IDD implementation: New business models for Insurtec’s and insurance consultants

The implementation of the Directive EU 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution, i.e. the Insurance Distribution Directive (IDD) by Section 43c of the German Insurance Supervision Act (VAG), leads to financial risks for insurers (VR) and insurance brokers (VM). The insurer may be allowed to “pay double” and the broker may lose his brokerage fee. This is due to the advice of insurance consultants (VB), even without their mediation.

Insurance broker as plucked Christmas goose

Section 43c of the ISA states more or less that in the case of consultation by a VB, after presentation of a corresponding certificate from the VB, by the UN to the VR, the only choice is between plague and cholera. Either the insurer changes the tariff to “net tariff” – or it refunds (transit) up to 80% of the distribution costs as insurer to the customer, i.e. the UN.

In any case, the BoD will then argue to the VM that it actually did not (really or alone) mediate – and cancel or cancel the brokerage fee, with luck only reduce it. In the case of the VM, this can develop into a danger and can even lead to professional retirement or insolvency. A resistance from the broker is foreseeable – until, after years, higher courts confirm to the broker that he has mediated and he is therefore naturally entitled to his brokerage fee. For this you need a war chest at VM. The BoD must reckon with potentially “double costs” – i.e. brokerage fee despite net tariff or brokerage fee plus Transmission of the same at the gross tariff.

Insurer as holy Saint Florian

Freely based on the Saint Florian principle “Holy Saint Florian / Verschon’ mein Haus / Zünd’ and’re an!“, VR is increasingly looking for a way out: In every sector, brokers are asked to ask the future UN whether they have already been advised by a VB. The reason is clear – as long as there is no obligation to contract, the BoD wants to avoid this possible (loss) transaction. First of all for the broker, so that he makes sure in time, before he makes a vain effort.

FinTechs and VB can advertise with this “come to us, to a seminar or webinar” e.g. for 30 Euro – we guarantee you the premium saving, because a “classical” mediation is not necessary for this. The future UN will first be sent to the VM – where the VM will truthfully answer the question about the consultation by a VB with No. After a short consultation of the VB on the insurance recommended by the broker, this is certified to the VN, which thereby effects the passage of the commission. This also works if VR does not want to cooperate with the VB otherwise, i.e. if the VB is not able to mediate to the VR at all. Is this the result of lobbying by the GDV and broker associations to ruin insurance sales in the future?

The follow-up consultation: An optimisation for insurance consultants and policyholders

For the legislator, forwarding was initially the lesser evil from the point of view of the BoD, compared to the obligation of the BoD to forward commissions (which the BoD would have been obliged to do) for the now permitted brokerage itself (possibly higher than its fee), or to prohibit commissions to other brokers (i.e. only permit net rates), or to make net rates an alternative to the obligation.

However, the BoD could also act as an intermediary without the cooperation of the BoD, and apply for insurance through an online portal of the BoD or an InsurTech or even another intermediary in his or her VB office together with the UN present without first disclosing his or her involvement, so that the insurer cannot defend itself. The term “mediation” should also include this – and the term “advice” in any case, both with the same effect on the transmission of brokerage fees.

Naturally, the legislator wanted to promote fee-based advice. Perhaps he secretly wants to abolish commissions or brokerage fees – because agents are also affected. Possibly also the private health insurance, which has greater problems here, will be forced to offer net tariffs in parallel.

InsurTechs could cannibalize traditional distribution

It would spread like wildfire on the Internet if you could get the decisive “advice note” from VB for xx € to force any VR to switch to net tariffs or to pass on commissions – the advertising slogan “Geiz ist Geil” does not have to be reinvented for this.

In addition, InsurTechs and FinTechs (at best also with VB approval) as well as classic VB’s could optimise the business model by specifically promoting the “second opinion” – i.e. sending customers to an agent or broker first, according to the motto “then you may tell the truth, just that you were not advised by us. Through us you then get the changeover to net tariff or transit – quite legally, as the legislator provides for consumer protection”. And of course this also works for commercial customers as well as craftsmen, as well as medium-sized businesses and industrial insurers.

However, the insurance supervisory authority takes action against the attempt to entice away broker clients as InsurTech by passing on the subsequent commission to the UN with a low annual fee to the InsurTech itself, because the insurer is the only one allowed to pass on such commissions.

New chance for insurance brokers and agents ?

VMs could also start to get VB certification if they prefer to be hunters rather than hunted, rather than cannibalized. They are not dependent on cooperation with the BoD if they make efficient use of the new opportunities, which the BoD must necessarily follow. Even a consultation on a robot used by the VB, in addition to any other form of online and remote consultation, can fall under the VB activity, with an automatically generated consultation certificate for further use.

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

by courtesy of (published in ExpertenReport 10/2018, pages 78-79)


and (published on 31.10.2018)


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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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