Initiator support and controlling: When BaFin prohibits PKV sales and orders liquidation

*by Johannes Fiala, lawyer (Munich), MBA Financial Services (Univ.Wales), MM (Univ.), certified financial and investment advisor (A.F.A.), banker (www.fiala.de) and Dipl.-Math. Peter A. Schramm, actuary DAV (Diethardt), actuarial expert (www.pkv-gutachter.de)
For initiators and distributors it is of crucial importance that all necessary permits are available ? including audited prospectuses. However, there are always initiators who are badly advised or not advised at all. So it comes, as it had to come: The administrative court confirms the ban to offer a PKV: click here
Health support fund or PKV offer: Various criteria of § 5 VAG are decisive, in particular whether there is a calculation according to the law of large numbers on the part of the (supposed?) U-Kasse and a de facto legal entitlement to the benefits is granted. A mistake in the initiator’s legal and actuarial controlling can be enough to turn a U-Kasse, which is exempt from supervision and approval, into an unauthorised health insurance business requiring approval.
Initiators without tested concepts are easily suspected of fraud: However, the decisive point for the initiator and the employees in the sales department is a completely different one: If a private health insurance is advertised, and behind it ?only? hides a support fund for medical expenses benefits, then the member of the U-Kasse has no entitlement to benefits.
The “advertising” then prohibited by BaFin and the prohibited operation of a private health insurance company in connection with the sales activity (supply of members to a U-Kasse) can, on the one hand, trigger a claim for performance from advertising liability and, on the other hand, be objectively sufficient for a suspicion of commercial gang fraud. Anyone who illegally conducts insurance business or, for example, violates an enforceable order by BaFin to cease further business operations can be punished with up to one year’s imprisonment under section 140 of the Insurance Supervision Act (VAG).  
Then no VSH of an intermediary pays, the managing directors and/or executive committees are personally liable, also a D&O cover would hardly step in, and with a personal insolvency procedure ?fraudsters? remain sitting on the fraud debts.
Conceptual error in the case of outsourcing of administration If the initiator tries to talk his way out of it when asked by BaFin, he can damage himself again if he does not know what he is talking about: For example, it is fatal to admit that one would only have taken over the ?administration of such private health insurance contracts for a health insurer? because to this extent there may be a so-called outsourcing of functions, for which the insurer also needs BaFin approval. Subordinate auxiliary activities with the achievement completion can be permission-free, but it must be possible for the insurer to supervise these. If, however, a much more extensive independent processing is claimed in the advertisement, this can cause difficulties for the insurer with BaFin ? up to the question of the lack of reliability of the insurer’s board members. Then the trust is quickly destroyed, the cooperation of the sales department with the insurer is terminated and one has another problem.
Lack of clarity in the support fund concept: The indication by BaFin or the Administrative Court that the reality (for example a U-Kasse) deviates from the advertising, and then in the provision of the lack of legal entitlement to benefits hidden somewhere in the conditions a ?surprising? or non-transparent clause is present, still appears extremely restrained in the assessment. Those who have worked with BaFin for many years know that such restraint is in line with BaFin’s style and can better appreciate this. Only the inexperienced misjudge BaFin, overtax their patience and thereby force an unnecessary escalation ? i.e. the legally possible coercive measures for BaFin.
Even a criminal complaint against BaFin pp. does not help to get over the fact that the initiator has often negligently omitted to obtain external competent advice within the scope of controlling in such cases (prohibited advertising, order of liquidation or reversal). The in-house lawyers and actuaries employed are often under the pressure “whose bread I eat, whose song I sing” with fatally costly consequences. – with fatally costly consequences. The resulting insistence on dubious legal positions does not go down well in dealings with BaFin ? with a bit of intuition and the right advisors, on the other hand, it is often even possible to work out an acceptable proposal for a solution with the ? usually very helpful ? Ba-Fin employees can be worked out.
In principle, health support funds are permissible and do not require supervision or approval. However, the term “support fund” alone is of no help, because this is also the name of a whole series of “genuine” insurance companies/ mutual insurance associations that are subject to supervision. Mutual insurance companies/insurance associations that require supervision. It is much more important to implement this concept ? here the lack of legal entitlement to benefits is essential ? consistently, right down to the choice of words and advertising. It is fatal, for example, to call the same thing ‘insurance’ on the side.  
Communication with customers: Customers of IHS had come together on Internet forums after they realized that instead of the insurance solution, there was suddenly a provident fund with no legal entitlement. They were annoyed because they did not even feel properly informed about this by IHS. The provider’s website offered little help there either. After some discussion, the customers came up with the idea of contacting the insurer and BaFin and complaining, even demanding measures against IHS to protect the originally “insured”. This is the kind of thing that makes the cliff slide.
The special features of a provident fund in particular require a great deal of explanation. In the Internet age, communication errors have rapid consequences ? these could have been avoided if customers had been approached offensively and the alternative concept of a “provident fund” had been communicated more clearly. Then also the question of the security of the provident fund in the case of increased losses, which is asked by many customers, must be answered. An independent expert opinion based on a security concept prepared by legal and actuarial experts is helpful. Some people will rule out a provident fund solution in principle ? they will lose customers. For the others, however, such an alternative concept would have proven to be a competent and communicative problem solver and would have convinced these customers ? and won new ones.
Assistance in dealing with BaFin: In addition, the involvement of experts who are also recognised by BaFin helps to restore and maintain endangered trust before it is lost for good. When dealing with BaFin, only those experts should be called in as intermediaries who are used to dealing with the supervisory authority. If the BaFin sees the possibility of an adequate alternative solution in the confidence of qualified advisors and their advocacy, this is usually also made possible and no quick ?final solution? is preferred ? on the contrary, one can often even count on the additional help of competent BaFin employees. For they too would like nothing better than to get a problem off their desk in the simplest and most reliable way possible.

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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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