Foreign insurance companies, especially those from the European Economic Area (EEA) and the European Union (EU) are increasingly competing with domestic providers. For insurance intermediaries and insurance customers, this creates risks, but also opportunities.
EEA and EU insurers must obtain a certificate from their home financial supervisory authority that they have sufficient own funds. This certificate is then sent to the Federal Financial Supervisory Authority (BaFin), for example, 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 he does not expose himself to the risk of being punished for unauthorised insurance mediation by a foreign insurer not authorised here.
At best, if the foreign insurer would not “operate in the domestic market through brokers” at all, but would only underwrite the applications submitted to it by brokers operating only on behalf of the policyholder, notification could be dispensed with. This is so-called “correspondence insurance”, which is not subject to supervision in Germany, because the brokerage is not carried out via “intermediaries” working for the insurer.
However, this is the practical exception, because the Federal Court of Justice (BGH) has repeatedly found, using life insurers from England and Liechtenstein as examples, that due to the lack of a branch in Germany, the intermediaries employed in Germany were also partly entrusted with the 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 frequent case of the “focus broker”, who only works with a few insurers, leads to the liability of the insurer for his activity, basically because of too much similarity to an agent.
In a press release of the Federal Court of Justice (BGH) on judgments of 11 July 2012, for example, it says the following about the responsibility of the insurer in the case of English life insurance policies for capital investment: “In this context, the defendant must allow itself to be credited under Section 278 of the German Civil Code (BGB) with the actions and declarations of the sub-brokers who have become active, since it has left the tasks associated with the sale of life insurance in Germany to independent brokers within the framework of a so-called structured sales organisation.
Duty to supervise foreign insurance companies through domestic brokerage?
Intermediaries acting on behalf of the insurer within the meaning of §§ 105 II, 110a I of the 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. In the opinion of the scientific literature, 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 “supervised” by broker advisors is certainly. The intermediary is also the broker with whom, for example, sales targets or underwriting guidelines are agreed or with whom advertising material, sales aids such as calculation models and application acceptance tools are made available.
In many cases, German brokers have not only the right but also the obligation to act as brokers for their own customers, even – as long as they do not have an intermediary relationship for the insurer – to broker third-country insurance policies that are not licensed here at all, whereby this is then a so-called correspondence insurance. Thus, a third country health insurance company can offer favourable bisex rates for men by correspondence, without separation of lines of business, ageing reserves, legal 10% surcharge or obligation for compulsory long-term care insurance and without obligation to contract, prohibition of termination, basic rate, portability of ageing reserves etc., and with foreign or whatever desired – if necessary, choice of law for correspondence insurance.
Fee advice for brokers – or brokerage fees 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. For men, for example, it is worthwhile to take the lump-sum settlement and prefer to buy a pension in Switzerland rather than stay in Germany on a unisex tariff. Foreign private health insurance providers are sometimes pleased about the suggestion to offer something comparable to the local private health insurance, but without the expensive regulatory disadvantages of German private health insurance – German law would even be selectable for correspondence insurance. German private health insurance companies should not fear the competition, which would be further promoted by fee-based consulting, but should better offer an alternative abroad themselves, perhaps even as a pure broker insurer.
What is less well known is that even if a foreign private health insurance company does not meet the few requirements of a compulsory insurance according to § 193 VVG, it can still represent a so-called “comparable claim” afterwards, which does not even allow an insurance obligation to arise in Germany.
For the broker – and of course also the insurer – the advantage is, among other things, that he does not fall below the commission limits and cancellation liability for German private health insurance when he goes abroad. If the broker fails to provide comprehensive advice, the customer could later even, for example, reproach him with lost premium savings or worse terms and conditions.
PKV association warns against contracts with foreign insurers that are void overall
For cross-border contracts, Article 7 of the ROME I Regulation often allows a choice between different legal systems. The ROME I Regulation is to be applied as a matter of priority in the first instance, Art. 3 of the ECSC Treaty. However, Art. 46 c II EGBGB restricts the choice of law in private international law if the – so-called substitutive – health insurances replacing a statutory health insurance are classified as compulsory insurances, which means that German insurance contract law (VVG) must necessarily apply. At least the German Bundestag shares this view (printed matter 16/12104 of 04.03.2009).
However, this is not relevant, as an exception, in so far as Art. 7 III of the Rome I Regulation already allows a choice of those legal systems 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 contracts, as required by Article 46c EGBGB, leads to their invalidity. All provisions of the contract that are in conflict with German law are invalid according to § 208 VVG. 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 null and void according to § 139 BGB”.
The courts will one day be able to clarify whether this is legally incorrect, because the opposite results from § 306 I BGB: “If general terms and conditions of business 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
This becomes meaningless if the contracts from abroad are not intended to fulfil the insurance obligation at all, but only a so-called “comparable claim”. § Section 193, paragraph. 3 No. 2 shared flat. In this case, no insurance obligation is likely to arise in the first place. § Section 193 WG, so that the insurance cannot count as compulsory insurance for the fulfilment of this obligation – and therefore does not have to fulfil any further requirements of such compulsory insurance, which to a large extent increase the costs and hinder the fulfilment of this obligation. Courts have already seen it that way and have only examined the existence of a comparable claim.
Competitive edge abroad
The very possibility of paying higher brokerage fees than those permitted for German insurers at lower premiums should provide a competitive edge. Due to the regulatory freedoms thus gained, these insurances can not only be offered at a lower price, but can also be administered far more easily without having to rely on the capabilities of an insurer offering substitutive health insurance in Germany with imposed complex actuarial techniques. The fact that the German health insurer, which is affiliated to the Group, will certainly be accepted by its competitors and the PKV association.
Risk of invalid clauses in the insurance conditions
If insurers are able to withdraw from contracts, as the PKV Association believes, if a clause is invalid and they no longer want the contracts without the (invalid) 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 does not seem legitimate, policyholders should see that if the private health insurance association writes something like this, but insurers could then perhaps also think in this way, and the customer is then only told many years after the insurer has terminated the insurance before the Federal Supreme Court that the insurance contract was not null and void after all.
It would be advisable for the private health insurance association to consider, before making such targeted statements, what further developments can be deduced from them and what uncertainties this can also lead to with regard to contracts with German insurers, if their validity or invalidity may depend on a court ruling on AVB clauses. Thoughtful association work looks different. Finally, there are probably still some ineffective clauses in private health insurance, but also in life insurance, as it turns out from time to time.
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 cancel the policy because of premium arrears, and it cannot increase premiums due to age and cannot adjust them unless it applies the rules according to the type of life insurance in the trustee procedure and has calculated accordingly. Here legal disputes are as it were preprogrammed, unless one uses such offers to shake off the previous German private health insurer, i.e. only to prove to him that he is now fulfilling his insurance obligation elsewhere, § 193 III VVG. Maybe you want to accept the cancellation of the foreign private health insurance provider later, in order to be insured elsewhere or not at all?
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 the domestic or foreign private health insurance insurer does not offer a PPV, the policyholder is not obliged to have a PPV elsewhere and no one has to include him in it – not even in Germany.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published on 16.10.2015)
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About the author
PhD, 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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