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. In private health insurance we see only the beginning of a development here.
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.
No activity of the insurer if broker only acts on behalf of the client?
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 common case of the “focal broker” who works with only a few insurers leads to the liability of the insurer for its activities, basically because of too much similarity with 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. The supervisory authority BaFin also regularly assumes that when a broker acts, the foreign insurer itself acts in Germany through the broker.
If, on the other hand, the contract is concluded by the insured contacting the foreign insurer himself or by using the services of a lawyer, for example, this is in any case a case of non-restricted correspondence insurance. If, on the other hand, brokers acting purely on behalf of their clients were also to be able to broker correspondent insurance worldwide, this would probably undermine the supervisory objectives in Germany and Europe.
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 not only have the right, but also a broker’s duty towards their own customers to also – as long as they do not have an intermediary relationship for the insurer – broker third-country insurance policies that are not even permitted here, in which case it is a matter of so-called correspondence insurance.
Thus, a third-country PKV can offer quite favourable bisex tariffs for men by correspondence, moreover without separation of lines of business, ageing provisions, statutory 10% surcharge or compulsory long-term care insurance and without compulsory contracting, prohibition of cancellation, basic tariff, portability of ageing provisions, etc., and with foreign or whatever desired – possibly choice of law due to correspondence insurance – with us, because regulations of the German Insurance Supervision Act (VAG) do not apply to them at all. Even for EU insurers operating here, not all regulations of the VAG apply, so in private health insurance not the separation of classes.
In this context, insurers domiciled in Germany are also referred to as national discriminators, as they are subject to stricter obligations under the ISA. The extent to which the high German standards for lifelong health insurance cover actually offer the better solution for the customer in the end will not be examined in detail here. In any case, the temptation to be able to offer their customers a cheaper alternative to conventional private health insurance is likely to be great for some intermediaries.
A new business model for German brokers?
For German brokers – with fee-based advice or brokerage from the policyholder, possibly even from the third-country insurer – it would be a new business model. Furthermore, bisex tariffs in life insurance with more favourable calculation for male policyholders, is possible in Switzerland at any time and in many cases has already been implemented by correspondence from Germany.
For men, for example, it is worth taking the lump-sum payment and buying an annuity insurance in Switzerland rather than staying in a unisex tariff in Germany. For women, term life insurance can be obtained in this way for about half the premium than if it were calculated with men mixed. Foreign private health insurance providers are sometimes pleased about the suggestion to offer something otherwise comparable to the local private health insurance – German law would even be selectable for correspondence insurance – but without the expensive regulatory disadvantages of German private health insurance. German private health insurance companies should not fear this competition, which would be further encouraged by fee-based consulting, but would be better off offering an alternative abroad themselves, perhaps also as a pure broker insurer.
A foreign PKV with “comparable entitlement
What is less well known is that even if a foreign PKV should not fulfil the few requirements for compulsory insurance according to § 193 VVG, it can still represent a so-called “comparable entitlement” thereafter, which means that compulsory insurance in Germany does not arise in the first place. This is also the legal basis according to which, for example, insurance cover brought in from abroad can certainly be retained as long as it contains a comparable entitlement.
For the broker – and, of course, the insurer – one of the advantages is that he is not subject to the commission limits and lapse liability for German private health insurance when he turns to foreign countries. If the broker fails to provide comprehensive advice, the customer could later even hold a loss of premium savings or inferior terms and conditions against him.
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.
However, this does not matter at all if the contracts from abroad are not intended to fulfil the insurance obligation at all, but only a so-called “comparable claim” pursuant to the German Insurance Act. § Section 193, paragraph. 3 No. 2 VVG offer. In this case, there is no obligation to insure in the first place. § 193 VVG, so that the insurance cannot count as compulsory insurance for the fulfilment of this obligation – and consequently does not have to fulfil any further requirements of such compulsory insurance, which are largely more expensive and are seen there as an obstacle. Courts have already seen it that way and have only examined the existence of a comparable claim.
Insofar as German private health insurers have reservations in this respect, they can offer such alternative products in Germany – if they belong to groups that are internationally oriented anyway – before even more foreign insurers enter the market. 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 freedom thus gained, these insurances can not only be offered more cheaply, 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 complex insurance technology imposed by law.
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 appear to be legitimate, policyholders should see that if the PKV association writes something like this, insurers might also think this way, and the customer will only be told many years after the insurer has terminated the insurance before the BGH 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.
The management of foreign private health insurers is seldom aware that the even agreed choice of German law renders some more of their insurance conditions ineffective. 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 virtually pre-programmed if the foreign insurer later wants to increase or cancel the premiums. Unless one uses such offers to prove to the German PKV insurer that one has fulfilled one’s insurance obligation elsewhere – or was not obliged to insure at all due to only comparable coverage – and therefore does not have to pay any additional contributions when later joining the German PKV.
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. This is the result of the Eleventh Social Code.
Support fund instead of PKV?
Another alternative to substitutive private health insurance with ageing provisions is increasingly offered by provident funds, which, however, do not grant any legal entitlement to their benefits, which means that they are not subject to German insurance supervision. Unfortunately, as social courts have repeatedly stated, these do not even constitute a so-called “comparable claim” in the absence of a legal entitlement, which according to § 193 para. 3 No. 2 VVG would exclude a duty to insure.
For this reason, some of the health support funds have taken out very inexpensive reinsurance policies with the absolutely necessary benefits and the highest possible deductible with insurance companies licensed in Germany for their members as insured persons. Since such insurance of a provident fund as policyholder does not replace statutory health insurance, it is not substitutive health insurance. Therefore, the calculation method is free – for example, no ageing provisions have to be formed, which further reduces the premium. The real advantage, however, comes from the fact that such funds are organized locally even when they operate nationwide, and – not only because of this – solidarity and cost awareness are thus strongly promoted, similar to the “friendsurance” model.
So far, private health insurance companies have not yet discovered this market, whereas many life insurers already make use of their own provident funds for company pension schemes.
At present, this support fund model is also planned in the context of an Islam-conform health insurance – the current PKV in Germany can already not be Islam-conform for compelling regulatory reasons.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.allgemeiner-fachverlag.de (Published in Journal of Insurance 04/2015)
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About the author
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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