Who was previously allowed to sell policies
Who used to be allowed to sell policies If the insurance industry were to gather all its agents in one place – they could populate a city like Nuremberg. At present, a good 400,000 self-employed insurance intermediaries as well as around 7,000 professional brokers and a considerable number of permanently employed agents provide Germans with everything the insurance industry has to offer. The spectrum ranges from company pension schemes to private supplementary dental insurance. So far, no one has had to prove special qualifications. All it took was a notification to the trade licensing office and we were ready to go. It is therefore not surprising that in the past not all intermediaries were able to meet the requirements of their customers. The market research institute Psychonomics AG found out in its “Kundenmonitor Assekuranz 2007”: Around 40 percent of insurance customers miss individual advice, only one in two would actively recommend their agent. “The new law will certainly not eliminate these abuses in one fell swoop,” says insurance lawyer Schwintowski. “In the medium term, however, the quality of advice will increase. There will probably be no more door-to-door salesmen who talk a customer into a commission-generating but unnecessary policy in passing”.
What the new standards require
From now on, sales skills and a love of dealing with people will no longer be enough to supply strangers and friends with various policies on demand. As of today, insurance intermediaries must register with the Chamber of Industry and Commerce (IHK). However, such registration is not possible without the new professional license. And this is – at least in comparison to the previous legal situation – linked to quite strict conditions. First of all, the prospective insurance salesman must prove his personal reliability. Those who are known to the public prosecutor’s office or who do not have their own finances under control must expect to be rejected. The same applies to intermediaries who do not have an adequate liability policy. “Insurance intermediaries are personally liable for all losses incurred by their customers as a result of having been given bad advice before concluding a contract or having purchased an objectively unsuitable product,” says expert Schwintowski. The minimum insurance sum for the compulsory liability policy is one million euros per claim and 1.5 million euros for all claims in a year.
Minimum level of expertise required
Reassuringly for consumers, anyone wishing to sell insurance in the future will have to demonstrate at least a minimum level of expertise. Anyone who cannot present at least 220 hours of instruction and a successful examination at the IHK will fail the authorities. “Up to now, such courses were already possible on a voluntary basis, but were by no means taken up by all prospective intermediaries,” explains BVK President Heinze. “Today, anyone who wants to sell insurance has to get this qualification. If you fail the exam three times, you’re banned from the profession.” Heinze firmly assumes that the standards in placement will therefore rise and that “the wheat will be separated from the chaff”. However, even the greatest optimism cannot hide the fact that, despite the new law, there is still no guarantee that every intermediary really does meet the prescribed minimum requirements. “Most intermediaries who act exclusively on behalf of one or more insurance companies do not have to provide proof of expertise if the company assumes unlimited liability for their mistakes,” criticizes Johannes Fiala, a lawyer from Munich. “Banks, savings banks and other financial service providers who sell insurance to their customers on the side only have to prove that a senior employee of their company has the necessary expertise and, if necessary, takes the rap for their less well-informed colleagues. Those who have been in the business since 2000, i.e. are already old hands, and register by 2009 at the latest, will even be spared the examination at the IHK altogether.” In the insurance industry, it’s not just products that have sound titles, but also the people who sell them. They are called representatives, distributors, brokers or agents. What is behind these job titles has not always been clear to consumers until now. If you really wanted to be sure on whose account your counterpart was actually working and who was profiting from the conclusion of the contract, you either had to ask persistently – or trust blindly.
End of the identity crisis
Now all intermediaries must put their cards on the table from the very first contact with the customer and clearly indicate their status and their client. “What has been common practice in other sectors of the economy for a long time is now also finding its way into the insurance industry,” says lawyer Fiala happily. This transparency directly benefits the customers. “Anyone who knows they’re facing a BMW dealer won’t be surprised that the dealer won’t sell them a Fiat or VW, even though the latter might be the more sensible car. However, anyone who assumes that their car dealer has all brands on offer would rightly be dissatisfied with the advice given,” says expert Fiala. In order to prevent such scenarios from arising in the first place, intermediaries should in future analyse the wishes and needs of their customers in detail. They also have a duty to offer a “sufficient” number of different products to their customers. “Unfortunately, the legislature has refrained from defining what it considers sufficient,” complains expert Fiala. “It will therefore be for the courts to interpret the term accordingly.” Elsewhere, this saves the courts a lot of work – and the customers a lot of trouble. Insurance intermediaries must meticulously document their consultation and hand over to the customer a protocol specially prepared for them. The advantage for the customer: If his insurance agent has made a mistake, he has solid proof of the misinformation in his hands.
Burden of proof lies with the broker
“However, how detailed the protocols are in individual cases can still vary depending on the agent,” warns insurance expert Fiala. “Clearly at an advantage, therefore, is anyone who seeks advice from an insurance broker rather than a tied agent who only works for certain companies.” The reason: In this case, it is not the customer who has to prove that he was wrongly advised. Instead, the onus is on the broker. If he cannot prove that he did not make a mistake, he must compensate the customer.
Tip: The law allows insurance companies to agree with clients to waive the consultation protocol. No one should sign such a declaration, even if it is a supposedly standard product. When intermediaries are liable for mistakes: Consumer protectionists never tire of pointing this out: German policyholders pay too much and yet are poorly or even incorrectly insured. The reasons to which the experts attribute the misery are hardly surprising: at the top of the list are incorrect commission incentives for intermediaries and legal discrimination against customers. This is where the current reform comes in. The most important achievement: every representative – without exception – is personally liable for his or her advisory errors. “An agent who, for example, has sold an absolutely superfluous endowment life insurance policy to a young family instead of an urgently needed risk insurance policy must not only refund the premiums for the superfluous policy plus interest to his customers in the event of an emergency,” explains insurance lawyer Schwintowski. “If something happens to the primary earner, and it can be proven that with proper advice the family would have opted for a term life policy, the agent must also compensate for the loss caused by the lack of coverage.” Another advantage for consumers: “In many cases, the customer can sue not only the intermediary, but also the company behind it,” says lawyer Fiala.
By FOCUS_ONLINE author Catrin Gesellensetter
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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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