Why brokers have to pay attention to investment performance is explained by lawyer Johannes Fiala and private health insurance expert Peter A. Schramm in the series on frequent or typical consulting errors in the brokerage of private health insurance.
To the point
� Unlike in life insurance, the maximum actuarial interest rate in private health insurance is not a guaranteed interest rate.
� Companies that do not succeed in generating the actuarial interest rate of 3.5 percent increase their premiums.
� Brokers should find out before selling private health insurance contracts whether the company has to lower the interest rate.
A guaranteed interest rate in private health insurance (PKV) – does it actually exist? In life insurance, the guaranteed interest rate of a contract is fixed until the end of the term. Contracts concluded between 1995 and the middle of the year 2000 still have a guaranteed interest rate of 4.0 percent, today it is 2.25 percent and contracts concluded from 2012 onwards will only be able to count on 1.75 percent. PKV is then twice as high, at 3.5 percent, and has been for decades. One might think that this is irreversible, since a maximum actuarial interest rate of 3.5 percent continues to be prescribed by the supervisory authorities. And the “maximum” means it can also be lowered by each individual company, as individually required there – and not only for new entrants, but also for existing contracts. There is therefore no guaranteed interest rate in private health insurance. The correct term is therefore the actuarial interest rate – and it was precisely this that the supervisory authorities wanted to reduce to below 3.5 percent in private health insurance years ago. This is because even in private health insurance some companies have problems earning investment income above 3.5 percent in order to finance this actuarial interest rate. But this was averted by developing a general procedure of the so-called “actuarial company interest rate”, which is applied annually by each private health insurance company to check whether a reduction below 3.5 percent is necessary for the company in question. The actuarial interest rate will then be set at the new lower value for the upcoming premium adjustments. Unfortunately, this leads to higher premium adjustments, especially up to middle age – but at least only for the company in question in the tariffs to be adjusted. In recent years, there have been insurers that have failed to earn the actuarial interest rate of 3.5 percent with their investments in any given year. That alone is not a big deal if it is limited to the year. The actuarial interest rate only has to be lowered if it becomes apparent that it cannot be safely earned in the coming years either. And this was exactly the case with some private health insurance companies in the past few years – in some cases they have already switched to a lower actuarial interest rate than 3.5 percent insofar as tariffs were already affected by premium adjustments. If a premium adjustment is required in a tariff, all calculation bases are checked and adjusted as necessary. This includes not only the calculated losses or the mortality table and lapse probabilities, but also the costs and the actuarial interest rate. Since the latter is not determined from tariff-specific observations but across companies, its adjustment inevitably affects all tariffs successively, just as premium adjustments are made for them. However, tariffs without an ageing reserve, which are calculated according to the type of non-life insurance, are excluded from this.
Dangers for brokers
At present, private health insurance companies are again examining whether the actuarial interest rate of 3.5 percent – or a lower value already lowered – must be maintained or (further) lowered for the premium adjustments required on January 1, 2012 and thereafter. The result would be an additional contribution-increasing effect of up to more than ten percentage points. This is not avoidable, because the actuarial company interest rate procedure is strict when it comes to the decision to reduce. As this could severely affect the market situation for some insurers, it has already been suggested that the maximum actuarial interest rate should be lowered by law for all after all. But this meets with resistance in the industry from all insurers who are not affected – after all, it was precisely in order to avoid this that a strict test procedure was developed at the time to be applied individually to each company. Brokers who are now brokering private health insurance tariffs should carefully check which insurers are safe or possibly affected by a reduction in the actuarial interest rate. In that case, a significant increase in premiums can already be expected in 2012 due to the interest rate cut alone. The contributions still on offer now are therefore then at great risk of instability. Particularly at risk are those insurers that only earn investment income of around 3.5 percent or less – unless they had already lowered their actuarial interest rate earlier. If you want to be on the safe side, you can get a guarantee that there will be no reduction in the actuarial interest rate until the end of 2012. This is because the broker is liable to his clients. In hindsight, it will be easy for clients to prove that the broker knew or should have known about the problem and should have recognized the danger by looking at the company’s financial statements and ratios. Even worse, if he did not at least explain in general terms – and moreover correctly – how premium adjustments and ageing provisions work during the consultation. And since the actuarial interest rate plays no role at all in the case of tariffs without ageing provisions, the insurer is also liable if it has not offered supplementary tariffs without ageing provisions – in the manner of non-life insurance. That would be the consulting error to begin with. The unnecessarily overpaid premium then represents the damage to be determined, which the customer wants to have compensated by the broker.
Dr. Johannes Fiala
Peter A. Schramm
(Performance 04/2011, 40-41)
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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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