Insurance sales in the credit institution: Illegal valve solution endangers bank and insurance board members, as well as employees *

– A “simultaneous” activity as agent and insurance broker is no longer permitted by law since 22.05.2007 -.


In the case of a valve solution in insurance distribution, a credit institution acts as (multiple) agent as agreed with one or more insurers. If the customer’s needs cannot be met through this (these) product provider(s), the insurer “as an outlet” allows the credit institution to procure suitable cover elsewhere for its own customer. This means that the credit institution sometimes – but not necessarily – changes its role in the customer relationship from insurance agent to insurance broker: And this has been illegal since 22.05.2007, even if individual insurers and credit institutions apparently continued to operate this “valve distribution with mutation of the agent to broker” together. Later, dissatisfied customers could “feel cheated” and file charges, especially with the Chamber of Industry and Commerce, BaFin and the public prosecutor’s office: How real are these dangers?

The EC Insurance Mediation Directive of 09.12.2002 aims to eliminate the mixing of the types “agent and broker”, especially to abolish the pseudo-broker, also for reasons of transparency. Therefore, since 22.05.2007, insurance intermediaries have to provide the customer with status information even after the domestic legal implementation:
This must be based on how an intermediary is entered in the register. Licensing by the IHK is only possible either as a (multiple) agent or as a broker, as expressly regulated by the Ordinance on Insurance Brokerage and Consulting of 15.5.2007, cf. § 34d I GewO, § 5 VersVermVO.

Even exclusive agents who are not subject to licensing cannot register as insurance brokers. Both types (agent and broker) in one and the same person, are
since then – thus by the law for the reorganization of the insurance mediator right of 19.12.2006 – no longer permitted. The status, i.e. the type of profession admitted to the selected register entry, also determines what information the client receives about the basis for advice, and even the content of the basis for advice itself depends on it. So it also comes
Here it depends on whether the intermediary is licensed as an agent or as a broker, § 42b ff. VVG.


Risks and side effects of the illegal insurance sales valve:

As a rule, the credit institution does not have a trade licence as a broker; § 34d GewO. Any activity as a broker, even an appearance as a broker, but also the recording of data for (another) broker “as a tipster” is therefore illegal. Already the appearance of a broker is to be avoided, § 42a VVG: In this respect, not only a data recording for a broker is prohibited, but also any communication of being active for a broker. Pursuant to Section 80 of the Insurance Supervision Act (VAG), insurance companies must even report to the Chamber of Industry and Commerce those intermediaries who do not operate in compliance with the law in accordance with this provision: However, if it is observed that insurers instigate (or are practically complicit in) illegality in insurance distribution via credit institutions, the “BaFin question” also arises as to the reliability and suitability of the responsible board members. The insurer must even report “unreliable” intermediaries to the supervisory authority, § 80a VAG. Even an assumption of liability by the insurer for a “brokerage activity of own agents” is considered by the Chamber of Industry and Commerce not to be registrable in the register, resulting in a de facto reporting gap.


Information and transparency deficits vis-à-vis customers:

The initial information of the customer should be made for transparency reasons, and must be made to the customer in terms of content (agent status) in accordance with the register entry. The subsequent activity with a different status (insurance broker) is sanctioned according to § 18 I No. 1 VersVermVO in conjunction with. § 144 II No. 1 and IV GewO as an administrative offence. The bank cannot simply change the status vis-à-vis the customer at will during the contact, because this is not at the parties’ discretion according to the law, §§ 11 VersVermVO.
The agent is obliged to be loyal to the insurer, § 86 HGB. In contrast, the insurance broker is a fiduciary trustee of the customer. A conflict of interest is pre-programmed in the case of a change of status – because the intermediary cannot simply “change camp” or “change role” at will to serve the other party to the insurance contract.
A misunderstanding of the customer can lead up to the accusation of a deception in the sense of the objective facts according to § 263 StGB. Finally, the credit institution as agent is also
“eyes and ears” of the insurer; knowledge is imputed to the insurer. In the case of insurance brokers, the customer is at a disadvantage in that a failure to pass on information will regularly not lead to liability on the part of the insurer; for the customer, the “valve change” to the often less bonide liability debtor in the person of the broker will remain opaque.


Other liability consequences:

In the case of an agent, the insurer is generally liable for errors in advice – in the case of mediation via a broker (even with the involvement of a bank as its “helper”), only the broker is liable. The insurer’s assumption of liability for its agents precisely does not cover a brokerage activity, §§ 80 III 2 VAG i.V.m. § 34d IV No.2 GewO. A pecuniary damage liability insurance (VSH) will cover with the insurance broker only his activity, not however errors in the apron with an agent activity; § 34d II Nr.3 GewO, § 9 III VersVermVO. The consequence of a lack of transparency would be
for the customer that he might have to sue both recourse debtors – and that they each plead that the “mistake” happened in the respective other “warehouse”, yes
that even for the “uninsured” or “non-liable” change of role there is no cover or indemnity at all. In the areas of investment consulting
or administration, the person responsible can thereby expose himself to the accusation of endangering assets, § 266 StGB. The objection of a lack of risk assumption or cover by the insurer in the event of a claim will be easy to counter for the credit institution in the event of a claim, because according to the GCI there is usually no VSH cover in the event of a breach of legal norms (not only criminal law!). Especially exclusive agents without a licence, also credit institutions in this role, do not require any expert knowledge examination – at most in-house training at the insurer, § 34d IV GewO, § 80 IV VAG. If the agent mutates into a broker in the consultation, this results in de facto circumvention, § 42b I 1 VVG.


Disbarment, fines, malpractice review, revocation of business license:

The activity as a broker by the credit institution, without appropriate permission can be punished with a fine up to 5,000 euro, §§ 34d, 144 IV GewO; in addition, a withdrawal of the permission comes into question, § 35 GewO. Incorrect status information can be punished with a fine of up to 2,500 euros, §§ 11, 18 VersVermVO, 144 IV GewO. Incidentally, the credit institution is liable both “as a bogus broker” and in the role of a “sub-broker of a broker” for breach of pre-contractual duty of disclosure as well as according to the strict broker liability, §§ 42a, 42e VVG: For such liability risks, the credit institutions regularly do not have a comprehensive indemnification by the insurer. In this context it has to be considered that according to § 80 I No.1 VAG prohibits the insurer from working with an intermediary who does not have the required business licence.
From the customer’s point of view, all that is needed is the observation of a broker’s activity, and an enquiry at the trade licensing office for the licence or a look at the broker register on the Internet – and the case can start rolling.


Risks for board members: ineligibility – loss of retirement benefits:

At the level of the insurer who agrees such valve solutions with credit institutions, this is a case for the maladministration supervision of BaFin, § 81 I 4 VAG. This can also be used as a reason to deny the suitability of members of the management board and other managers, § 81 II 1 VAG. is then also usual the withdrawal of retirement benefits. In extreme cases, or if such cases also become criminally relevant, a revocation of the business license cannot be ruled out, § 87 I No.2. VAG. This shall apply mutatis mutandis to the management board of the credit institution, sections 33, 35 et seq. KWG.

Risks for employees: Personal recourse liability – incomplete insurance cover

Numerous indemnities with waiver of recourse by the insurer for its agents or the credit institutions are – in the internal relationship – limited to comparatively low six-digit amounts; moreover, they open up legal disputes, since not infrequently grossly negligent errors by the intermediary are not covered by the waiver of recourse at all. It is advisable for agents to have their own insurance, although the statutory minimum cover can only be described as adequate in rare situations. However, it also happens that, in particular, the recourse of the insurer and/or the credit institution against the intermediary is not covered. In addition, the common VSH insurance broker is often not even able to determine the risk.


Legal valve solutions

An exclusive agent, i.e. also a credit institution in this role, can of course also broker the products of other insurers with the permission of “his insurer”, as long as the insurance products are not in competition with each other – and that means only for different lines of business. Registration can then be made as a “tied agent”.
be made through the insurer or insurers. However, it is crucial that the role as agent is not abandoned in the process. On the other hand, registration as an “unbound” agent or multiple agent must be made with the Chamber of Industry and Commerce if the brokered products of several insurers compete with each other. In Austria, a more far-reaching valve solution is known; therefore, in that country’s
Register also only as “intermediary” (not as agent or broker): VSH protection can also be covered there without any problems. The Intermediaries Directive itself allows this, but not the German legislator.


Illegal valve solutions

Under no circumstances may the credit institution act as a broker or on behalf of a broker – even the collection of data or other initiation activities are incompatible with agent status. The “valve” was not originally created to enable the customer to obtain “better suited, more optimal, cheaper or better performing” products, because the otherwise in question
not agree to the upcoming products that the agent can cover with his insurer. It is conceivable that the credit institution could be registered as a multiple agent if competing products are to be offered. However, the credit institution should not be deceived if the valve permission ultimately amounts to a de facto brokerage activity – this would not be
only “criminal”, but this also regularly means that the VSH coverage of the active employees is no longer applicable – up to and including the board of directors, even in the D&amp-O policy. The de facto brokerage activity (which is prohibited for the agent) already begins where the customer is to be offered a “better” alternative in competition. “Preliminary work” for a “cooperating insurance broker” by the agent is also illegal – so it may be a good idea to install a separate brokerage as a subsidiary. Simply recommending a door to a customer with the remark that you don’t have a suitable product for him without further action is just about possible. The passing on of information by an agent to a broker recommended by him, on behalf of and with the knowledge of the customer, is, on the other hand, permissible, because the agent does not yet become an “assistant” of the broker or his future mediation. This is to be distinguished from the “stamp broker”, which has been illegal since 22.05.2007, who receives the completed application forms from the agent and shares the brokerage fee with the credit institution. This is the starting point for risk management (which is mandatory under the KWG and the KonTraG) at the bank, in particular by means of contract controlling.


Legal brokerage of “third-party insurance” by insurers through their agents

However, an insurer itself (and its employees) would be allowed to broker its own and/or third party policies without broker registration; because that does not make the insurer an agent or broker. Thus, the agent’s insurer is free to use its agent to procure “third-party” insurance as well. This is also common because today insurers do not “manufacture” all of their own products within the Group. For the agent, it is crucial that he does not become a broker by doing so – however, he should be exempted from liability as completely as possible. Of course, applications from eligible third-party insurers are submitted exclusively through the agent’s own insurer.


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

With friendly permission of (published on (20.11.2007))

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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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