Life insurers: Are premium increases due to low interest rates permissible?

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Some legal experts believe that the permanent mini interest rates will allow insurance companies to reduce their guarantees or increase premiums. But this is a contentious issue.

As is well known, the permanent low level of interest rates is causing considerable problems for German life insurers. However, legal experts disagree on whether companies are therefore allowed to increase premiums or reduce guarantees when there is a threat of undercoverage. “It’s not possible,” Professor Manfred Wandt, Managing Director of the Institute for Insurance Law at the House of Finance of the Goethe University in Frankfurt is convinced. “Goes very well,” replied Munich lawyer Johannes Fiala in the dispute, which can be found in full length in the current issue of FONDS professionell 02/2017.

One legal provision that could allow premium increases based on permanent lean interest is Section 313 of the German Civil Code (BGB). But that doesn’t work, is Wandt’s position. His reasoning: Section 313 of the German Civil Code (BGB) allows contract adjustments due to a disruption of the basis of the transaction. However, it does not apply where the parties have included in a contract the possibility that certain circumstances may change and one party bears the sole risk of that change.


Insurer assumes the risk of interest rate changes

The same applies to life policies with interest rate guarantees: the insurer alone assumes the risk of a change in the interest rate level. Therefore, Section 313 of the German Civil Code could at most be applied if the parties had made a misjudgment with regard to certain developments outside the contract.

However, an insurer could not justify an adjustment of the contract under Section 313 of the German Civil Code on the grounds that it could not foresee that the capital market would be determined to a large extent by monetary policy measures of central banks. Such measures are allocated to the insurer’s sphere of risk by the guarantee it provides.


Unforeseeable situation

“I disagree,” counters attorney Fiala. “The conclusion of older life insurance policies is based on the assumption that it is possible to earn the guaranteed interest rate specified in the policy,” he explains. Of course insurers would have known about the importance of monetary policy 20 years ago. “But a situation like the one we are currently experiencing simply has never existed before”, says Fiala. Neither the insurer nor the policyholder could ever have assumed when concluding the contract that it might not be possible to maintain the guaranteed interest rate in the distant future.


business basis disturbed

“The business basis of older life insurance policies was the view of the contracting parties that there will always be an adequate interest rate on the capital market”, explains Fiala. However, since the situation had now changed completely, the basis of the business had been disrupted.

“Therefore, insurers can of course increase premiums according to section 313 BGB”, says Fiala. It is true that the policy holder must agree to this. “If he does not, however, that is a reason for extraordinary dismissal,” says Fiala. That would be bitter for customers who took out their policies when permanent low interest rates were unimaginable.


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


by courtesy of (published on 15.06.2017)



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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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