Members of the German Bundestag asked: “What legal obligations do life insurance companies have to inform their customers about the possibility of reducing claims before the contract is concluded, and what is the practice of life insurance policies as established by the Federal Financial Supervisory Authority (BaFin)?
The answer of the Federal Government of 11.01.2016 (BT-Drucksache 18/7221) to this question is
“There is no express obligation for life insurers to inform their customers of the possibility of reducing claims before the conclusion of the contract”.
Insurer is not subject to any express but resulting legal obligation to provide advice
There is also no explicit obligation somewhere to inform a Federal Chancellor that you can throw rotten tomatoes at him. However, an obligation (not explicit, but resulting) to provide advice follows from the statutory provision of § 6 of the German Insurance Contract Act (VVG). This obligation applies not only to the insurer itself, i.e. its dependent employees, but also to its sales department (insurance representatives, agencies, insurance brokers).
Duty to advise in case of mediation as well as in case of recognizable errors
Up to the conclusion of the insurance, before the insurance is taken out, the salesperson has to provide the customer with documentation, §§ 61, 62 VVG – otherwise he is liable for damages, § 63 VVG. Scientific studies have shown that about 85 percent of all consultations are not even documented – this can even lead to a reversal of the burden of proof for the customer.
Later, the intermediary or insurer will realise that the customer is in error, for example because he says: “I therefore assume that the guaranteed service will be provided under all circumstances”. Or because he says: “I make a point of making sure that my premiums are covered 100 percent.” They’re not if the money you pay is just mothproofed.
Liability of insurance agents and insurers as joint and several debtors
Also a misleading advice harmful, for example, if it is not only said: “This is the guaranteed expiry benefit”, but added: “This means that it is guaranteed to you in any case”. Even the mere reference to the insurance being covered by a protector would be misleading, because it would mean that one hundred percent protection could be understood. “Dear Realtor, you can jump off the ladder because you’re secured by rope. This prevents you from falling to the ground because it brakes your fall beforehand by tying itself around your neck.”
Actuarial Association draws up guidelines for possible reductions
The German Association of Actuaries has already drawn up an information document, which is currently being coordinated with all the actuaries in its association, on how surrender values can be reduced for a limited period of one year each for the insurers concerned, in accordance with the German Actuarial Code. § Section 169 paragraph 6 VVG. After such a reduction period, however, the original surrender values do not exist, but it is decided whether and to what extent the reduction is extended.
This is intended to take countermeasures in the event of a reduction in the value of investments or to prevent a run on life insurance surrenders by reducing the surrender values in such a way that the termination becomes at least as unattractive as the continuation of life insurance. The Association of Actuaries expressly points out that this reduction is also permissible if the imbalance was caused by the insurer, for example by a miscalculation, and even if this was foreseeable. Neither the insurance supervisory authority nor an independent trustee needs to be consulted for this.
Contestation, revocation and reversal
The consequence of incorrect advice and instruction may be that the policyholder (UN) may challenge the contract, for example on the grounds of deception, or he may first sue the intermediary for a declaration that the latter is liable for the personally given guarantees, or that he must reimburse the premiums (for example of the basic pension), step by step against transfer of the benefit received.
Bundesgerichtshof (BGH): Life insurance policies require investors and property-specific advice
For years now, customers with private pension insurance have been finding that they get about half of what they were originally expected to get or what was “promised” as a prospect.
Since the BGH-BOND ruling (Case No. XI ZR 12/93), credit institutions and financial advisors have had the obligation to provide “investor and property-oriented” advice when brokering capital investments. This means on the one hand, to examine the customer needs, and on the other hand, the investment product or investment object.
In 2007, the Federal Court of Justice (BGH) already added to this in its decision (ruling of 14.06.2007, file no. 111 ZR 269/06), in that, for example, insurance brokers are obliged to pay damages if they broker an annuity or life insurance policy to a customer that does not “meet his needs and financial capacity”. At the time, the BGH-BOND ruling was thus extended to the brokerage of pension and life insurance policies.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
published on www.finanzwelt.de on 18.03.2016
www.experten.de (published in the expert report 05/2016, page 60-62)
www.experten.de (published on 21.03.2016)
More interesting articles about insurance:
- Variants of immoral insurance contracts
- Brokers’ liability in the sale of used life insurance
- No speculation with death by transfer of the life insurance
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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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