Compliance: Is the pool use “risky”?

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A report by the State Criminal Police Office of North Rhine-Westphalia on “Financial Investigations 2014” substantiates the suspicion of commission fraud by the number of submitted contract initiations in insurance sales. There were reports on two insurance brokers who had submitted their applications for endowment insurance policies (KLV) via three different pools. “The alleged beneficiaries/contractors were actually non-existent persons.”

Commission fraud via pools made easier


Pools are therefore vulnerable to commission fraud. The (life/pension) insurance contracts are then freely invented and do not exist in reality, i.e. they are null and void or contestable. The insurer does not notice that many contracts originate from the same (sub)agent, because as an agent he only ever sees the pool. The premiums are paid from the commissions received, or, if applicable, from bank loans for which the surrender values of the policies are pledged – in the manner of a snowball system. It is therefore likely to be large sums of money, or rather many individual invented contracts with not quite so large sums of money, according to Art Schmidt-Tobler (who, however, did not operate a snowball system and did not really consider himself a pure fraud).

The risk for pools already exists if the customer signs the application blank, leaves the completion to the agent and thus the insurance contract is void (BGH, judgement of 09.12.1998, Az. IV ZR 306/97). Accordingly, § 150 VVG is to be applied if a beneficiary concludes a CLV as a representative of the UN (Federal Court of Justice, ruling of 8 February 1989, ref. IVa ZR 197/87), even without the intention of subsequently prematurely and involuntarily killing the UN. The question already arises as to how a pool (also) burdened with evidence can prove at any time that the insured person has been informed intensively in accordance with the BGH requirements before giving his consent under § 150 VVG?



Risk of pool insolvency due to cancellation liability for commission fraud

As a result, the life insurers declare the contracts null and void, file a criminal complaint for fraud and reclaim the commissions from the pool, with interest, regardless of the possible expiry of a cancellation liability. If necessary, further damages are also to be compensated. The pool’s recourse to its intermediary fails, of course, regardless of whether the pool goes to the Caribbean or to prison.

The fidelity insurance that some pools have with their brokers because of irrecoverable claims for commission refunds does not pay in case of fraud. The bank that had lent for the surrender value learns that neither the contracts nor the surrender values accepted as collateral exist. She may want to indemnify the agent, including the pool.



In rem seizure possible to secure the assets of insurers, § 30 OWiG

The prosecutor may suspect that the pool is not the only such case, and after searching the house, take all the documents with them and freeze the accounts to compensate for the damage and prevent payments to other fraudsters who work for the pool, which may itself be seen as such. Especially if he has not raised any suspicions and he could be accused of negligence in the (possibly non-existent) reports under the Money Laundering Act. After all, he would have had the obligation to report his mediator already in the case of a “rule” suspicion, so that the judiciary itself could check whether to open proceedings.



Liquidity crises hit affiliated brokers directly

As a result, the intermediaries receive nothing from the pool until the investigations are completed. And in such a constellation, insolvency (in this case of the pool) is a common side effect, even if it turns out later that it was an isolated case of a single fraudster and the pool could have easily paid for the damage that was discovered sometime later.

It remains to be seen whether the public prosecutor will also confiscate the contract data allegedly secured by the auditor for the intermediaries instead of allowing them to be handed over to the intermediaries. Some intermediaries will probably have to write off their claims, possibly even go into insolvency themselves.



Fictitious insured persons and bank accounts in fictitious names as a starting point

A bank account in an invented name is easy to buy – allegedly for up to 1,000 euros via the hidden areas (darknet) of the Internet. Until the 1990s, the employees of a relief fund used the copying of personal data from gravestones to list long since deceased persons as insured persons (VP) in the insurance application, or employee lists of employers. Section 159 VVG (old version) (Section 150 VVG 2008) still does not require the written consent of the insured person, as far as occupational pension schemes or group life insurance policies are concerned.

If an insurer paid a 5 percent brokerage fee, and the cancellation liability was three years, with an annual premium of 2 percent (long-term) KLV, the broker (with a freely invented VP) needed only 1 percent as a loan from the bank to pre-finance the last annual premium on a pro rata basis. If after three years the CLV went into cancellation, the broker then received the surrender value of about 2.5 percent from the insurer – sufficient for the loan repayment and a profit. The supervisory authority has criticised such insurer calculations – as has been shown, without resounding success, because even today it is still possible to proceed in a similar way.



Fraud by brokering void insurance contracts

The Federal Court of Justice (BGH) (judgement of 04.03.1999, file no. 5 StR 355/98) decided that what matters is whether the assets of the deceived insurer were reduced by a deception at the time of the disposal (commission payment). Subsequent compensation (e.g. through premium payment on the KLV) as additional or other legal acts must be excluded. This is because the premium is the compensation for the insurance cover – the commission, on the other hand, is the equivalent for the brokered CLI.


The BGH underlined:


“The brokerage service aimed at brokering void insurance contracts was in fact economically worthless. The broker’s service – and not the claim from the insurance relationship, as the Regional Court assumes – is the consideration that must be compared economically with the broker’s commission in order to determine the fraudulent damage. The brokerage service was worthless because void insurance contracts were brokered.

The consent of the employees required under § 159, Subsection 2, VVG was missing. Insofar as insured persons were faked, there was neither a pension commitment nor could the insured event occur. In this respect, the insurance contracts were based on an initial, objective and permanent impossibility and were therefore void pursuant to § 306 BGB (see BGH – IV. Zivilsenat – NJW 1997, 2381). The fact that the relief funds and the insurance companies had initially acted as if the insurance contract had been valid does not change this either. If a broker deliberately mediates such a deficient contract, his brokerage service is not even partially to be considered as economically valuable”.

CLV revocation planned from the outset as fraud at the insurer’s expense?


The BGH (decision of 23.01.2014, Az. 3 StR 365/13) ruled on a case in which the customers – as jointly planned from the beginning – had revoked the CLV after one year because of consumer information not being handed over. The Federal Court of Justice overturned the broker’s conviction because the BoD could not have been harmed simply because it held readily available collateral (e.g. a securities account pledged to it) in the amount of at least the commissions, as the insurance broker had successfully argued.

In civil law, this kind of “calculation error” of the insurer would be treated as a non contestable error of the insurer, since it was only calculated internally, § 119 I BGB. In this case, the insurer’s board of directors would be punished for endangering the assets of the shareholders and/or the collective of the insured community. A pool where it is unclear whether, in case of doubt, it could only provide aid to the intermediary or insurer is likely to be particularly at risk in the absence of a compliance management system with a current auditor’s certificate.




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


by courtesy of (published on 08.07.2016)


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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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