Direct insurers are not brokers’ darlings

Direct health insurers are cheap, but for brokers who arrange them, the deals are full of pitfalls. However, not brokering direct insurers can be costly if brokers justify it with arguments that carry liability.


To the point


  • Brokers who do not offer direct insurance must point out the exclusion to the customer.
  • Many of the arguments made by brokers to not offer direct insurers are liability-based.
  • If the customer does not want to pay the brokerage himself, he has at the same time deselected the direct insurers.


With a bit of luck, brokers can also receive a monthly premium brokerage from a direct insurer. After all, this is almost as good an alternative as Hartz IV plus asparagus harvesting as a one-euro job and even better than begging. On the other hand, the direct insurer may have unbeatably low acquisition and administration costs, which has a positive effect on premiums. Nevertheless, direct-selling insurers hardly succeed in occupying top positions in the popularity scale of brokers.

Quite different are the ways brokers avoid referring direct insurers. One argument often used is the loss ratio. It describes the ratio between insurance benefits including allocations to the ageing reserve (insofar as they are financed from premiums) and premium income. If the claims ratio is high, the customer gets a particularly large amount back from one premium euro – so he should actually be pleased.

With regard to direct-selling insurers, however, brokers with the appropriate professional training like to argue that high loss ratios indicate a need for premium adjustments that is long overdue and that high adjustments are therefore imminent.

It is therefore better for the customer to take out insurance with an insurer with a low claims ratio, which incidentally also pays higher brokerage fees. But with such argumentation the broker has already laid the foundation for the accusation of wrong advice and thus makes himself liable if the premiums with the direct insurer do not develop worse in the long term, just as the end of the world, which is always precisely dated by the most diverse prophets of the end times and then always postponed again, has occurred. Documentation then often provides the client’s attorney with the best evidence of the consulting error. Administrative and acquisition costs are the other part of the premiums, but they are not included in the loss ratio or the underwriting result – together they make up 100 percent.

Those with high costs can therefore only afford a correspondingly low loss ratio. A direct insurer with low costs can afford a high loss ratio in the long term without this having a negative impact on the underwriting result. Neither has anything to do with an imminent need for adjustment – neither can those with high costs increase their loss ratio by holding back on legally mandated adjustments, nor must those with high loss ratios and low costs reduce their loss ratios by making greater premium adjustments.

There is simply no such connection. Whoever claims this as a broker is already putting himself in the next liability risk. And trainers and seminar providers who spread such nonsense also run the risk of being liable. Many a training manager then gets some unpleasant coaching from the court when it is established that there is often (also) personal liability for grossly faulty training – so it is no use trying to hide behind a limited company, which the insolvency administrator is then again allowed to take care of.


Let the client pay the brokerage

Going one step further, true “professionals” explain to brokers that the favorable expense ratios of some direct insurance policies are temporarily subsidized. Then, for example, it is pointed out that the insurer shows almost no personnel costs at all. Apparently, another insurer would have to bear these costs. Admittedly, this rather testifies to gross ignorance of the accounting rules for insurers and contributes the next building block to prove advisory errors on the part of the broker.

nsurers without their own staff exist in large numbers in corporate groups. The personnel are then employed by another Group insurer and the costs are borne by service contracts – a common procedure to relieve the personnel department. A look at the insurer’s annual report would be enough to find the costs shown.

There is no question of cross-subsidisation – many direct insurers work more cost-effectively, to the chagrin of many a broker. In case of doubt, the broker – similar to an auditor – is subject to a highly personal expert liability for advice and information. Practicable, on the other hand, is simply not to refer direct insurers. On the other hand, the customer must be informed about the limited product selection.

Brokers who pretend to offer the whole market are liable when this is not the case at all and the direct insurer would have proved to be better. If he then puts forward in his defence the arguments learned from training managers and seminar providers, he thereby provides the expertly supported judge with precisely the missing evidence of his false advice. With any luck, he’ll have kept his training records and can hope to take recourse against the training instructor and/or insurer. It is also said to have happened that agents of the direct insurer asked for advice from a number of brokers in order to later warn them about the product range offered because the direct insurer was not listed there, although the comprehensive market overview was expressly advertised.

Brokerage orders have an equally precarious effect if a restriction to domestic providers desired by the broker is completely absent. Perhaps there would have been a cheaper PKV offer without ageing provision from Lithuania? Brokers can certainly refer direct insurers and agree a brokerage fee with the customer for this. In this way, he remains a broker – this has nothing whatsoever to do with fee-based consulting. If the customer refuses to be offered direct insurers in return for a brokerage fee, he has decided himself that he does not want direct insurers from the broker. In any case, this is better than eliminating the direct insurer, which is undesirable to the broker, with untenable and liability-ridden bogus arguments.

These are not improved by the fact that they are presented with great persuasiveness and believed by many gullible people.


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


by courtesy of (published in Performance 12/2010, pages 38-39)

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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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