According to a ruling of the Federal Supreme Court, brokers are liable to customers for losses caused by ageing provisions. In case of doubt, the broker must prove that he has really informed the customer comprehensively.

The 63-year-old business graduate Werner Zettel (name changed) wanted to know exactly and asked his private health insurer in Stuttgart when the ageing provision would start paying off for him. After all, the insured person initially pays significantly more premium for the formation of ageing provisions than corresponds to his age-related risk.

At some point in old age, this should reverse – and he should increasingly get more back from the ageing provision he has built up, because his risk, which continues to rise due to his age, exceeds his premium. But when does this “tipping point” occur?

Ageing provisions only take effect at a high age

The mathematical board itself answered: Due to ongoing premium adjustments, the customer’s premium would probably not be below a risk-adjusted age-related premium for the first time until he is 78 years old – so only then will he no longer pay anything into the ageing reserve from his premium. By the time the additional premium paid for the ageing provision has been amortised, he would have to become even older.

In fact, however, only a few people reach retirement age at all – only about one in three of the new entrants at the age of 35, for example. The reasons for this are not only deaths, but above all terminations and switches to other insurers. Then the ageing provision is forfeited – only in the case of comprehensive insurance and in the long term only for new policies taken out from 2009 onwards can it be taken over, at least in part, to a new provider.

Losses when switching insurers

In supplementary insurance, on the other hand, the ageing reserve formed from the premiums paid – often a share of 30 to 50 percent – together with compound interest remains with the insurer when the contract is terminated. So most of them just pay in, a smaller part gets a premium advantage for it even at a high age, but for very few this really pays off in the end. In addition, the ageing provision hinders competition – the choice for a better product on the market is accompanied by high losses. Outside Germany, an ageing provision is therefore also largely unknown.

In Germany, too, it is only prescribed by law for comprehensive insurance (so-called substitutive health insurance) – but not for supplementary insurance. Foreign providers – such as CSS Versicherung from Switzerland – have always had a lot of experience in designing products without ageing provisions. Particularly for young families who have to do the math, affordable, good insurance cover makes more sense today than expensive provision that may only provide a premium advantage at an advanced age.

Comparison is worthwhile

Without the formation of ageing provisions, supplementary insurances are far cheaper until old age – it is worth comparing them. Brokers must advise objectively in the customer’s interest and should – not only for liability reasons – recommend to their customers the most suitable product for their needs. If the correctly informed customer then decides in favour of an ageing provision which will very probably never pay off for him and is immediately lost in the event of termination, he cannot later hold the broker responsible for incorrect advice. Ideally, the customer will use the saved premium for better insurance cover or simply invest it profitably and flexibly for old age. This capital is then available to him regardless of whether he keeps the insurance, switches to another provider at some point or terminates it altogether – and the accumulated ageing reserve would lapse.

Brokers are liable for losses

If a customer were not informed by the broker about the advantages and disadvantages of supplementary health insurance – with and without ageing provisions – he could later claim damages. In this context, a form-based waiver of the customer’s right to information or advice would regularly be ineffective. The clarification of ageing provisions is one of the core duties of the insurance broker. Due to the de facto reversal of the burden of proof by the case law on liability, the broker will regularly have to prove how he informed the customer about possibly undesirable or too expensive ageing provisions. In this case, the broker must even prove in case of doubt that the customer has really heard and understood his good advice. Otherwise, the customer could demand that the intermediary reimburse the unnecessary costs plus interest for up to ten years retroactively. For the insurance broker such liability cases are particularly precarious, because even with the use of a broker GmbH a personal liability can always come into consideration. The assumption of the damage by a financial loss liability of the broker is by no means certain, because it tends to be a matter of basic professional knowledge or legal broker core obligations.

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

by courtesy of

www.versicherungsmagazin.de (published in Versicherungsmagazin 05.2009, pages 40-41)