Life products instead of supervised insurance

– Health maintenance and wellness: coverage instead of insurance of illness –

The Federal Administrative Court (BVG) and the Federal Supervisory Office for Financial Services (BaFin) decide whether a private insurance transaction is involved.
Anyone who conducts private insurance business in Germany requires a licence and is supervised by the state. However, often only a Federal Administrative Court ruling provides clarity on what insurance actually is. If the regulator suspects that, for example, an extended warranty offered by a household machinery manufacturer is actually something akin to repair cost insurance, it can prohibit this offer to the provider as an unauthorised insurance transaction. If the supervisory authority then also rejects an objection by the provider against such an order, the provider has recourse to the administrative courts, so that ultimately the SNB must decide. In this respect, the supervisory authority does not always prevail.

Administrative court: Reimbursement of pension costs is not an insurance benefit

Not every service that an insurance company provides as such is therefore also generally always to be regarded as an insurance service. For example, preventive measures are also covered by health insurance, as the model conditions for medical expenses and daily hospital allowance insurance indicate. But in addition the administrative court Frankfurt/Main with judgement of 01.06.2006 – Az.: VG 1 E 4837/05 (VersR 2007, 337) stated that it did not concern with the cost refund for precaution treatments at all an insurance benefit. Preventive treatments served the purpose of reducing the risk of an illness and thus the insurance risk. They did not themselves constitute an insured event. Insurance is understood to be the planned coverage of a monetary need that is uncertain in detail but can be estimated as a whole, on the basis of a collective balancing of risks. Reimbursement of the costs of preventive measures, on the other hand, is a matter of covering an individually certain monetary need which arises on the basis of a life plan and not on the basis of a life risk.

Federal Administrative Court: Dental prophylaxis an optional insurance benefit

The BVG (Case No.: 6 C 26.06) left it open whether the benefit for dental prophylaxis is not a health insurance benefit at all, but a benefit to prevent the occurrence of the insured event “dental treatment” or “dental prosthesis”, as the administrative court had meant. At any rate, if an admitted insurer “intends to provide this benefit precisely as a health insurance benefit, which is true; under these circumstances it is not far-fetched to regard it as a health insurance benefit, even though prophylaxis is intended precisely to prevent the disease as such.” There are therefore services – such as dental prophylaxis – which are in principle not insurance benefits, unless possibly provided by the insurer concerned as such. For the purposes of the distinction, it is a question of whether a particular insured event gives rise to a risk to life which is covered by a plan to meet a need for money which is uncertain in detail but can be estimated as a whole on the basis of a collective risk equalisation scheme.

No insurance benefit without a link to a life risk

On the other hand, the payment of a nominal sum of money or the coverage of the costs of measures which require a non-accidental need for money in an individual case, which occurs as a result of a life plan as opposed to a life risk, is in principle not insurance. Thus, a corresponding need can also be met by non-insurance companies. And also the mediation of corresponding contracts does not constitute insurance mediation and thus does not require a corresponding permit or license. Examples – in addition to the above-mentioned preventive examinations – are benefits for visual aids which are provided up to a certain amount irrespective of medical need and the occurrence of certain medical conditions, e.g. simply at regular (minimum) intervals. Similarly, some mobile phone plans provide the option for a sponsored new phone every two years. Of course, this also applies to spa services, wellness treatments, cosmetic surgery, etc. . What matters is that these benefits – neither in terms of the occurrence of the obligation to pay nor the amount of the benefit – are linked to the occurrence of a life risk, but to other criteria – such as the customer’s wish within the framework of the prescribed maximum limits or intervals.

No insurance if provided independently of life risks

However, even if life risks are also covered, in BaFin’s view there is no insurance if the service is also provided in other cases on the basis of a customer request for other reasons, and not only on the basis of a risk that has occurred. If the utilisation depends essentially on the will of the customer, there is no insurance-specific assumption of risk.

More efficient product marketing through cross-selling and customer retention

This enables providers who are not insurance companies to market service offers – also via intermediaries – which are today only partially included in other insurance cover. These offers can then be easily linked to other products – such as customer or credit cards, fitness subscriptions and – which enables efficient marketing through cross-selling. Another advantage of these offers is that they are not subject to the regulatory costing regulations and thus methods of modern pricing, including cross-subsidisation, can be used to a greater extent. In particular, however, customer loyalty and the marketing of health care services can be improved with such products, precisely because the claim does not first require the occurrence of an insured event and can thus respond much better to the wishes and needs of the demand – for example, for wellness treatments, individual health services (IGeL), preventive checkups and treatments at the anti-aging doctor/institute. And regular payment for new glasses – irrespective of changes in visual acuity – is no more covered by insurance than professional dental cleaning. After all, these are not insurance policies for the event of illness, but products that finance staying healthy – and this at manageable regular premiums.

Health does not require insurance for the time being

In ancient China, the doctor was paid only as long as the “patient” was healthy. In case of illness, the doctor had to treat without payment, or even compensate the patient in addition – as a warranty liability, so to speak. A physician’s ongoing efforts to maintain the health of his patients are not dependent on a risk of life. The spectrum of services ranges from preventive medicine and nutritional supplements to fitness programmes and enhancing the quality of life in old age – all of which is not a question of life risk, but of individual life planning.

Anyone can offer health insurance – but they can’t call themselves that.

If you only pay if the customer is ill, you are covering a life risk – and thus taking out insurance. On the other hand, anyone who always pays, i.e. also for doctor’s visits requested by the healthy customer – and of course also by the sick customer – is not offering insurance-specific risk assumption and is therefore not operating an insurance company. For such offers – against recurring premiums (only not “insurance premiums”) – traders therefore do not need a supervisory licence. They may not call it insurance, though – but give it other euphonious names like “plan for health” or “health plan.” Used correctly, it could provide real competition for insurers. And by the way, the intermediaries of such products are also not covered by the regulation for insurance intermediaries.

by Dr. Johannes Fiala and Peter A. Schramm

by courtesy of

www.kommunalverlag.de (Published in Kommunalwirtschaft 04/2009, 246-248)

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About the author

Dr. Johannes Fiala
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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