Insurance mediation as commercial fraud

– How clueless facilitators and training managers go straight to jail instead of through LOS -.


On 05.11.2014, the Central Criminal Investigation Service Lüneburg arrested two insurance brokers for commercial fraud. The intermediaries induced their customers to terminate existing annuity and life insurance policies in order to subsequently take out new insurance policies that were allegedly more profitable. Customers were untruthfully made to believe that the premiums of existing insurance policies would increase and that premiums paid to date would not be lost but would continue to serve their old-age provision. After being brought before a magistrate, the insurance brokers were remanded in custody with the prospect of up to 10 years of reflection.


Insurance mediation as commercial fraud

The brokerage of investments is often based on the fact that existing money and capital investments are liquidated in order to earn up to more than 15% in commissions on the sale of new financial products. This according to the motto “today you have the money and we have the experience – tomorrow it will be the other way round”. Or as one lawyer reassured his client the other day, “No, no, your money isn’t gone; someone else just has it.”


Mediation and advice under false pretences

Insurance mediation under false pretences can be commercial fraud and lead to pre-trial detention for the first time. In this case, it was the assertion that the premiums were not lost on termination of a life insurance policy or annuity insurance policy, but would continue to be available (in addition to the small surrender value) for old-age provision.


Concealment of private health insurance as an act of deception

The claim that the customer does not lose any ageing provision when terminating a private health insurance policy taken out before 2009 is likely to be similar, because this provision is collective and one cannot lose anything that does not belong to one individually, and one immediately participates in the much higher collective ageing provision with the new insurer. This inaccurate claim is how some real KV professionals have been trained in broker events.


Systematic false claims as a fraudulent trade

The fact that the intermediary can commit commercial fraud by making such mostly systematic false claims is perhaps seldom realised by intermediaries. Courts will hardly believe an alleged cluelessness later on, because one is a professional.

Even those who train incorrectly, such as broker advisors and sales training managers, are personally in the fire. Finally, the false training can be assessed as aiding and abetting, incitement or indirect perpetration – the latter if the trained person believes everything confidentially and then implements it at the customer. Like when the car thief sends someone unsuspecting with the duplicate key to pick up his car for him, either as a favour or for a fee.


Deceptions about return and risk

British insurers, for example, have used software to encourage their intermediaries to offer prospective policyholders the prospect of ongoing returns of up to more than 12% p.a. This has led to a number of new products being launched in the market. Many a customer then lost house and home because he paid for this investment mainly by bank loan. The intermediaries should have known that at the same time the actual annual increases in value of contracts already in force with other customers were only minimal.


Fraudulent according to the impression are often the guarantees, which there are only in the advertising. If, on the other hand, you look at the small print, you will find the risk hidden, right up to the total loss. A typical example are also guarantee certificates or funds with the name “absolute return”, as if you can be sure to get your money back at least 100%. However, these products, which are often brokered by banks, may in fact be hedge funds. Also, a good portion of the “sub prime” assets were allegedly purchased because the investor understood “Supreme”.


Good faith does not protect even agents from punishment

Even negligent violations of the requirement to possess a necessary license can result in up to three years of imprisonment. Skillful initiators do not guarantee impunity to the naive helper. Insurance intermediaries or agents may also be among those affected. An increasing variant would also be deception by omission, for example, if the insurance broker or agent advertises a net policy without pointing out that his fee is to be paid in full even if the brokered product is terminated prematurely. This duty of disclosure affects fee-based intermediaries as well as fee-based advisors, for example, when taking out insurance policies (BGH, ruling of 12.12.2013, ref. III ZR 124/13), because the remuneration is not linked to the fate of the premium payment.


Criminal charges often leverage

Many investors use the possibility of a criminal charge of fraud to put additional pressure on intermediaries who are accused of giving false advice. There may also be the hope that the public prosecutor’s office will find something in its investigations that can then be used in the civil courts. Some complainants then learn that the public prosecutor has discontinued the investigation because the accused is already being investigated in several other more serious cases and no additional increase in punishment is to be expected from the further case.


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

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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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