Sales success or wasted legal additional income with the insurance broker?

– When insurance brokers can receive fees in addition to brokerage –

“Tine flies like an arrow. Fruits flies like a banana.” (Groucho Marx)

For decades, insurance brokers have competed with business and tax advisors, legal counsel, and insurance consultants. In this context, comprehensive insurance advice as pure legal advice is (also) part of the broker’s professional profile and is not subject to a licence within the scope of the broker’s activity (VDVM ./. Pilz, OLG Stuttgart, Az. 2 U 121/90, judgement of 28.12.1990): “Insurance advice is regarded as a necessary essential part of the broker’s activity”, i.e. the broker’s brokerage activity in each individual case. This means that it is also permissible for brokering vis-à-vis consumers, and for non-consumers it is even permissible for the broker to act completely independently.

BVerfG and BGH strengthen legal advice by intermediaries

The Federal Constitutional Court (BVerfG) has already ruled several times that legal advice is permitted to anyone as long as this does not form the “core and main focus” of the activity in a bundle of contracts, but is an indispensable part of the (main) activity (as an auxiliary business under the Legal Advice Act [RBerG] until 30.06.2008).

Sufficient for a legal legal service (as an ancillary service according to the Legal Services Act [RDG], since 01.07.2008) is in the meantime, if these

belongs to the occupational or professional profile of another main activity and is not (solely) in the foreground in terms of content and scope, § 5 I 1 RDG, but is integrated into another activity as a merely supplementary – but not necessarily necessary – component (BGH, judgment of 06.10.2011, ref. I ZR 54/10), i.e. there is a factual connection with the main activity.

The Federal Court of Justice (BGH) confirmed this (judgement of 31.01.2012, file no. VI ZR 143/11): Only those legal service activities are permitted which (necessarily) have a recognisable connection to the main activity (i.e. to one’s own [possibly even new] professional profile). In this case, a legal service (e.g. termination of old contracts) or advice on recognised case groups of case law (e.g. the mortgage loan special right of termination when selling real estate), as well as, for example, on deadlines that can be easily read from the law (as a so-called ancillary service of the main activity) is not subject to authorisation.

This makes it possible to expand one’s own professional activities, but also to create new professional profiles, BVerfG, decision of 03.08.2004, Az. 1 BvR 135/00. However, VSH coverage off the shelf is limited, because some AVB state “Not insured are claims for damages in connection with legal or tax information. This does not apply if the information is only basic general information and does not concern the individual circumstances of the injured party or other third parties.” So anyone who points out the tax benefits of the Riester pension is still insured, but anyone who also calculates the tax benefit individually is not insured for errors in doing so.

Tariff change according to § 204 VVG: Commission or brokerage for advice

Consultations in the mediation of insurances are usually carried out without independent remuneration, §§ 60, 61 VVG. Commission or brokerage is only owed in the event of success, whereby each party owes half in the absence of commercial custom or agreement, §§ 652 BGB, 99 HGB.

Thus, every broker can agree on a “brokerage fee from the customer instead of a brokerage fee from the insurer”, also by using forms (general terms and conditions) vis-à-vis the customer.

When changing tariffs in accordance with § 204 VVG, the customer/policyholder (VN) may be subject to exclusions and risk surcharges. It is therefore advisable for the broker to secure the “change to a similar insurance cover” with a higher-value tariff with the same insurer (as a rule without loss of age reserves) by means of a corresponding option tariff module if possible. However, this is only possible in rare cases and to a limited extent, usually not even for all open tariffs.

Note: Even if the policyholder has a legal claim according to § 204 VVG, there are individual PKV insurers who are supposed to hinder such tariff changes.

Political discussion on future alternative remuneration models

In particular, the European Union (MIFID II) and the German Ministry of Consumer Protection (cornerstones for a legal regulation of the professional profile of fee-based consulting) are discussing the abolition of kickbacks, the elimination of commission incentives in financial consulting, and the compulsory disclosure of conflicts of interest due to commission payments in the insurance industry (new EU Insurance Mediation Directive called IMD2). The legislator (e.g. the EU or the federal government) could in future provide for a ban on “remuneration from the insurer” for brokers, as is sometimes the case abroad. Cf. Performance 03/2012, p.22 ff.

Multiple income or waiver of remuneration for mediation / advice?

According to the legal model, the broker’s remuneration is purely a performance-related remuneration for the brokerage, § 652 BGB. There is a claim to this if, according to the case law, the broker has carried out the business (in particular risk investigation, property inspection, risk placement, information).

Accordingly, there is initially no remuneration independent of the successful placement. Especially not for activities that are necessarily connected with the mediation, i.e. without which the mediation could not take place.

Accordingly, the broker cannot demand or charge a fee for (separate) insurance advice or for remuneration independent of the successful brokerage. A license to practice law or insurance counsel is required for separate insurance counseling.

The situation is different for insurance advisors, whose activities (in return for a consulting fee) are not dependent on success in terms of mediation, especially since they are not allowed to mediate at all according to the current legal situation.

Whoever is entitled to consulting fees must, as a rule, hand over all commissions to the client (no prohibition to hand over commissions, but kick-back delivery obligation to avoid accusations such as fraud or breach of trust according to OLG Stuttgart, judgement of 16.03.2011, ref. 9 U 129/10), § 667 BGB.

The legislator could change job descriptions (e.g. newly stipulate that insurance advisors may also act as intermediaries in return for remuneration – such as a time-based fee).

But intermediaries could also create new professional profiles, or combine several professions, as long as this is not prohibited, as in the case of simultaneous activity as a pension or insurance adviser. It is permissible for the intermediary to waive performance-based remuneration (“fee-based advisor”). This waiver alone does not make him a fee-based advisor, because he then receives nothing at all.

In this case, the consultancy or time remuneration (e.g. the amount of work for tenders) must regularly be negotiated in advance by individual agreement (not just negotiated), § 305 I 3 BGB.

Only within this narrow limit would it be conceivable to individually agree on a remuneration for “services or, e.g., economic advice” (but not as insurance advice that can be “ordered” separately) and, in addition, a brokerage fee (meaning a remuneration dependent on the success of the brokerage, the amount of which does not depend on the time spent) for the brokerage.

In individual cases, the remuneration could be structured, in addition to the brokerage fee, as success-dependent or success-independent, for example as an effort-dependent remuneration (e.g. for an invitation to tender), which is only owed in the event of a successful brokerage, a brokerage fee, so to speak, the amount of which is determined according to the time spent, may it therefore also be called a fee.

Additional income through second jobs?

The activities of management consultants (cf. bdu.de) often also touch on the insurance business (e.g. organisational and personnel consulting in the structuring of occupational pension schemes and remuneration concepts, “cost-cutting” in risk coverage, optimisation of procurement through invitations to tender, security consulting, financing consulting, consulting with regard to appraisers and experts, quality and risk management). If insurance advice, and thus legal advice, is provided on its own, this is permitted here as a dependent part of another service.

Secretarial services (e.g. document management, structuring of filing, data collection for investment reviews, contract review to identify incomplete policy investments, compilation of a claims file) can also be offered for (e.g. time) remuneration, because in any case no insurance advice and no legal advice, in contrast to a comprehensive contract review for the purpose of determining contractual obligations, e.g. also the validity of contracts and individual clauses.

This is not the case if the mandate is to fulfil these obligations (e.g. to transfer the premium or to control accounts with direct debits), for which the amount of the premium payment obligation must be established in advance.

In that case, the substantive examination of the premium claim for direct debit collection would regularly be a legal service, as would the managerial fiduciary activity of payment processing with discretion as to whether and when to settle such liabilities. The latter could possibly require BaFin approval or permission to act as a “financial agent”.

In addition, each consultant/intermediary can agree with his clients on the reimbursement of expenses (cf. btprax.de) or expenditures (e.g. travel expenses, postage, copying costs, photo documentation, personnel costs for simple auxiliary activities) incurred within the scope of the mediation activity, with the obligation to pay irrespective of the success of the mediation.

Note: In many cases, additional services are subject to VAT when invoicing the customer, so that as a rule monthly advance returns must be submitted to the tax office. The advantage is that the broker can offset (proportionately) the input tax paid by him (e.g. on office costs), i.e. deduct it. This does not apply if the reimbursement of the additional services is only owed in the event of success, i.e. in practice only increases the brokerage fee.

Additional income from the insurer despite commission cap and for “support”?

a) Post-contractual duty to provide advice

In principle, insurance brokers and insurers do not have any “post-contractual” (after the mediation or after the conclusion of the insurance contract) consulting obligation(s), § 6 VI VVG. However, this does not apply if the insurer could and should have recognized that the policyholder was in error about the contents of the contract despite the advice given by the broker (OLG Karlsruhe, judgment of 02.08.2011, Case No. 12 U 173/10). However, the duty to advise also applies to the insurer in other cases that may arise later in the course of the contract.

However, also for the broker there are – if not excluded – certain (post-contractual) duties to inform and to warn, e.g. concerning the obligations of the contracting party in case of damage, § 241 II BGB.

b) Insurers’ obligations may go further than brokers’ obligations

Under certain circumstances, insurers also have a duty to provide further advice during the term of the contract.

The broker has no obligations after the mediation, if he agrees. He can also simply agree that the brokerage contract is terminated or cancel it. Who promises more in the brokerage contract, i.e. current additional services, causes the opposite – as can often be read in free contract samples.

He is fully liable for everything he promises – for example already recognizable by the agreement of a remuneration for it – or also only at achievement actually takes over, far beyond the liability of a broker purely after the law, but possibly without VSH insurance protection.

The broker may be instructed by the client as a trustee and yet the insurer may be liable for him for certain partial activities, namely if he has acted within the scope of the insurer’s duties as if he were his vicarious agent. It must be assumed, for example, that it is up to the insurer to explain how the product works, e.g. the surplus participation, and that the broker can become a vicarious agent in this respect.

c) For each brokerage activity, the VSH cover must be checked on the basis of the GCI.

The insurer is exceptionally liable for faulty advice given by an insurance broker if the broker has been entrusted, even tacitly, with tasks by the insurer within the framework of the insurer’s sales organisation or if the broker only de facto assumes these tasks which are typically incumbent on the insurer as the provider of an insurance product (“CMI”, OLG Saarbrücken, judgment of 4 May 2011, Case No. 5 U 502/10-76) and has thus acted within the insurer’s sphere of responsibility.

The decisive question for the insurance broker is whether he contractually (voluntarily) undertakes towards his client to provide services after the brokerage or in addition to a brokerage, such as “portfolio management, contract administration, claims settlement” etc.:

It is advisable to have a confirmation of cover from the VSH insurer which lists each activity individually and explicitly – both those which the client commissions and those which the insurer outsources to the broker, e.g. within the framework of a brokerage agreement or as a “sales service”. Insofar as statutory or judicial presumptions (e.g. “duty of care through portfolio commission”) could intervene for duties to act (in terms of time) after the insurance brokerage, the broker would have to expressly and effectively exclude these, if necessary.

Additional income through inter-professional cooperation?

Legal advisors (e.g. tax and insurance advisors) are (still) subject to the prohibition of brokering financial products against commission. A joint appearance (e.g. on the Internet, on letterhead) as a cooperation often requires that each VSH of the cooperation partners would have to cover all professions and activities of all cooperation partners. For this sales opportunity (since 2008), on the other hand, coverage concepts have only been available from abroad to date.

Supplementary pension through strategic portfolio protection?

The value of a (brokerage) company is measured, among other things, by the (future) revenues as earnings potential. The problem is that in the event of serious illness or inheritance, the transfer of holdings will be difficult or impossible. Both in the case of an unexpected emergency and in the case of a smooth transition, doing business through a small limited liability company (a so-called entrepreneurial company) can help to secure the portfolio and thus the income, because the continuity of the brokerage can be more easily guaranteed through internal and external (service provider for insurance intermediaries) support.

By strategically aligning his own business, the insurance broker avoids the situation where, in the event of the sale of a company or other succession arrangements, the successor is not even identified as a correspondent broker. The economic interest in a continuity got a special meaning for the care of the customer relations by the extension of the cancellation liability to five years since 01.04.2012 – finally the grown danger exists that the broker business gets into overindebtedness by strokes of fate and subsequent cancellations.

Broker continues business after occupational disability

Brokers can draw disability pensions, income from brokerage activities and income from their brokerage limited company side by side. Up to 50% of the time, direct occupation is possible despite full receipt of the occupational disability pension, without any actual income limits. In addition, the broker can receive capital gains from the GmbH as its shareholder for an unlimited period, and because as a shareholder he does not exercise a brokerage profession per se, he can also devote himself to the GmbH as a shareholder for an unlimited period and control its management. Entry into the GmbH can also be a “1-Euro-GmbH” (the so-called Unternehmergesellschaft).

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

by courtesy of

www.wmd-brokerchannel.de (Sales Success 2012, May 2012)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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