Choice of law and advantages of European life, pensions and health insurance

– Opportunities and risks for policyholders and their insurance brokers –


Foreign insurance companies, especially those from the European Economic Area (EEA) and the European Union (EU), are increasingly competing with
domestic suppliers. For insurance intermediaries and insurance customers, this creates risks, but also opportunities.


Regular notification procedure

EEA and EU insurers must obtain a certificate from their home financial supervisory authority that they have sufficient own funds. This certificate then goes
for example, to the Federal Financial Supervisory Authority (BaFin), so that foreign insurers can then operate in Germany either through a branch or under the freedom to provide services (notification). Every intermediary, agent and broker is well advised to check with BaFin so that they do not expose themselves to the risk of
exposed to being penalised for unauthorised insurance mediation by an insurer from abroad who is not authorised here.


At most, if the foreign insurer did not “act through brokers in the home country” at all, but only used the information submitted to it by brokers acting only on behalf of the policyholder.
applications, notification could be dispensed with. However, this is the practical exception, because the Federal Court of Justice (BGH) has repeatedly found, using the example of life insurers from England and Liechtenstein, that in the absence of a branch office in Germany, the intermediaries engaged in Germany were also partly entrusted with tasks of the foreign insurer. In this case, the insurer is itself active in the domestic market through brokers as intermediaries. These include, for example, direct advertising, portfolio management, ongoing advice, contract administration, premium collection and support in claims settlement. Also, the common case of the “focal broker” who works with only a few insurers leads to the liability of the insurer for its activities, basically because of too much similarity with an agent.


In a press release of the BGH on judgments of 11.07.2012, it says, for example, about the responsibility of the insurer in the case of English life insurance policies for capital investment: “In this framework
the defendant must, pursuant to § 278 of the German Civil Code, accept responsibility for the actions and declarations of the sub-brokers who have become active, since, within the framework of a so-called structured distribution, they have taken on the obligations associated with
the distribution of life insurance in Germany to independent intermediaries”. Since then, a number of insurance board members and actuaries have already turned themselves
on the windowsill on the fifth floor, ready for another small step forward, because even this liability responsibility had not been taken into account abroad.


Duty to supervise foreign insurance companies through domestic brokerage?

Intermediaries operating in Germany within the meaning of §§ 105 II, 110a I Insurance Supervision Act (VAG) trigger BaFin’s supervision of the insurer if the place of performance of the service and the place of activity of the service provider are located in Germany. The broker who is completely independent of the insurer is not an intermediary, whereas the broker who is integrated into a (structural) sales hierarchy or who is managed or “looked after” by broker advisors certainly is. The broker with whom, for example, sales targets or underwriting guidelines are agreed is also the agent.
or to which advertising material, sales aids such as calculation models and application tools are made available. In many cases, German brokers not only have the right, but also the duty towards their own customers to broker third-country insurance policies that are not permitted here, as long as they do not have an intermediary relationship with the insurer. Thus, a third-country PKV may well offer favourable bisex tariffs for men, moreover without separation of lines of business, ageing provisions, statutory 10% surcharge or compulsory long-term care insurance and without compulsory contracting, basic tariff, portability of ageing provisions, etc., and with foreign or whatever desired – possibly choice of law due to correspondence insurance – with us.


Fee-based advice for brokers – or brokerage from the policyholder?

It would be a new business model for innovative brokers – for fee advice or brokerage from the policyholder, possibly even from the third country insurer. Bisex tariffs continue
in life insurance with more favourable calculation for male policyholders, is possible in Switzerland at any time and has already been implemented in many cases. For men it is worth
for example, to take the lump-sum settlement and buy an annuity in Switzerland rather than remain in a unisex tariff in Germany. Foreign private health insurance providers are sometimes pleased about the suggestion to offer something otherwise comparable to the local private health insurance – German law would even be selectable for correspondence insurance – but without the expensive regulatory disadvantages of German private health insurance. German private health insurance companies should not fear this competition, which would be further encouraged by fee-based consulting, but would be better off offering an alternative abroad themselves, perhaps also as a pure broker insurer.


It is less known that even if a foreign PKV should not fulfil the few requirements of a compulsory insurance according to § 193 VVG, it still has a
so-called “comparable entitlement”, which does not give rise to an insurance obligation in Germany in the first place.


For the broker – and of course also the insurer – the advantage lies, among other things, in the fact that he is not subject to the commission limits and cancellation liability for German private health insurance if he
to foreign countries. If the broker fails to provide comprehensive advice, the customer could later even hold a loss of premium savings or inferior terms and conditions against him.


PKV association warns against altogether void contracts with foreign insurers

For cross-border contracts, Article 7 of the ROME I Regulation often allows a choice between different legal systems. The ROM I Regulation is to be applied first and foremost,
Art. 3 EGBGB. However, Art. 46 c II EGBGB restricts the choice of law in private international law if health insurance is classified as compulsory insurance, whereby
German insurance contract law (VVG) must apply. At least the German Bundestag shares this view (printed matter 16/12104 of 04.03.2009).

However, this is not at all relevant, as Article 7 III of the Rome I Regulation already allows a choice of the legal system where the risk is situated, where the policyholder has his habitual residence, or, in the case of life insurance, according to nationality.


In a letter dated 31.07.2014, the management of the Association of Private Health Insurers (PKV) warns against contracts in which foreign law has been agreed:
“The application of German law to the contracts as required by Art. 46c EGBGB leads to their invalidity. All provisions of the contract that are contrary to German law shall be
according to § 208 VVG ineffective.
Since it cannot be assumed that the policyholder and the foreign insurer would have concluded the insurance contract even without the invalid provisions, the entire insurance contract is void pursuant to § 139 of the German Civil Code.”

Whether this is legally wrong, the courts will be able to clarify one day, because from § 306 I BGB results the opposite: “If general terms and conditions have not become part of the contract in whole or in part or are ineffective, the rest of the contract remains effective”.


Comparable claim avoids compulsory insurance

However, this does not matter at all if the contracts from abroad are not intended to fulfil the insurance obligation at all, but only a so-called “comparable claim”.
according to § Section 193, paragraph. 3 No. 2 VVG offer. In this case, there is no obligation to insure in the first place. § 193 VVG, so that the insurance cannot count as compulsory insurance for the fulfilment of this obligation – and consequently does not have to fulfil any further largely expensive and obstructive requirements of such compulsory insurance.
Courts have already seen it that way and have only examined the existence of a comparable claim.


Competitive edge abroad

As far as German private health insurers have reservations here due to association politics, probably partly anyway internationally aligned concerns, to which they only belong, will be able,
implement this before even more foreign insurers enter the market. Already the possibility of charging higher brokerage fees than allowed to German insurers at lower premiums
should provide a competitive edge. Due to the regulatory freedoms thus gained, these insurances can not only be offered more cheaply, but also
also far easier to administer without having to rely on the skills of an insurer offering substitutive health insurance in Germany with imposed complex underwriting. The competitors and the PKV association will certainly accept that the group-linked German health insurer helps with the implementation on group instructions – otherwise the people concerned will just have to accept that they have to sit alone at the table at events like a pariah, just like Putin recently.


Risk of invalid clauses in the insurance conditions

If insurers can get rid of contracts, as the PKV association thinks, if a clause is ineffective and they no longer want the contracts without the (ineffective) clause, then
brokers and customers bear a considerable risk. This also applies if the consumer protectors once again remove a clause as ineffective. Even if this is not considered legitimate
appears, policyholders should see that if the PKV association writes such a thing, nevertheless insurers could then perhaps also think in such a way, and the customer then only many years after the termination of the insurance carried out by the insurer before the BGH gets said that the insurance contract was not nevertheless not void.


If it was a PKV, then the customer will probably have caused hardly any benefits during the time when the PKV considered the contract null and void, but afterwards he will have to pay the premiums afterwards,
if he wins. So the warning would not be so much that it is legitimate, but that the PKV, supported by its association, thinks it is. Finally, there are in the PKV, but
also in life insurance policies many ineffective clauses, as it turns out from time to time.


The client will probably always have to be advised to take out suitable legal expenses insurance with unlimited cover including insurance contract legal expenses cover beforehand.
The customer can then later sue at his place of residence in accordance with § 215 VVG or Art. 8 ff. of the “Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters” (EuGVVO).


PKV at a bargain price from abroad?

The management of foreign private health insurers is seldom aware that by choosing German law, much more of their insurance conditions is invalid. For example
the insurer cannot terminate the policy for default in premium payment, and it cannot increase premiums on the basis of age or adjust them if it does not comply with the life insurance-type rules
in the trustee procedure, and calculated accordingly. Here, legal disputes are pre-programmed, unless one uses such offers to shake off the previous German PKV insurer, thus only proving to him that one now fulfils his insurance obligation somewhere else, § 193 III VVG. Maybe later you want to
Accept termination of the foreign private health insurance provider in order to then be insured somewhere else or not at all for the time being?


You can also “spare” yourself a compulsory long-term care insurance (PPV), because if the domestic or foreign private health insurer does not offer a compulsory long-term care insurance, then this insurer does not have to include its policyholders in such an insurance. If, in the end, the foreign PKV insurer does not offer PPV, there is no obligation for the policyholder to take out PPV and no one has to take him on – not even in Germany.


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


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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

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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