BVAG Versicherung is insolvent. In a guest article for FONDS professionell ONLINE, lawyer Dr. Johannes Fiala and actuary Peter A. Schramm state that brokers who brokered BVAG policies for their clients may now be held liable under certain circumstances.
Net loss for the year 6.3 million euros
Back in May 2013, the trade press reported that the insurer had a 6.3 million annual net loss. If an insolvency of the insurer had already been foreseeable at that time, or had threatened, or if the creditworthiness of the insurer had thus significantly deteriorated, it would no longer have been reasonable for any policyholder to hold on to his contracts. This is because, under these conditions, any policyholder may terminate his contract without notice. However, at the time the owners were willing and able to provide BVAG voluntarily with the necessary capital. After all, capital is necessary for a growth-oriented insurer to cover the expenses required for growth – profits on this investment can only be expected at a later date.
New owner allows BVAG to go into insolvency
However, the new owner since October 2014, a Swiss investment company, which thus entered into a commitment in the German insurance market for the first time, was no longer prepared to do so. It should be clear that profits were not to be expected at first, but considerable further expenditure to establish and grow in the market. Perhaps the Swiss were surprised that profits in the future would have required even more investment in the first place? So it was not long before the investment that had just been acquired was forced into insolvency.
Support by insurance brokers
As early as the 1950s, the Federal Court of Justice ruled that no policyholder could reasonably be expected to wait to see if and when insolvency would occur in the event of an obvious deterioration in creditworthiness. Thus, since the end of 2014 at the latest, there would have been sufficient reason for insurance brokers to ask whether the new investor was really prepared to provide the insurer with the fresh capital it needed to grow. Otherwise, reinsure the portfolios instead of “continuing to work as equals with this broker insurer.”
However, according to the legal situation, there is no obligation for insurance brokers to supervise current insurance contracts, because supervision as a legal cardinal duty is neither in the Commercial Code, nor is there a duty to supervise according to case law. However, very many insurance brokers have committed themselves completely unnecessarily to their clients to look after the contracts, also to manage the insurance connections, as well as to support them in cases of damage. Such voluntary commitments, entered into by means of model contracts, naturally lead to unnecessary liability on the part of the insurance broker. The customers could therefore reproach the broker that he should have recognized long ago how bad the creditworthiness of the brokered insurers as contractual partners of the customer is: In case of doubt, the insurance broker’s liability insurance will also say “Support, contract management,
Claims settlement, are all non-statutory broker duties – and in our VSH policy, such activities are not even insured in the first place.”
Promise of care as a liability trap and wasted broker compensation
The so-called supervision means a considerable responsibility for the insurance broker, because he has to keep an eye on the creditworthiness of the insurer, for example (as he does anyway when arranging a cover). This can change abruptly if the insurer is on the drip of an investor and the investor changes. If the new investor turns off the tap on an insurer that needs to grow, insolvency may be unavoidable. So the broker would also have to assess the willingness of the new investor to continue to provide the insurer with capital needed for growth.
The total effort of support for the insurance broker is also reflected in the fact that the costs for the VSH premiums increase considerably if additional activities are to be included on an individual basis. This opens up the possibility for the insurance broker to receive additional remuneration from the policyholder, or alternatively to design his own model forms for customer liaison in such a way that no more than the statutory duties of the insurance broker are assumed.
The insurer’s current inability to pay does not mean that it is overindebted. However, in the case of ongoing claims which have perhaps only been partially settled or not settled at all, the policyholders might get the idea of first asking the insurance broker for advance payment, along the lines of “You should have rethought your position about two years ago, because then I would not have had the difficulty of having to file my legal claim for insurance benefits with the insolvency administrator, with the prospect of only receiving a fraction, and this perhaps only after many years, when the insolvency administrator has come so far in the processing”.
Injured parties in liability insurance can also sue the formerly insured tortfeasor for millions in claims and life annuities if the insurer defaults.
Active release of the insurance broker
Today, insurance brokers need brokerage agreements in order to minimize their own liability instead of unnecessarily exposing themselves to their own personal liability, which endangers their existence, by using free samples from so-called expert authors, associations and societies – often supported by insurers. However, this alone is no substitute for dutiful advice from the insurance broker.
In view of the prolonged period of low interest rates, the financial supervisory authority BaFin has also dampened hopes of German life insurers for a relaxation of the additional interest reserve: “It is not our job as insurance supervisors to ensure that the weakest insurance companies survive by means of legislative changes,” said BaFin President Felix Hufeld at an insurance conference on 22 June 2015. As a broker, one must therefore ask whether the life insurer will be rescued by its shareholders if necessary, or whether they will refuse to make additional contributions and simply allow it to go into the Protektor rescue company or insolvency with losses for the insured.
by Dr. Johannes Fiala and Dipl.-Math. Peter A-. Schramm
by courtesy of
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About the author
Dr. Johannes FialaPhD, 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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