… and how to protect yourself from them.
Private occupational disability insurance policyholders with the “right” broker are not approached along the lines of “Is your premium in occupational disability also too high?” in order to then use this to find the customer another occupational disability insurance policy (which is worse in terms of the conditions). The opposite is likely to be true, because the more comprehensive the coverage, the less liability the intermediary will have. For example, the arrangement of an occupational disability insurance policy fails if the insurer discovers that the health questions were not answered correctly. Withdrawal or subsequent high risk surcharges and exclusions are then the usual reaction of the new insurer. What duties must an insurance broker fulfil and what is the liability risk?
Risk investigation and duty to ask questions
The broker must carry out an unsolicited risk assessment and ascertain the subjective and objective insurance needs of the customer. With his brokerage contract, he also assumes the duty to point out the relevant case law to the customer. In doing so, he must also evaluate accessible sources, such as previous illnesses already documented by the previous insurer.
Above all, however, the broker must obtain the information from the customer through thorough questioning and enquiries. Only this is then the basis for the health risk assessment and the consultation. Not only if risk surcharges or even a rejection can threaten, it is advisable to carry out a “test application” in case of doubt and to know the acceptance policy of the insurers.
Object inspection and duty to advise
The more complex the insurance product, the more intensive the advice must be. The broker owes advice and support in relation to the contract to be brokered. The basis for this is the object inspection, i.e. the personal inspection in the sense of a risk analysis. Even in the case of occupational disability insurance, the brokerage of genuine top tariffs is always less risky for the broker. The premium must not be a criterion, because if the insurer refuses to pay, the customer will always claim that the intermediary did not advise him on the functioning or the content of the insurance conditions, or advised him incorrectly or differently.
Risk placement and obligation to justify
The advice given by the broker must be justified in such a way that the recommendation for a particular product is comprehensible – the risk must be insured according to individual requirements. An inexpensive tariff with risky gaps in cover does not meet the need if the customer cannot afford these deficits in the terms and conditions.
Information and documentation requirements
The broker must send the results of the consultation and questions to the customer as a document in text form before the contract is concluded. On an ongoing basis, without delay and without being asked, the broker must inform the client of his efforts to place the risk. He must be able to explain the content of his advice in detail at any time – not only in liability proceedings.
Typical individual cases of advice errors by brokers in BU:
1. incorrect inclusion of health questions – despite verbal correct information from the customer or downplaying the importance of pre-existing conditions.
2. wrong profession in the application: too general instead of specialized and qualified. Consequence: BU would be given in the specialized profession, but not in the general one, therefore no benefit despite BU.
3. reinsurance of the occupational disability insurance with another insurer: customer pays premium at higher entry age and loses possible claims to terminal bonuses.
4. instead of independent BU – BUZ to KLV or RV: customer loses BUZ if he can no longer pay the main insurance (e.g. Rürup) or if it is seized, BUZ is strongly reduced in case of premium exemption of the main insurance.
5. inadequate information on differences in benefits when taking out a new policy or changing insurer: e.g. referral options.
6. occupational disability pension higher than old-age pension for basic pension contract. Consequence: seizure and loss of the BUZ
7. occupational disability pension ends before the start of the old-age pension in the case of a basic pension contract. Consequence: seizure and loss of BUZ
8. missing or incorrect consideration of tax effects in the rate comparison between normal BU and BUZ in basic pension – deductibility of contributions and taxation of pensions must be shown correctly (share of income depending on BU pension commencement vs. full taxation).
9. missing or incorrect consideration of tax effects in the amount of the required occupational disability pension – only coverage of the net income despite full or income share taxation of the occupational disability pension.
10. net premium of the BU (after surpluses) is set at 50 % of the premium of the entire basic annuity contract:
Consequence a) BU pension is too high, thus garnishability and loss of BU
(b) if the surplus falls, the net contribution rises to more than 50 % of the contribution of the total basic pension contract, with the result that it is no longer a tax-deductible basic pension contract.
11. choice of surplus annuity instead of premium offsetting: if surpluses fall, the total annuity is no longer sufficient, but subsequent insurance – if not agreed for this case – may no longer be possible for health reasons.
12. occupational disability insurance via occupational pension scheme: may not be taken over in the event of a change of employer, so that the occupational disability pension becomes a non-contributory benefit and subsequent insurance may not be possible.
13. inadequate analysis of insurance terms and conditions for rate comparisons with the customer – brokers must not rely on product ratings alone.
14. insufficiently clear presentation of the differences in benefits and their relevance for the specific customer – consequence e.g.: Doctor is no longer insured in the medical profession during the planned child-rearing period, but as a housekeeper.
15. insurance only via a standard product, although individual supplementary agreements would have been necessary.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published in Expert Report 02/2011, pages 54-55)
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About the author
Dr. Johannes FialaPhD, 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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