Prohibition to charge commission is dead – discount battle begins

“Until the day they rationalize me away, Or simply sort me out as non-programmable, When the big computer comes and monitors everything, Makes my preferences and quirks fully understandable, Even if I am already completely machine-readable”

(Reinhard Mey)


The decision by politicians not to replace the current ban on commission payments with a new regulation means greater freedom and not, for example, a gagging of the insurance intermediaries affected. The ban is dead – that is what the courts have decided. It will not be buried until 1 July 2017. However, this was only the beginning. This is because the prohibition of preferential treatment as a whole, i.e. the prohibition of special privileges and special remuneration as a whole, will be dropped.

From the dealer or manufacturer you get a discount on the normal list price today. Sales promotions like “Take three, pay two” are common. Or there is some other addition, even cash on closing, or the first instalment is only due after four months.


The end of the prohibition of preferential treatment

Such actions have so far been prohibited for the insurance companies themselves due to the prohibition of preferential treatment. Now they finally have a marketing tool that enables them to catch up with the rest of the economy. Three per cent special discount, 1,500 euro Christmas bonus of the insurer cash on the hand and January until March contribution-free with direct conclusion of a private health insurance still until 20 December, would be able to promote and steer the selling enormously.

What the intermediary can do in the future must be allowed by the insurer itself. Modern pricing based on a normal “list price” in accordance with actuarially prudently calculated tariffs followed by discounts, special remunerations and other sales incentives depending on the customer group and the current market environment give hope for a golden future for the insurance industry. In view of the high commissions included in the tariff premiums and sufficient precautionary margins, insurers also have enough money left over for this.


Permitted commission and brokerage fee

The insurance broker is a commercial broker; according to § 99 HGB, policyholders (UN) and insurers (VR) pay half the brokerage fee each, unless otherwise regulated, if there is a genuine double order. From § 652 BGB only a brokerage fee obligation of the UN as client of the broker follows. The BoD pays the brokerage fee only according to trade practice (BGH, VersR 1985, 930). As a rule, the brokerage fee commitment does not constitute a legal claim of the broker against the BoD. The Federal Court of Justice assumes that a contract in favour of a third party (the broker) is concluded between the UN and the BoD by implication or implicitly (also), §§ 354, 99 HGB, § 653 I BGB (OLG Hamm, VersR 1995, 658; Federal Court of Justice, VersR 1993, 878).

The BoD has calculated the acquisition costs (including brokerage fee) and tacitly undertakes to pay the brokerage fee owed by the UN to the broker (Icha, Alina, Die Nettopolice, Verlag VVW, Berlin 2014, p.98 ff.).

So every broker can say “Dear customer, you can get it cheaper from me – or fairy only”. It can be argued that the prohibition of commissions has always been unconstitutional, Art.12 GG. To date, the supervisory authority has already permitted numerous exceptions to the prohibition of preferential treatment if there was a justification – for example, if an employer carried out the collection on behalf of the insurer.


More freedom for insurance brokers

The prohibition of preferential treatment, i.e. that nobody, not even the insurer, may discount anything to the customer, was intended to ensure that the premiums for those who cannot negotiate prices would not be increased because too many discounts had to be given. The passing on of the commission is only a part of it.

There have always been great efforts on the part of the BoD to circumvent the prohibition of preferential treatment by setting up discount associations or simply introducing new own tariffs that were cheaper on their own initiative. It is clear that one would like to have discounts or performance bonuses for special customers, distributors, companies, etc. Actuaries have often justified corresponding tariffs with the fact that there are corresponding savings, because sales are much easier, so that one only has to pay half the commission to the agent. The reason given was that the discount was permitted under supervisory law, as a recognised exception to the ban on special privileges.


So now all this is dropped and new:

Christmas promotions, discounts if the broker takes 100 contracts in one piece, take 50 EUR care allowance, pay 40, 2,000 EUR Christmas bonus for the conclusion of a fund policy of at least 150 EUR premium until December, dental insurance premium-free until the end of the year if concluded until October, voucher for professional dental cleaning optional glasses if you conclude a supplementary insurance until the end of the year. One pair of glasses for 1 Euro when taking out an eyeglass insurance. A lottery ticket for a lifelong 5,000 EUR pension when taking out a pension insurance policy.

It will be difficult for brokers who can only pass on a commission or brokerage fee, and who may not even want to do so.


Fake fights of the broker associations about the brokerage fee ban

It is not so much a question of prohibiting the passing on of commissions, but of something much more far-reaching. It is therefore not a question of the brokerage fee. Only the intermediaries are interested in this, and the insurers also pretend that it is limited to this. You know better, of course. It is possible that the BoD is only fighting a mock battle at a point where it has to lose, only to profit from the removal of the prohibition on preferential treatment in such a way that in the end no intermediaries are needed.

Digitisation also contributes to this. Such insurer-supported projects such as “improvement of advisory processes” lead to the facilitation of standardised, electronically supported advice for the intermediary. Today, the intermediary is often only the operator of a machine and translator of what the machine determines to the customer anyway. In the end the consultation is like this – by automatic consideration of all details including automatic recognition of the state of mind of the UN on the facial expression, standardized and so facilitated that it can also be performed by a robot.

It then also makes sense to process the customer depending on his ability to pay, with possibly a higher price or more or less large bonuses, but unfortunately this is not (yet) possible today due to the prohibition of preferential treatment. In the future, this will work efficiently – and better than an intermediary can ever do.


Foreseeable further decimation of insurance intermediaries

Then the mediators are like the weavers of Gerhart Hauptmann. The linen is produced cheaply in factories, but if a hand weaver wants to sell something to the wholesaler, he will take it if the price and quality are right. He doesn’t care if the hand weaver starves to death. At school this is cited as an example of workers’ oppression. In contrast, one might think that the hand weavers were probably self-employed and the workers in the factories were probably doing comparatively well. Nobody had any plans to build a wall, or to ban the hand weavers – they are (almost) extinct anyway. Except for some for a particularly demanding and solvent clientele.


Real insurance brokers with very good qualifications will continue to be in demand

The minority of brokers will be able to make it clear to the customer why he needs the broker – instead of using an app on the way to the office to take care of the insurance business.

So today you can get cheap industrial shoes. This means that no craftsman who makes them to measure has to explain why they cost 2,000 EUR. His customers know this and come to him because he is the only one who offers what you can’t get industrially or via an app, even in the middle of nowhere, at night, during a power failure, and even if you can’t turn on the automatic switch-on function.

In this way, the brokerage profession could be much more fun in the future. Even for genuine hand weavers there is a demand on the market today. As well as portrait painters who serve those for whom a selfie from a smartphone is not enough.

New Insurance Distribution Directive (IDD)

The IDD covers all types of insurance sales, not only through intermediaries, but also direct sales of VR and accessory sales. In order to avoid customer errors, a “wish and need test based on the information provided by the customer” must be carried out. The remuneration changes: “A remuneration based on sales targets should not provide an incentive to recommend a particular product to the customer”.

In English: Commissions and brokerage fees are more likely to be abolished than not. See EU Printed Paper: COM(2012)0360 – C7-0180/2012 – 2012/0175(COD).

The IDD-EC Directive is to be adopted by the EU Council of Ministers in 2016 – then the member states will have up to two years to transpose it into national law or to make themselves liable for damages (ECJ case Dillenkofer ./. D, judgement of 08.10.1998, Ref.

178/94). The five-star kitchen robot from Moley Robotics should also be ready by then, with around 2,000 five-star recipes planned and further learning capabilities. Perhaps the cooks will die out, except for a piece of hand cheese with music made by hand?

Any brokerage association that believes it can turn back the wheel of time is dreaming of the proverbial white sausage, because EU directives are so-called higher-ranking law compared to national regulations. Brokers’ associations would be well advised to make an effort to obtain a professional profile, training and further training for qualification, in competition with insurers, who are also cannibalising their own agents through Internet portals, so to speak. By way of illustration, reference can be made to the “Community Life Forum” – for example, with the title “Einfach. Online. Insurance”; or various insurance apps.


The future of insurance buying belongs to the robot

Insurance is still mostly sold rather than demanded. It is necessary to create the need. However, this is the case with almost all goods – but there are usually no intermediaries. Even sellers rarely come into play. An intermediary who only translates the language of the robot is no longer needed. The robot can do most of what an intermediary can do, only much better once you teach it. He can also understand the customer by facial expressions, speech and other reactions.

Also, to get people to engage with the robot, a robot can do better. For example, robots are also better suited to reach elderly people in nursing homes when they realize that they should drink a glass of water, tea or juice to keep their brains from drying up. They keep the overview and are consistently friendly and persistent at the same time.

There will be people who simply do not have the time or patience to let a robot explain everything to them. If you tell him to think up something suitable for himself, he might just answer that he still has too little information. It’s perhaps like buying a book, when you have the whole selection from Amazon, and then the choice to go to a bookseller you know, with a small, select range of books who knows you, so that you only have to buy the book he has already put aside.

If necessary, you can delegate the decision to the mediator. He will also bring a solution if the customer has no patience to deal with the robot. This is like the taxi driver asking where you want to go and you say: “Oh, just take me somewhere where there is still something going on”.

There is also certainly a tendency not to want to take responsibility for financial matters themselves, but to make use of others. But with robots this does not work so easily. Or maybe you do? It might require lying as well. Like when the salesman of the 50-year-old says “That makes you 20 years younger, you look like 40”.

Credit institutions are also increasingly trying to leave standardised advice to the computer, for example in securities business. The experience of the last ten years has shown that the computer support of bank advisors by means of computer programs based on the “Black & Scholes” model led to total loss and even over-indebtedness for some customers.


Insurance brokers as app providers?

Maybe agents can make a living by offering such apps for free, in which case the agent’s name will be completely filled out on the electronic application. This is made even easier with a headset, microphone, glasses with a screen and speech recognition. You can increase the fun effect by choosing between Bavarian, Saxon and Swiss. This too can certainly be optimized.

Apparently it is becoming more and more a question of speed whether an insurance policy can be sold. And the efficiency to sell even very low-priced short-term insurance policies. The willingness and ability to enter into larger long-term contractual commitments is decreasing. A car insurance, for which you only pay as long as the ignition key is in the ignition, has something to offer. An app that, depending on your driving style, also selects the cheapest insurer and changes it while you are driving, all the more so.

Any kind of intermediary other than the app provider will make this business impossible. An app that compares what the new way of insuring yourself would have saved compared to existing long-term contracts, and immediately initiates termination and new application. If someone says “We offer short, medium and long term contracts” and you ask “That’s interesting that you still offer long term contracts – how long do the long term contracts run for?” the answer is “About 5 minutes”.

You may then be asked whether the change or bonus points should be deposited into your retirement savings account. Paying 50 EUR for 47.37 EUR shopping at Aldi then increases your monthly pension by 1.15 cents. And if you don’t have the money to pay, the insurer will provide you with a credit on your capital at the cash desk, interest-free for 30 days, and even this will increase your pension by 2 cents.

It is a well-known fact that brokers today already offer apps for the paperless administration of insurance contracts as an additional differentiating feature. They are preparing their own extinction. However, these will then be the last ones to die.

The apps available on the market for the paperless management of insurance contracts are the free entry-level drugs for online sales; occasionally with the option of being able to ask a “highly qualified insurance expert” a few questions on the phone. It should also be possible to settle claims via the app. However, in the future it will no longer be possible to be so sure that the expert is not a robot with a human voice. This is already common practice in call centers of US health insurance distributors.

Of course brokers can also rethink. After all, it was possible for Indians to decide that they did not want to be among those hunted by the cavalry on the prairie, but rather among those who would participate in the hunt as scouts for the cavalry.


Experience shopping for insurance customers

The basis, however, is that this is aimed at the increasing number of customers who enjoy this kind of work. For example, because they think that if they are not in constant contact with someone (even if it is a robot) with their smartphone, they are logged off anyway, which makes them so nervous that they get sick. Many may not even speak to a human mediator and prefer a robot.

However, there will certainly also be a decreasing number of customers who do not want to deal with it at all. But they are not the ones who do not want to take responsibility themselves, because even that could be solved by apps. But those who do not enjoy using such techniques and who are happy to pay a little more if someone does the work for them, remain the broker’s customers. However, he will have to get used to the fact that a large part of these also annoys a longer consultation, and that they prefer not to deal with the topic of insurance at all, but only want to make sure that they do not lack anything relevant here. How the lady, who didn’t get a call on her 50th birthday and therefore felt completely written off at 50, and then was incredibly happy about the call from her insurance agent who asked her “Have you ever thought of taking out a death benefit insurance policy?


From fiduciary trustee to future insurance trustee?

Around 1980, someone suggested reforming the book market. Representatives of the publishers advised the booksellers which books they should take to the shelves or warehouses and in what quantities. The dealer then had to decide and order. Anything that was not sold went back as remittances and was sold off.

It was even easier to regularly visit service providers who separated the first page from the paperbacks, took all the rest as waste paper and submitted the first pages to the publisher for credit. The author found this procedure nonsensical and thought that the publishers should simply decide for themselves which books the retailer should put on his shelves. After all, you also bear the economic risk.

Brokers advise, but the client should decide – but the broker is liable. If something goes wrong, there is a dispute whether the broker has given the wrong advice, or whether the customer has made the wrong decision despite correct advice. Basically, however, the broker could also act entirely on behalf of the client by power of attorney and be liable for it.

Not unlike a legal guardian. Just as the publisher also takes into account the risk of the remitter when making his own decision, the broker would then also have to take into account his increased liability.

Another customer group for brokers may be those customers who want to make a decision based on in-depth advice and use the broker as an expert.

Also those who use it as risk manager, for example, because you have been asked by the robot, where can I get accident insurance if I jump without a parachute from 2000 m altitude, always only false indications but no help, whereas the broker as risk manager has recommended them to better just jump from a chair, or from up to 5 m altitude onto a pile of mattresses, or from an airplane with instead of without a parachute, otherwise to let this be better.

But most people will prefer a robot. This way, brokers do not have to worry that one day there might be too few of them.


Does the low interest level require digitisation and a change in personnel?

Did the high interest rates of earlier times allow insurers to be wasteful with personnel and spend too much on it? Or the high commissions allow the agents to simply continue working almost as they did 30 years ago?

The idea that robots would only do simple tasks and would be used for more complex work

…that you need people, may prove to be a mistake. It will probably be exactly the opposite: Most workers will do unskilled work for which no robot is needed, or at a wage level where it is not worth using an expensive robot, or for less frequent work for which no robot has yet been programmed.

The sewer worker still drives the robot to the site as a chauffeur and opens the manhole cover for it – but it may also be superfluous as a driver. The clerk still brings the unopened letters to the insurance robot. The agent brings the customer a coffee while the robot discusses the contract details with the customer.

The robot can also recognize gestures and read in the face how the customer thinks and feels, and adjust to them.


The commercial and industrial broker as a sought-after specialist?

The partly recruited, only partly forced labourers and specialists, who worked for the SS on secret weapons in underground tunnels, were also needed until they would have been shot as bearers of secrets. I’m sure they were told something else.

Most brokers who think they are needed as specialists in the commercial and industrial sector, actually have mostly only mass business, which can be easily automated for a trader who is already used to Apps, and better than such a broker could.

Brokers who think that the customer has to state the sum insured anyway, so that he can enter it in his bid comparison program, are the first to be replaced. Are they impostors when they think they are doing something that an app can’t do much better very soon?

Programming robots for specific requirements can cost a lot of money – and that is the first thing that comes back in real mass business. And it must first pay for itself in order to have the money to start the next business with it – which also takes time from specialists.

Until then, you use brokers, because it is cheaper than programming the robots for even more. Some have to wait until they are shot, and some are allowed to help dig the graves.

Some insurers support the development of structured advisory processes, including forms and text modules, to make it as easy as possible for brokers to work in a liability-proof manner. This will then enable it to be integrated into a robotic consultation when the opportunity arises.

Commissions and the like could be passed on – only someone else gets them. If I write a book about how and where to get the first and cheapest insurance and determine your needs myself, I am not a mediator. Neither does the person who programs an app that makes the mediator obsolete. The insurers provide corresponding information, which the app accesses on a daily basis. Where is there anything else you could call mediation? Also a commission for the fact that the UN chooses and takes out its own insurance with the help of the app is harmless.

One cannot infer from the fact that the legislator has developed strict rules for intermediaries that politicians think that the intermediary is absolutely necessary. They’re just there for now – you can’t just ban or shoot them, but you can make rules for them

do. And you can make sure that you recognize them, not by their cut-off ears but by their business card, and record them statistically. Customers might ask the insurer: “You sent me an agent – don’t you have any robots?


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

by courtesy of (published in Fonds professionell online on 20.01.2016)


Our office in Munich

You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.

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.
»More about Dr. Johannes Fiala

On these pages, Dr. Fiala provides information on current legal and economic topics as well as on current political changes that are of social and/or corporate relevance.

Arrange your personal appointment with us.

Make an appointment / call back service

You are already receiving legal advice and would like a second opinion? In this case please contact Dr. Fiala directly via the following link.

Obtain a second legal opinion

(The first phone call is a free get-to-know-you conversation; without consulting. You will learn what we can do for you & what we need from you in terms of information, documents for a qualified consultation.)