Financial loss liability insurance for intermediaries when operating beyond the borders of Germany

by Ralf W. Barth, pecuniary loss liability broker ( and Johannes Fiala, lawyer (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), certified financial and investment advisor (A.F.A.), EC expert (C.I.F.E.), banker ( )
The prime case: As is well known, the retirement provisions of entrepreneurs in Germany can hardly be protected from the access of third parties in the event of insolvency. A look across the border, for example to Switzerland or Liechtenstein, shows that the protection of the family is more important there than the goal of satisfying any creditors. So what could be more obvious in the customer’s interest than to arrange appropriate (more optimal) contracts for the customer?
Insolvency protection for endowment insurance: This applies in particular to insurance contracts: Here, spouses, descendants (in Liechtenstein also non-marital partners) are protected in the event of insolvency. This is a thorn in the side of BaFin ? not least because of this, the opinion is being expressed that the insolvency privilege should not apply if a German “intermediary” is involved. Correspondence to this effect with BaFin has been received by the foreign insurers concerned. This can be legally circumvented by not using an intermediary “across the border”, but by simply employing lawyers on both sides of the border. For these, according to the legal department of a Swiss insurer, are not intermediaries but appointed representatives of their clients’ interests.
Intermediary liability due to loss of insolvency protection: For the domestic intermediary, the question of liability arises, because even ?accompanying the customer to the insurer abroad? changes nothing at all in the capacity as intermediary. The case of another insurance broker is similar: He was on the right track when he informed an entrepreneur that in Switzerland an occupational pension scheme can be insolvency-proof in almost any amount. He then unerringly made a mistake and installed corresponding assets as reinsurance for a Swiss branch of the German GmbH. When the GmbH went bankrupt, the Swiss product provider informed him: Based on the ?agreement between various Swiss cantons (today: Swiss Confederation) and the Kingdom of Bavaria on the equal treatment of each other’s nationals in cases of bankruptcy of 11 May/27 June 1834? [correct: Eighteen hundred and thirty-four !] ? we will place the assets (a good 600,000 CHF) ? at the disposal of the German insolvency administrator. The insurance broker had chosen the right goal, but unfortunately the wrong way. In the correspondence, the client concerned had placed particular emphasis on insolvency protection: Now the broker wonders whether he at least has VSH insurance.
Underestimated examination of insurance coverage: Due to industry-specific developments, many intermediaries will increasingly have business contacts beyond German borders and laws over the course of time. It is often only checked afterwards whether the existing property damage liability also extends to cooperations in neighbouring states. Yet this is a frequently underestimated topic. There are several questions that the intermediary can ask here for ? better with the VSH broker of his confidence – must clarify: a) Do I have insurance cover with my existing pecuniary loss liability if I operate in other countries? b) Am I allowed to broker products from these countries in Germany? c) Does my policy now include Germany, EU, EEA or also cover going beyond this (world cover or additionally named states)?
Above all, we repeatedly make those interested in pecuniary loss liability, who are very strongly price-oriented, aware that only an exact determination of the existing risk profile is the fundamental basis for a reasonable VSH cover. It is very often advantageous to invest a little more at the beginning in order to acquire and retain coverage concepts that may not be available in the same form and to the same extent later on.
Switzerland and Liechtenstein: After the distribution of German endowment life insurance policies virtually collapsed due to the abolition of tax privileges in 2005, intermediaries are looking for new products with previously unknown additional benefits. This is seen, for example, in the Liechtenstein insurance secrecy and the Swiss bankruptcy privilege ? and discreetly advertised. More and more frequently, therefore, questions arise with regard to the brokerage of insolvency-protected old-age provision contracts in neighbouring countries (Switzerland, Lichtenstein, etc.), also with the VSH insurance broker – and to what extent insurance cover exists for this. The basic problem is that the intermediary may be operating within an uncertain legal framework, which means that at worst he risks losing his VSH protection. The conclusion is that ? not only in occupational pension consulting ? the solution to many a customer’s wish does not always have to lie in Germany. However, the intermediary or broker should first find out about his insurance cover, then have the concepts legally examined if necessary and only then become actively involved. Typically, special customer requests also require special solutions, which can usually be managed well by interdisciplinary teams. Careless actions that lead to increased claims can also drive VSH premiums to staggering heights.

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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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