*by Dr. Johannes Fiala, Attorney at Law (Munich), MBA Financial Services (Univ.), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), Lecturer for Civil and Insurance Law (BA Heidenheim, Univ. of Cooperative Education), (www.fiala.de) and Dipl.-.Math. Peter A. Schramm, expert for actuarial mathematics (Diethardt), actuary DAV, publicly appointed and sworn by the IHK Frankfurt am Main for actuarial mathematics in private health insurance (www.pkv-gutachter.de).
Quality and risk management at the broker
Good contracts alone cannot substitute for a broker’s safe working practices. Numerous deletions from the register of intermediaries are evidence of the ongoing market shakeout. Ralf W. Barth, VSH broker puts it in a nutshell: “The excessive demands of the legal requirements are already clearly noticeable today, with more and more participants leaving the market”. If you want to reduce your personal liability, you have to develop a step-by-step plan to implement it http://www.vsav.de/index.php?id=206.
Limit orders and delegate concretely
The IWW-Verlag, for example, also correctly formulates that “existing insurance contracts are only included if this is expressly agreed”: The stumbling block in the collection of portfolios, but also in “customer service” with regard to contracts not in the portfolio, can be found in the typical VSH conditions: According to these, brokerage (e.g. policy cancellation, claims handling, consulting) is not insured for third-party portfolios. Another key point is the realisation that it does not always make sense to take on all tasks oneself: On the one hand, for example, the broker’s tax advice is currently not insurable – on the other hand, the cost of “actuarial valuations, security and risk analyses, ….” may be too high: In this case, it is necessary to delegate these things specifically (i.e. to persons to be named), or to settle the question of bearing the costs with the customer.
Core obligations become a liability trap
The IWW publisher’s warning that the insurance broker’s “core task is to select insurance contracts in the interest of his client” is also correct. A contract sample, which the publishing house IWW compiles and presents over the January expenditure http://www.iww.de/index.cfm?pid=1296&pk=1290&fk=53&wkz=464808 calls also substantial criteria, like “price performance, creditworthiness, security, goodwill, …” Crucial for the broker is the proof at any time – not only in the liability process. It is correct to warn that the clauses need to be adapted in individual cases (i.e. by the respective broker). In this respect, forms can only be seen as a basis for discussion if the most important general points are not overlooked.
Don’t trust a rating you don’t understand
One of the finer considerations is the case of a savings phase of 30 years for a subsequent pension that is to run for a further 30 years: If the insurer is then (only) affected by an insolvency probability of 0.5% p.a., one in four insurers would end up “broke”. Which rating agency already reflects this today?
Continuing obligations with barely controllable risks
In many model contracts, in addition to the legal minimum content of a brokerage contract, “support and administration” is also included – and the contract continues to exist until it is terminated. This would mean that the insurance broker would have to fulfil his brokerage duties (e.g. risk assessment, adequate insurance cover) on a permanent basis with the customer. If the customer starts a dangerous sport, the insurer without knowledge of it, will object to a breach of the duty of disclosure (risk increase) in the event of a claim: But the “supervising broker” should have known and reported it: Then the broker alone is liable?
Ineffective limitation to 1.0 million liability in the event of a claim
According to decades of case law of the Reichsgericht and the Bundesgerichtshof, a limitation of liability in sample contracts is regularly invalid. Therefore, it is also not sufficient to “allow the client to increase the broker’s VSH insurance at the client’s expense.” If a student wants to take out private liability insurance, it is a student residence in the inner city with listed neighbouring buildings, then a fire loss in the tens of millions can occur: The student will certainly ask the insurance broker to cover the underinsurance. Separate powers of attorney ensure the ability to act Clean is the reference to a comprehensive power of attorney for the insurance broker. It makes sense to have two copies – one for presentation to the insurer, and another for emergency and urgent cases to keep in the file.
Clear language – clear warnings
What would have been correct will one day be determined by a supreme court in each individual case. Therefore, tips such as the IWW-Verlag�s “If in doubt, consult a lawyer”, but also, for example, the clarification of legal uncertainties in the case of regulations of a limitation period within 5 years, are serious. Finally, the legal rule is currently that claims for damages are time-barred after 10 years, so it is more than questionable whether this rule will stand up in court.
Brokers responsible for their own actions
As a broker, you are well advised to learn from examples of sample contracts what might be the most suitable in each case. Neither adopting any sample – in the opinion that someone has already taken responsibility for it – is to be recommended, nor making something up yourself from supposedly useful ones. At the very least, however, one should sharpen one’s sense of the problem and become aware of the limitations of contract models. A brokerage contract is not an advertising brochure to promote one’s own activities. Not everything that one intends to do has to be stipulated in the contract as a duty of the broker – especially if it is part of the indispensable legal image of a broker anyway, which does not have to be explained to the customer in the brokerage contract first. And not everything that the customer is obliged to do has to be stipulated in the contract. On the other hand, it can do no harm to specify the rights of the broker in the contract in particular – preferably not with restrictions or again with obligations.
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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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