from the insurer at all

Section 203 of the German Criminal Code (StGB) protects the observance of professional secrecy. A doctor is not even allowed to say who belongs to his patients. Therefore, although he may ask for an advance, he may not obtain a credit report on his patient. Insurers also have to observe § 203 StGB (German penal code) – and thus it is excluded to give insurance brokers information about existing customer relationships as long as no appropriate power of attorney is proven.

But maybe some brokers only want to be treated as tipsters in the future – even they won’t know anything for a while; at least not until they have a tipster contract as well as a release of confidentiality from the policyholder (VN) for the insurer (VR). Possibly there is a new trend towards the “messenger broker” who only works like a secretary or a postman? Then he may still hope for a tip when he hands the client’s request to the doorman, and the doorman notices what the broker, still standing in the doorway with his hand outstretched, would like.

Maybe the insurance broker prefers to work without power of attorney – then he is also solely liable for the payment of the insurance premiums, § 179 BGB. Or the insurance broker would like to be personally responsible for the consequences of a double insurance due to the lack of an effective cancellation of old contracts, § 174 BGB. “Unbelievable” at best is when an individual insurance broker lacks the simplest legal knowledge to even recognize the “Code of Conduct” as a caring protection of the insurer especially from unnecessary broker liability.

Insurance brokers without power of attorney work free of commission?

If the insurer is unable to consult the broker due to the lack of a broker’s power of attorney, it can hardly be assumed that the insurance brokerage is genuine. This also means that a brokerage fee is no longer possible, because if the policyholder (VN) cancels the contract, the insurer (VR) would no longer be in a position to send the broker a cancellation risk notice, and thus the broker would not have to pay back a brokerage fee within the liability – a claw-back commission would also be lost.

It is significant that brokers justify their work without a power of attorney by the fact that their new client does not really trust them yet and therefore might want to grant a power of attorney only much later, but not yet. Nevertheless the broker would like to mediate individual contracts already times without power of attorney – exactly this does not go however. For insurers, this argument will be all the more a warning sign not to correspond with a broker to whom his client does not grant power of attorney out of mistrust, if he does not want to provoke criminal liability under § 203 StGB.

The insurer could then simply transfer 3 (three) euros to the broker with the note “tip for messenger work” and wait to see if he has a question about this.

Insurance brokers as independent administrators or as a distribution channel?

If insurance brokers try to defend their complete independence and absence of obligations towards the VR and completely one-sided positioning on the side of the policyholder, the dispute is already pre-programmed, even if the VR also wants to protect the broker and make cooperation with the latter possible in the first place.

Insurers and brokers (and the latter among themselves) have never clarified the relationship between them, and even just what a broker can be. Brokers are allergic to being treated like an insurer distribution channel. VR prefer not to address it directly if necessary, but the issue is skirted as long as brokers are useful.

Let me ask you a question: What is a brokerage power of attorney?

It is not at all common at present for every insurance broker to have a power of attorney from all his clients. However, insurers are increasingly aware that they could face proceedings for failure to comply with Section 203 of the German Criminal Code (StGB). This also puts the BoD management’s own pension provision at risk.

Some brokers hide their brokerage power of attorney in the brokerage contract – unfortunately not a good idea either, because what business is it of the “independent” broker’s customer relationship to the insurer?

And how does the broker want to work legally secure, if he has his brokerage contract with – or without a separate – power of attorney only by email or fax?

The question of “any” power of attorney is also justified, because without sufficient limitation of the power of attorney, it will be able to violate the Legal Services Act (RDG), and therefore then also be void. Due to the so-called double nullity after almost 100 years of jurisdiction, the associated brokerage contract is therefore also null and void, as well as contestable. This had to be experienced also recently again by an insurance broker, who had taken over it on behalf of a VN without previous switching legally disputed cases of damage – like an insurance advisor or a lawyer – to settle. With a void power of attorney and without a contract, all insurance policies concluded with it and all notices of termination are then also invalid, which must certainly interest the insurer concerned.

Broker’s job description includes claims settlement for insurers

If the broker had only settled the claim on behalf of the insurer, there would have been no breach of the RDG (LG Bonn, judgements of 17.10.2013, ref. 14 O 44/13). But how do I, as an “independent” broker, explain this to my client, to whom I had also promised assistance in the event of a claim, along with contract management and support in the brokerage contract? In addition to the duties of trustee towards the insured person, there are also – often contractually assumed – principal duties of the insurance broker towards the insurer, for example in the performance of administrative tasks, as well as the settlement of claims for insurers within the framework of a mandate issued by the insurer for ongoing support. In the settlement of claims, this also includes the defence of claims of the policyholder against the insurer (LG Bonn, loc. cit., with further references).

What opinion will higher courts have on the question of when the insurance broker has to disclose the relevant contents of his connection to the insurer to the policyholder, and how he could end up losing his brokerage fee as a result of which activities for both sides, i.e. VR and policyholder?

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

by courtesy of

www.experten.de (published 12/10/2015, pages 90-91)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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