No legal loophole: Portfolio management by insurance brokers without a licence

Those who have lost their licence as insurance brokers are interested in continuing to “look after” their (previous) portfolios. In the trade press, the “legally erroneous” opinion kept appearing that portfolio management by brokers without a licence was not (or no longer) possible – but that this was allegedly a “legal loophole in insurance law”.

A look at the legal basis facilitates the orientation, because one can hardly assume a legal gap here.

 

Insurance Broker Duties: The “care” does not belong to it!

The following comment can be read on the website (http://www.suega.de/bgh.htm) of insurance broker Dr. K. Kuntz: “In a judgement of 22.5.1985 (IV a ZR 190/83), which became known under the keyword “Sachwalterentscheidung”, the Federal Supreme Court (BGH) specified and updated the duties of the insurance broker in a significant way.” Further it is to be read “Around which duties of the broker it concerns in detail, the BGH, as quoted above, has set out precisely. They are:

– The risk investigation

– The object check

– The risk placement

– The briefing”

 

Anyone who has read and internalised the wording of this judgement will have a clear advantage in discussions about the duties of insurance brokers and their job description. Nowhere, neither in §§ 93 ff. HGB (insurance broker) nor in §§ 652 ff. BGB (civil broker), is there anything in the law from which a “broker’s duty of care” arises.

 

As an interim conclusion it can be stated that

– a professional activity limited to ‘portfolio management’ is certainly not part of the profession of insurance broker, and

– the concept of profession in Article 12 of the Basic Law is “open” according to the case law of the Federal Constitutional Court.

 

In principle, it is therefore not illegal to register and operate a business as an “insurance portfolio manager” or “insurance contract administrator” – it is not insurance brokerage or brokerage activity – and as long as the focus is on administration and not legal advice, it is also not insurance advice. There can therefore be no question of a “legal loophole”. Thus also the “housing supervisor” – who is correctly called “housing administrator”, can “supervise”, i.e. administer, terminate and conclude new tenancy agreements by order and power of attorney for the landlord staying abroad, without thereby becoming a housing broker, indeed he may not even demand brokerage fees from the tenant according to the law.

 

Insurance brokerage or support contract

According to the statutory model, the broker’s duties end with the completion of an order assigned to the insurance broker. The term “support” is not found in the insurance broker law of the German Commercial Code (HGB). In the German Civil Code (BGH), however, this is found in §§ 1896 ff. BGB, and is present if, for example, a broker organises domestic care for his client after the need for care has arisen, similar to a private secretary. If an insurance broker additionally undertakes to provide “support” or the like as part of his brokerage contract, this may at best lead to the establishment of an additional continuing obligation, and the insurance broker thus exposes himself to additional unnecessary liability. This is reflected in practice in over 90 per cent of all “free brokerage agreement templates”, such as the following document, which is available on the Charter website (http://www.charta.info/cms/cms_files/maklerauftrag_mit_ hinweisen_071219_8e296a06.pdf). In this case, it is advisable to ask your own VSH insurer for a written guarantee that cover exists for all the professions and activities named in the insurance brokerage contract!

 

Support by insurance brokers at best relieves certain insurers

In the event of a claim, for example if insurance customers feel they have been deceived about an unreal return expectation of over 12 percent, insurers will be happy to point out that the insurance broker alone is liable. “Care” may unnecessarily expand such liability. This is also indicated by recent reports on disputes with British life insurance companies.

 

Brokerage fee owed for portfolio management?

In a publication of the Versicherungsjournal of o7.04.2009 it could be read that an insurance broker without a broker’s license “can claim follow-up fees for the support of his insurance customers on an existing, uncancelled brokerage fee commitment”. However, this does not appear to be free from legal error either. Insurance broker Peter Odendahl (Munich) has presented the basics in his essay “Der Courtageanspruch des Versicherungsmaklers” – a must read for all those agents who want to assert themselves in the brokerage profession. Because a follow-up commission “for support” corresponds at best to the job description of an insurance representative (agent), and is then called “follow-up commission”. In the case of insurance brokers, there is only a single legal entitlement to brokerage – the “subsequent commission” has its origin solely in the original brokerage of an insurance contract and the payment of a “subsequent premium” by the customer to the insurance company. A “brokerage fee commitment” is not required for this: the legal entitlement is regularly completely sufficient.

 

Even more liability for the broker?!

Some “professional associations” seem to be making it a point to place unnecessary liability on insurance brokers by including an additional “duty of care” in the “free model insurance broker contract”. Up to now, probably not a single VSH insurer has confirmed to its insurance broker that the statutory compulsory cover is guaranteed in every case, even in the case of “supervision and administration”. So anyone who works as a broker partially without insurance coverage has only allowed themselves to be led astray.

 

Loss of income for the broker?!

The efforts of the insurers to abolish the “subsequent commission” (to which the client is entitled as long as he continues to pay subsequent premiums for the brokered insurance contract) could have fatal consequences for the insurance broker and in fact even “expropriate” him. This would allow the insurer, for example, in the event of the death of a broker, to inform the widow that “now that the deceased broker is no longer providing services, there will be no more follow-up commission”. This fact would also put insurance agents in a better position, because they are entitled to compensation from the insurer for the newly acquired customer base, § 89 b HGB. There is no such claim with the insurance broker, not even for heirs.

 

Broker does not provide support – not even for the insurer

Insurance agents take care of policy maintenance – and this is basically the service that the insurer wants to be paid for as care. However, the broker may have to reinsure – thus, portfolio preservation cannot be his sole task. By clearly stating that the broker does not have to perform any support tasks at all, the question of whether an ongoing brokerage fee can also be omitted by the omission of support, no matter what it is called, becomes superfluous.

 

Clear attitude helps to achieve goals

So the broker wants to continue “servicing” after his license ends, not for the sake of servicing itself, but because he thinks he has to prove it as a condition of a payment of “servicing commissions” by the insurer. Thus it writes the support into its broker contracts, and runs an unmanageable and not insured liability risk, with which courts already interpret the circumstance of the referred support remuneration to the disadvantage to it. If the “support” to which the broker has agreed then ends, for whatever reason, the insurer will cancel the support fees in future. Against this, it helps to have a clear attitude from the beginning that follow-up fees are to be paid for the (original) brokerage and that support is not owed at all. The question of whether a former broker without a license may continue to provide services is then completely irrelevant for the follow-up fees.

 

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

by courtesy of

www.experten.de (published in Expert Report 12/2011, pages 10-11)

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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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