New European private comprehensive health insurance from abroad

What are the risks for intermediaries, privately insured persons and private health insurers?

New business models are booming in the financial sector. Uninsured persons in private health insurance (PKV) are just as much part of the target clientele as those who have been insured for many years, whose PKV premiums increase by up to more than 7% p.a. in old age. At first glance, it seems tempting to offer policyholders resident in Germany a foreign private European comprehensive health insurance policy (so-called substitutive health insurance), because the premiums often appear more favourable, for example, due to calculation without ageing provisions.

However, both the foreign health insurer and the domestic intermediary are threatened with punishment according to §§ 140, 144a of the Insurance Supervision Act (VAG) – the policyholder, however, can enjoy unexpected benefits at the latest with court assistance. The Federal Financial Supervisory Authority (BaFin) can also intervene by way of maladministration supervision.

And this is to be seen completely independently of the question whether the foreign PKV is suitable for the fulfilment of the health insurance obligation, thus a past private or legal health insurer may not refuse its insured one the change to the foreign PKV, if at least the conditions of the § 193 III VVG are fulfilled by the new foreign PKV tariff.

Such private health insurance contracts may of course be obtained by customers abroad at any time – but without any intermediary or intermediary – even if they call in a legal adviser or seek advice from an actuarial expert.

In the case of distribution through a so-called intermediary (broker or agent), the German Insurance Contract Act (VVG) generally applies – regardless of what the foreign insurer might want to stipulate differently in its insurance conditions.

The calculation of the foreign PKV insurer will thus be out of joint if he has no chance to cancel the PKV contract or to increase the premiums because of aging, because this is not allowed according to the German VVG, just as in the case of cost increases a premium adjustment without an aging provision is simply ineffective. In addition, the customer of the foreign private health insurer will often be able to sue for his benefits in accordance with the rules of international procedural law before courts in Germany, for example that premium increases or the termination of the contract are invalid. Later, the customer may ask himself why no suitable legal protection cover was offered as part of the package and, if necessary, ask the previously uninformed agent to submit the legal costs.

There are genuine “specialists” who believe that brokers are not intermediaries within the meaning of § 110 a VAG. For EU insurers, it states: “(1) Insurance undertakings with their head office in another Member State or Contracting State (home Member State) … may conduct direct insurance business in Germany through a branch or, in the course of the provision of services, through intermediaries only in accordance with the provisions of paragraphs 2 to 2b.

“If brokers were not intermediaries, then they could have unrestricted insurance distributed through brokers here without thereby engaging in a prudential insurance business here. However, Section 105 of the Insurance Supervision Act (VAG) would then state: “(2) Insurance undertakings of a third country wishing to conduct insurance or reinsurance business in Germany through intermediaries shall require a licence”.

That also insurers from China, Afghanistan, Japan and USA, who want to sell their insurances here via brokers, would not need any permission in Germany or the EU. The fact is, however, that insurers who offer their products here through brokers are thus conducting a prudential insurance business through intermediaries. This then also has consequences for the broker who brokers insurance policies that are not licensed here.

Here now the press inquiry to the BaFin with their specialized answers:

Question 1: If substitutive health insurance from an EEA insurer is brokered via brokers in Germany to persons resident in Germany which, contrary to Section 12 VAG, is calculated in accordance with the type of non-life insurance – without ageing provision – are the insurance contracts concerned nevertheless effective and also fulfil the obligation under Section 193 (1) VAG? 3 sentence 1 VVG?

BaFin: Intermediaries (including brokers) may only distribute substitutive health insurance offered by an insurance undertaking domiciled in another EU/EEA member state within the framework of the provision of services if the insurance undertaking in question has gone through the notification procedure for the provision of services and it operates this health insurance in the manner of life insurance (section 110a(1) sentence 1 and (4) no. 2 of the Insurance Supervision Act (VAG) in conjunction with. § Section 12 (1) VAG). It also follows from the above-mentioned regulations that an EU/EEA insurance undertaking may not offer substitutive health insurance without setting up an ageing reserve.

However, violations of the above-mentioned requirements of the ISA do not affect the validity of insurance contracts under civil law. The contracts shall remain in force. A question to be clearly distinguished from this is whether health insurance contracts calculated in the manner of non-life insurance can fulfil the insurance obligation pursuant to Section 193 (3) of the German Insurance Contract Act (VVG). If a policyholder takes out a health insurance policy with an insurer domiciled in another EU/EEA country, this policy may in principle be suitable for fulfilling the insurance obligation pursuant to Section 193 (3) VVG if the other requirements of Section 193 (3) VVG are met (reimbursement of costs at least for outpatient and inpatient medical treatment as well as a maximum annual deductible of EUR 5,000). Insurance undertakings licensed to do business in Germany within the meaning of Section 193(3) of the VVG are insurance undertakings licensed to do business in the health insurance sector which have their registered office in an EU/EEA Member State. If the insurance contract is concluded in Germany with the help of an intermediary, the EU/EEA health insurance undertaking must notify BaFin before commencing business in Germany and submit the relevant general terms and conditions of insurance (cf. Section 110a (1), (2a) and (2b) VAG).

Question 2: Is it true that German law – including German insurance contract law – applies in this case?

BaFin: If the health insurance is intended to fulfil the obligation to insure pursuant to Section 193 (3) VVG, German law is applicable (cf. Art. 7 (4) (b) Rome I Regulation in conjunction with. § 46c (2) EGBGB, according to which this compulsory insurance is subject to German law).

Question 3: If German insurance contract law is deemed to be agreed, either in principle or on the basis of a corresponding express contractual agreement, to what extent can the provisions of § 192 to § 208 VVG be deviated from by means of insurance conditions?

BaFin: Preliminary remark: § 208 sentence 1 VVG standardises which regulations can be deviated from in the area of private health insurance. In this context, the regulation declares the statutory provisions on health insurance (§§ 192-208 VVG), with the exception of §§ 192, 193 and 200 VVG, to be non-disposable insofar as the deviations are disadvantageous for the policyholder or the insured person. This excludes not only disadvantageous deviations in the insurance conditions, but also disadvantageous individual agreements.

Question: Specifically by name:

a) Can, by way of derogation from section 195 para. 1 VVG, can a time limit be effectively agreed in the contract?

BaFin: This rule cannot be deviated from to the detriment of the policyholder or the insured person if the underlying contract is a substitutive health insurance policy or a health insurance policy calculated in the same way as a life insurance policy, § 208 VVG.

b) Question: Can it be effectively agreed in the contract that, in derogation of § 203 para. 2 VVG, a premium adjustment is made without the requirement of review and approval by a trustee?

BaFin: No. The provision cannot be waived to the detriment of the policyholder or the insured person, § 208 VVG.

c) Can it be validly agreed in the contract that, in derogation of § 203 para. 2 VVG in the case of a premium adjustment for the change of premiums, premium surcharges and deductibles as well as their review and approval by the trustee §12b para. 1 to 2a in conjunction with a statutory instrument issued on the basis of § 12c of the Insurance Supervision Act does not apply?

BaFin: See answer to question 3b).

d) Question: Is a premium adjustment where either there is no trustee consent, or where the trustee consents despite the lack of compliance with the requirements of §12b para. 1 to 2a in conjunction with a statutory instrument issued on the basis of Paragraph 12c of the Versicherungsaufsichtsgesetz (Insurance Supervision Law) have legal effect?

BaFin: No. Pursuant to § 12b (1) sentence 1 VAG, changes in premiums for health insurance operated as life insurance may only be put into effect after an independent trustee has approved the change in premiums. Furthermore, compliance with the supervisory requirements (Section 12b (1) sentence 5 VAG) is a prerequisite for the effectiveness of the trustee’s consent and thus also for the effectiveness of the premium adjustment.

(e) Question: What possibilities does the supervisory authority have to remedy cases where policyholders are affected by possibly ineffective premium adjustments?

BaFin: BaFin may, if necessary, initiate orders by way of maladministration supervision.

(f) Question: In the contracts in question, is a contractual agreement under which the premium – except in the cases provided for by law in Germany (children/young persons and persons in training) – is increased on grounds of age alone effective?

BaFin: No. Premium adjustment is explicitly standardised in § 203 (2) VVG and § 12b VAG for health insurance calculated according to the type of life insurance. These requirements must be complied with. There is no provision for an age-related premium adjustment.

(g) Question: What possibilities does the supervisory authority have to remedy cases where policyholders are affected by possibly ineffective premium increases based solely on age?

BaFin: BaFin may, if necessary, initiate orders by way of maladministration supervision.

(h) Question: In the case of the contracts in question, may the insurance contract, by way of derogation from section 206(2), provide for the following 1 VVG can be validly agreed that a termination of such a medical expenses insurance, which is an obligation pursuant to § 193 para. 3 sentence 1, can be effected by the insurer, in particular a termination in the event of default in payment, or a termination e.g. due to poor performance, or an ordinary termination by the insurer?

BaFin: No. The provision in § 206 (1) VVG cannot be deviated from to the detriment of the policyholder or the insured person, § 208 VVG.

(i) Question: What possibilities does the supervisory authority have to remedy cases where policyholders are affected by possibly ineffective notices of termination?

BaFin: BaFin may, if necessary, initiate orders by way of maladministration supervision.

Other dangers for those involved:

In fact, it turns out that some advisors, distributors, brokers and foreign insurers seem unaware of these facts.

Foreign insurance companies offering private comprehensive health insurance without ageing provisions are facing considerable economic problems. This is because private health insurance contracts where the policyholder is resident in Germany can regularly neither be terminated nor increased on account of age – and it is also impossible to increase premiums due to an increase in benefits by adjusting premiums as long as calculations are made without ageing provisions.

If necessary, the foreign PKV insurers must make lifelong payments at the original premium. Domestic private health insurers will be pleased about this, because it means that competition in substitutive health insurance from abroad, which is worthy of protection, is massively restricted by law.

Even if the foreign private health insurers wanted to switch to a life insurance type of calculation in the trustee procedure, the premium increase would be ineffective due to § 12b VAG insofar as the insurer or a conscientious actuary should have already seen in the initial calculation that the premiums would not be sufficient because they do not contain a share for the ageing provisions. This could initially cause existential distress for one or the other foreign actuary, and later for one or the other foreign private health insurer.

The foreign financial market supervisory authority will therefore probably ask at least one foreign PVK insurer to set aside a large provision for future contingent losses. As a result, one or the other consultant in the travel agency will also ask for a plane ticket, no matter where, the main thing that the country does not deliver, and alcohol is legal there. There may still be one or two experts in the background whose pecuniary loss liability insurance provides cover – especially if the foreign PKV insurer folds up the sidewalks and would have to apply for reorganisation or concede a foreseeable insolvency situation on a permanent basis.

Some insurance brokers will perhaps suffer a particularly severe fate when their liability for property damage (VSH) writes in their log book that the most elementary brokerage obligations have been violated or, unfortunately, that a criminal offence has been committed, and that it will therefore not be possible to obtain VSH cover. The nationals mediated to the PKV insurer in the European foreign country will thank themselves however cordially, if they landed with a soon insolvent insurer, or must lead first once for years processes, in order to come to the PKV achievements entitled to you after German VVG.

Even if no premium is paid at all, this at least includes benefits in cases of acute illness, pregnancy and childbirth, because the possibility of cancellation in the event of late payment hoped for by the foreign insurer does not exist according to the law.

Who is currently without health insurance and with insurance in the private health insurance high accumulated back payments if necessary for the time without insurance since 2009 would have to carry out, can the incorrect estimate of the legal situation by foreign insurers, advisors and brokers concerned in addition, even still use, in order to be considered first once as insured and with later change into a law-conformal private health insurance no more back payments to have to carry out.

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

by courtesy of

http://www.experten.de (Expert Report 05/2014)

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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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