The IDD change in the law enables the granting of discounts for insurance and sales control according to the type of landlord. Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm explain why brokers must obviously be controlled by insurers.
According to the “Draft Law on the Implementation of Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on Insurance Distribution”, one of the aims is to “strengthen fee-based advice in the insurance sector”.
The insurance consultant (VB) will be called Honorar-Versicherungsberater (HonVB), and according to the draft law may also act as a mediator in the future. Even to broker insurance exclusively would be allowed – so that HonVB will compete directly with insurance brokers.
Fee insurance consultants as direct broker competition
In the future, brokers may only accept and retain funds from the insurer (VR) – the HonVB, on the other hand, may only be remunerated by the policyholder (VN). Any mixture of the two is prohibited. If the BoD acts as an intermediary through the HonVB, the BoD must pass on the calculated commissions to the UN as a permanent premium discount.
Ban on special remuneration almost completely lifted
Promising higher or additional benefits to individuals is no longer a special remuneration. Premium discounts are some, but now – if permanent – are allowed. Thus, the BoD may give the UN special compensation if this consists of permanent performance improvements or premium discounts. Only in one-off payments to the UN does the legislator see the danger of false incentives in sales, which could lead to disadvantageous purchasing decisions.
This option of the BoD is not subject to any further requirements. So the vr can choose when to do so. Anyone may approach him, whether he wishes to proceed in one or more individual cases. And everyone is allowed to offer him something in return, to promise or promise something, or to persuade him in any other way. An intermediary, among others, may also ask him to do so and offer the BoD to waive the commission in return if the reference to his own blue eyes is not enough. It is then not a matter of a prohibited special remuneration and also not a passing on of commission.
In addition, the sales partner can also conclude a contract with the BoD, or the BoD can, for example, offer it unilaterally to its own sales department. However, the BoD cannot be forced to do so – in the future this will only be possible with the HonVB according to the law. As soon as the BoD is allowed to give the UN special remuneration in the form of discounts or as an increase in performance without special conditions, there are hardly any limits to the conditions for this.
Individual distributors, pools and concept providers at an advantage
The normal agent is not entitled to have his commission (partially) converted by the insurer into a discount or additional benefit to the UN by waiving this “allowance”. However, this is not forbidden. So the insurer can grant discounts. And he can also promise this to the agent if he is satisfied with a lower commission.
Distributors / Fin- or Insurtechs can therefore negotiate discounts or increases in benefits for their customers with the insurer, with or without partial waiver of distribution fees.
Insurers could promote individual distributors in this way (through discounts), e.g. their own.
Mixed models are on the verge of extinction
The (partial) passing on of commissions will no longer be possible for brokers and FinTechs. Prohibited mixed models are not only “brokerage plus fee” but also the only partial passing on of the brokerage fee. The permitted direct commission levy by intermediaries or fintechs (OLG Cologne, judgment of 11.11.2016, Az. 6 U 176/15) is thus promoted by the legislator to the department of legal history. It only functions indirectly if the BoD is legally involved.
Intended promotion of the fee-based VB, also by discriminating against insurance brokers
The insurer is now systematically allowed to use this form of special compensation. This gives the insurer a new instrument for sales management.
Sales networks, insurtechs or pools with strong negotiating power can thus secure a competitive advantage by advertising with the possibility of premium discounts and special additional benefits. Depending on the price sensitivity of the customer, new sales opportunities arise. And it creates an incentive for rationalisation in the intermediary business, which ultimately saves distribution costs in favour of better additional services or lower premiums because they are discounted.
Only passing on commissions directly to the customer is then again prohibited – the benefits from such intended special remuneration must instead be designed by the insurer as a permanent premium discount or increase in benefits.
Insurers become distribution oligopolies
The winners are the BoD, because they are allowed to grant special remuneration to UN in a responsible manner and only have to wait until the agents themselves come and ask them to waive part of the commission in return and promise to implement other good conduct or return as an agent. And it is their responsibility to decide which products are good for the UN and can therefore be legitimately promoted because they are incentives, not “false” incentives.
New supervisory understanding:
“Insurance distribution within the meaning of § 7 number 34a is part of the business operations of an insurance undertaking.”
Article 2 of EU Directive (EU) 2016/97 states: “The insurance broker, like the agent, is part of the insurer’s business operations as an insurance sales agent.
According to the newly formulated § 15 paragraph 3 of the Insurance Supervision Act (VAG), insurance mediation – also via brokers – is now explicitly part of the insurer’s business operations – previously it was explicitly excluded from this. It is therefore logical that the insurer must bear responsibility for this.
This then makes it clear that the possibilities of the BoD for sales management are not an oversight. The intermediary is prohibited from doing what the BoD is allowed to do, because the BoD must take responsibility for it.
Insurer must rule out false incentives in its commission structure
A remuneration of the broker also by the UN must be excluded. After all, it is now the task of the board of directors, in accordance with EU and legal requirements, to ensure that commission systems are designed in such a way that no false incentives arise. For this to happen, however, it is inevitable that the entire remuneration of the broker is paid exclusively by the BoD. Otherwise he would lack this control possibility – he could no longer fulfil his responsibility. Just as it is necessary to forbid the spa guest in the dietetic clinic to buy anything else to eat than what he receives weighed by the clinic doctor, after the morning weighing and measurement of the circulation, and only if the protocol of movement exercises is in accordance with the plan.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published on 01.02.2017)
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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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