Freedoms outside the regulation of insurance mediation
No insurance mediation without mediation of an insurance contract
The implementation of the Insurance Mediation Directive has created professional regulations for the profession of insurance intermediary (agent or broker) and insurance advisor. New is the overlapping of the permission for insurance consultation by insurance brokers in § 34 d GewO: Only non-customers, who are not consumers, may advise the broker against remuneration – after legal rule with the broker a success remuneration, § 652 I BGB.
However, insurance contracts can also be concluded outside of insurance mediation – typical cases are described here by way of example. First of all, insurance brokerage is about brokering insurance contracts. The intermediary brokers an insurance contract between an insurer (VR) and the policyholder (VN) to the latter. For example, insurance mediation does not exist if the person being advised is not supposed to conclude an insurance contract, i.e. does not become the policyholder.
Advice to the insured person on occupational pension schemes and company group insurance is not a brokerage service
This includes, for example, advice given to an employee by the employer or a third party commissioned by the employer (even if the third party is otherwise also an insurance intermediary) so that the employee merely agrees that the employer, as policyholder, concludes an insurance contract for him as insured person (VP).
The advice given by a third party is then given as a vicarious agent of the employer, § 278 BGB:
In the majority of cases, such advice is not included in the insurance intermediary’s VSH. It is not an insurance mediation even if the employee himself pays the contributions (also e.g. in the case of deferred compensation) and/or receives an entitlement to benefits. This refers to the broad field of company pension schemes, in particular through insurance companies and provident funds, as well as that of so-called company group insurance.
In the latter (also correctly called group insurance), the employee quite consistently does not receive an insurance policy, but only an insurance certificate, he does not make an application, but only registers his participation in the group contract (he may nevertheless fill out the questionnaire with health information) and he cannot cancel the insurance contract, but only deregister, because he himself does not have an insurance contract, is possibly only an insured person, but not a policyholder = contractual partner.
Support funds are not insurers
Many life insurers also already have a congruently reinsured provident fund set up by them. When advising the client – both with regard to the employer and the employee – it is then a question of contributions and benefits of the reinsurance policy with the insurer – for the congruently reinsured UK. However, since this is concluded by the provident fund as policyholder (VN) for the employee as insured person (VP), the recruitment for the provident fund is not insurance mediation.
The obligations applicable to insurance mediation do not therefore have to be fulfilled and intermediaries can also be used who – for whatever reason – do not have or can no longer obtain a licence as an insurance intermediary. Indemnification by insurers or VSH protection is not required.
Tax advantages through the provident fund
The provident fund is a successful model, particularly in company pension schemes, because of its tax advantages. In general, however, it can also be considered for private individuals. Thus it is also a model in the form of the health support fund, although in order to avoid the obligation to supervise – without permission it would otherwise be unauthorised insurance business – no legal entitlement to UK benefits may be granted.
However, by taking out a health reinsurance policy for each member of the UK from the contributions exactly 1 to 1 – i.e. congruent reinsurance – the UK’s entitlement to benefits can be assigned to the insurer and the UK member gains a secure legal position for benefits. Upon withdrawal from the UK, the insurance itself can then be continued by the insured person as a future policyholder – just as in the case of withdrawal from a group insurance.
Thus, by interposing a provident fund, as is already recognised in the area of life insurance even when it is established by and close (even almost identical in name) to an insurance group, it is possible to conclude insurance policies more rationally and at lower cost without having to accept the complications imposed by the legislator on insurance brokerage and information obligations. Of course, a broker may also set up and operate a provident fund, either alone or by working with an actuary.
Even then, there is no obligation towards the VP recruited for the UK (analogous to group insurance) to quantify the acquisition and other costs of the insurance contract between VR and UK – the insurer only has to disclose this to the insured party – i.e. the UK. However, in cases from the period up to the end of 2007, in which a provident fund insured the lives of employees as the policyholder, the contracts with the VR are only effective according to the “Lex Schmidt Tobler” if the employee had consented, § 159 VVG a.F., § 150 VVG. There is still considerable unwinding potential here.
Freedoms in club and association group insurance
The situation is the same for other forms of group insurance, such as association or club group insurance. In this case, the (professional) association or the club is the policyholder and the members can register to participate in the group insurance contract. Again, soliciting association members to participate in the group insurance contract is not insurance brokering.
The recruitment of new club members by highlighting the benefits of the club, namely to obtain (not necessarily cheap) insurance cover, is also not insurance mediation, even if highlighting the benefits of the insurance plays an essential role in this recruitment.
On the other hand, to focus on soliciting insurance for non-members of the association, and to include membership in the association as a secondary matter only because of the benefits associated with it, is likely to meet the definition of insurance mediation. Otherwise, however, the association can advise its own members on possible insurance cover and insure them without a licence as an agent or liability insurance being a prerequisite for this. And also the information obligations incl. Disclosure of acquisition costs is not required to the association member.
Similarly, intermediaries who arrange memberships to the association do not require a licence as insurance intermediaries, even if they subsequently (possibly also simultaneously) advise the association members on possible insurance cover which the association can take out for them – at the member’s expense. The legal problems at the level of such an association lie in other areas: for example, it may be apparent from the articles of association that there is a supervisory obligation to act as an insurer.
The question of tax deductibility of contributions or tax liability of benefits may also be affected. Non-profit status may also be in question under the statute and/or activity. Finally, an association member may feel deceived if the insurance coverage falls short of advertised expectations.
However, the insurance industry and the regulator have decades of experience with group insurance contracts. This can be built upon, especially since the one contracting party to such a group contract is always a licensed and supervised insurer with the relevant experience, who will examine the facts in detail before concluding the contract.
As a broker, hold your own association group contract
If an insurance intermediary himself establishes an association (e.g. also as a relief fund) in order to provide insurance cover for its members, this may constitute circumvention if the purpose of the association is essentially limited to the provision of insurance cover. When concluding such collective contracts, insurers are required by supervisory law to ensure that the association does not merely act on behalf of its members with regard to the provision of insurance cover, but can also represent them with regard to other statutory purposes of the association. Insurers are otherwise not allowed to conclude corresponding group contracts.
If the insurer concludes a group insurance contract (framework contract) with the association, it can be assumed that the supervisory requirements for this are also met, i.e. the supervisory authority will not allege circumvention vis-à-vis the association or its “intermediaries” – rather, it would have to do this primarily vis-à-vis the insurer it supervises.
However, you still need a broker, but he only advises the association, so that the broker receives a commission from the insurer. The insurer is not allowed to pay anything to the association as policyholder – because of the prohibition of preferential treatment. However, the managing director of the association and the broker may each be a natural person. The broker – as such – naturally does not advise insured persons (VP); insofar as he advises them (VP), he does so not as a broker but as a vicarious agent of the association.
With the policyholder, i.e. the association (which, due to the qualifications of its managing director, may in any case have just as much knowledge as the broker), the broker can effectively agree by contract on a waiver of information, advice and documentation, possibly even exclusions of liability and limitations. However, forms and sample contracts are completely unsuitable for this purpose; rather, legal training is required in order to reach an effective individual agreement.
Deficits in this field have already driven numerous intermediaries into insolvency. It is important to ensure that you have the right VSHS cover, even if you are not acting as a broker: you should also consider D&O cover at association level. Finally, the advice as a vicarious agent can also lead to the accusation of “non-coordinated or contractless activity” or a collision with the broker’s duties towards the association: Without precise legal regulations, the liability coverage may lapse.
Anyone may conclude insurance contracts on behalf of the policyholder – even a broker.
Insurance mediation is also not deemed to exist if someone – without acting as an insurance intermediary – acts on behalf of the (future) policyholder by proxy. For example, the wife for the husband who is absent abroad, the seller for the buyer, the architect for the builder, the guardian for the ward or the lawyer for his client or his family.
The statutory provisions on representation pursuant to §§ 164 et seq. BGB have not been abolished in the area of insurance or restricted to commercially licensed insurance intermediaries. Anyone can act on behalf of another under a power of attorney, i.e. also conclude insurance contracts on his or her behalf, which bind the person represented as policyholder. The authorised representative is in particular the “knowledge representative” of the customer, § 166 BGB.
It therefore goes without saying that it is sufficient if the insurer’s duty to inform the authorised representative is also fulfilled, i.e. the represented party (the policyholder) does not also have to be informed personally. The client and his lawyer, for example, would not want this to happen, and the client represented by the architect would also want his architect to receive and be able to check the information, not him.
Of course, it is also not forbidden for a broker – in addition to his broker power of attorney – to obtain such a comprehensive power of attorney to represent the policyholder. However, this cannot effectively be done by a clause in the brokerage agreement itself. Such a power of representation not only enables the broker to sign the insurance contract himself on behalf of the customer (the application in the application model, the acceptance of the offer in the invitation model), but also the insurer’s information obligations are deemed to have been fulfilled if the broker so authorised has been informed (proxy model).
The internal relationship between the grantor of the power of attorney (customer) and the authorized representative only concerns the insurer insofar as it results from the power of attorney. For the insurer, however, the problem arises with the proxy model that it needs qualified personnel to check the effectiveness of broker powers of attorney – the VR will also be obliged to do this (risk management in accordance with § 91 II AktG).
The policyholder can therefore also waive the right to take note of the information at all vis-à-vis his authorised representative – including a broker. In the case of a (health care) power of attorney, this will not even be possible in the case of a coma patient, for example. Similarly, a legal person cannot take cognizance or act in any other way than through legal representatives and proxies.
However, the duty to inform the client according to §§ 665 f. BGB is a legal rule – the waiver again requires an individual design: Since the insurance broker’s duties in relation to the customer always go further, it would be wrong for a VR to try to impose its information duties on the broker, e.g. in its brokerage agreement. In principle, the policyholder can also authorise an agent of an insurer to act on his behalf in this way.
For this, however, the agent would presumably also need the permission of the BoD because of his duty of loyalty to the BoD.
Procurement of insurance cover is not mediation
Anyone who insures another – in his own name – is not an insurance intermediary vis-à-vis the latter. This also applies if the insured person himself pays the premium and receives the benefits, but does not become the policyholder. The payment by Merchant is made as the performance of a third party, i.e. not of the policyholder as the party liable for the premium, § 267 BGB. Convincing someone to take out insurance with a third party and, if necessary, to pay the premium is not insurance mediation, because no insurance contract is concluded with the insured. Nor does this require group insurance.
Instead of obliging the insured to pay the premium (indirectly first to an account of the policyholder or also directly to the insurer), a fee for the provision of insurance cover can also be agreed with the insurer.
The fee charged to the insured for this provision of insurance cover can be freely calculated by the party providing the insurance cover, possibly significantly more than the original premium that he has to pay to the insurer. It is also possible – as in the case of the group contract – to exclude liability for the premium payment vis-à-vis the insurer; the insured person is then liable for the premium as the premium payer alone – or the liability is limited to the amounts actually reimbursed by VP.
It is then often a case of (partial) debt assumption or debt assumption by the CP. Such arrangements have always been customary and introduced in group insurance as well, already in group contracts and model contracts still approved by the supervisory authority until 1994. Those who provide insurance cover for others in this way may also use their own intermediaries and pay them commissions.
However, these are therefore not insurance intermediaries and the commissions are not insurance intermediary commissions. For example, a bank may take out residual debt insurance on loans for its borrowers, but the borrowers, as insured persons, pay the cost of obtaining insurance cover as freely calculated by the bank. Other cases are conceivable.
Insurers themselves are not intermediaries
The sale of insurance by an insurer itself, which concludes insurance contracts with policyholders directly – without intermediaries – through its own “agents” (salaried office staff or field staff), is not insurance mediation.
Of course, insurers also have to fulfil certain information obligations, but they are not subject to the commercial regulations that have arisen as a result of the Insurance Mediation Directive. This also eliminates the need for him to commit himself to the role of agent, broker or insurance advisor – he simply remains an insurer. A liability insurance is not to be proved with it also – if an insurer takes over the liability for an independent agent, even this does not need a liability insurance as a condition for the admission.
In addition, the insurer may also distribute, in addition to its own products, those of other insurers which it does not carry itself, for example. He remains an insurer and does not become a broker. And he may also use his self-employed agent for this purpose – as long as he submits the insurance contracts of other insurers via his insurer, he remains the agent of this insurer and does not – which would be inadmissible in this double role – thereby become a broker. So for a larger sales organisation (or intermediaries who can afford it), there may well be advantages to acquiring an insurer and in future – given.
by Dr. Johannes Fiala
from www.tabakzeitung.de (published in DTZ, issue 7/2008, page 8)
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About the author
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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