Unisex – and what else?

Shortly before Christmas, a more than 100-year-old practice of insurers will change: even clearly demonstrable biological differences may no longer be taken into account in the calculation of policies in the future. Separate rates for men and women will soon be a thing of the past. Insurers have long since calculated how unisex will affect premiums. The year-end spurt for the insurance industry began weeks ago. Brokers and other intermediaries are faced with complex advisory tasks. The only thing that seems clear is that existing contracts will not be affected. The grandfathering also includes contracts with integrated dynamics, which regularly increase premiums and the scope of benefits, as well as subsequent insurance guarantees for term life insurance. In addition, the new unisex world does not yet completely affect occupational pension schemes: only in the case of direct insurance will there only be unisex tariffs.

Insurers are now trying to make the best of state-imposed uniform tariffs. Unwanted surprises are also possible. “A new product landscape” is expected by Dr. Christoph Helmich, PKV board member of the Continentale insurance association. The range extends from slight changes without the need for a complete change in tariffs, to tariffs that are no longer applicable, to entirely new tariffs with completely new prices and services. Helmich rules out “actuarial exercises” for the Continentale and wants to exercise caution in the calculation. As a consequence, the new collateral to be calculated will generally drive the premium towards the hitherto more expensive sex. “What used to mean 100 percent in the mix, because one gender only cost 80 percent and the other 120 percent, should move towards 115 percent with unisex,” Helmich estimates for private health insurance (PHI). At the Continentale PKV forum, he deliberately did not want to talk up the closing sale, but one thing is certain: “For men, bisex tariffs are much cheaper, especially in PKV comprehensive insurance and also in supplementary long-term care insurance.” Other suppliers have long since switched their marketing to offensive for the closing sale. “Men, do you really want equal rights?” ask, for example, the Bavarian civil service insurers on their website, advising men to quickly take out occupational disability (DI), pension and supplementary health insurance policies. Another life insurer promises: “In 2012 Stuttgarter will turn all men into heroes” and currently calculates a five percent premium advantage for a private pension compared to the unisex tariff. Volkswohl-Bund provides intermediaries with a calculation tool which, for example, encourages women in high-risk occupations to take out accident insurance soon, as premiums in risk group B will rise significantly in the future. The figures given are at best model figures and provisional. And when it comes to need, most women are likely to be better served with occupational disability insurance. Nevertheless: For women there is now a need for action – if there are gaps in cover – especially in term life, car and accident insurance.

Many providers have interim solutions. Volkswohl-Bund, for example, offers an automatic favourable review of occupational disability and pension insurance policies that are taken out now. They will be converted to higher unisex benefits later. Gothaer has set up a switching option for newly concluded life insurance policies. The analysis company Franke und Bornberg has certified the pensions of Alte Leipziger, Continentale, Debeka, Europa, Hanse Merkur, Interrisk, My Life, Swiss Life, Volkswohl-Bund and WWK, among others, to be “unisex-safe”. But even there, customers are not immune in every tariff from being switched to the calculation basis of the unisex tariff in the case of later contract changes and thus losing the current price advantage. Of 747 men’s tariffs, the exercise of premium or benefit dynamics would lead to a switch to the less favourable unisex tariff in 81 percent. For unscheduled additional payments, 69 percent of the policies provide for a unisex calculation. “Only about six percent of annuity policies hold out all contract benefits over the entire term,” criticizes Michael Franke, managing director of the analysis house (see also chart on the following page).

The early unisex offers are often coupled with premium guarantees for 2013. However, these are often not general guarantees, criticizes the market observer KVpro.de. Rather, the promised stable premiums usually refer only to certain tariffs or tariff combinations, or they are granted only under certain conditions. Such “shop window guarantees” can get brokers into hot water. Because if the customer increases the sums insured from 2013 or readjusts other conditions in old contracts, the contract adjustments are often treated as new contracts and would thus fall under the unisex regulation. The way out for contracts concluded by 20 December 2012: a “unisex saviour” – or better “saviour of the bisex tariff” – will be installed. Continentale Leben was the first to launch it on the market: A reference was included in the AVB that future changes

could. This is due, among other things, to the extended liability periods for cancelled contracts in conjunction with the expected proportionally lower future business that will have to compensate for the cancellations of 2012. To address this risk, Koch now sees an opportunity to establish a ratable compensation system to supplement the existing system to smooth out sales peaks and carry earnings into lower-turnover periods. This would also reduce the risk of cancellation and the resulting risk of insolvency for intermediary firms, since some of the remuneration would be paid with a time delay. Unfortunately, insurers are very reluctant to offer this option, although they also benefit from it. “With Continentale we have agreed this arrangement as an exception, but such exceptions are not the rule,” adds Koch. Other independent agents face additional regulatory hurdles. Who in addition to insurance also take place in the unchanged basic contract. Customers thus do not unintentionally end up in the unisex world. The idea has since been copied by other providers. In addition to the great opportunities in year-end business, particularly in the fields of biometrics, subsidised old-age provision and subsidised long-term care, some intermediaries also see considerable risks. Alexander Koch sees the unisex sale as an anticipatory effect for the next few years, which will lead to considerable slumps in 2013, similar to the situation in 2005 when the tax exemption for life insurance policies expired. The managing director and sales manager of the broker association Ufkb GmbH believes that brokers will have a payment problem in the next few years if the cancellation rate remains the same due to the one-off effect in 2012

Investment funds, closed-end funds as well as other assets, such as securities, need a permit from 2013 and must prove their expertise (Section 34f GewO). Only “old hands” who have been working continuously as investment brokers or advisors since 2006 do not have to go to school. As proof, the uninterrupted permit and the complete audit reports in accordance with the Broker and Property Developer Ordinance (MaBV) must be submitted for each year. That does not create 65 per cent of the mediators, was to be heard from the AfW Federal association financial service. Therefore, probably only about 20 percent of 34c holders can benefit from the old-hat rule. They have until 30 June 2013 to exchange their licence under Section 34f without again having to prove their reliability and orderly financial circumstances.

The details are a headache for many advisors. Example: In case of doubt, is a limited liability company considered to be an “old hand” or always its management? “A GmbH cannot gain professional experience, therefore the regulation rubs off on the management”, explains the managing AfW executive committee Norman Wirth. Self-employed investment advisors who do not operate in accordance with MaBV ask for other means of proof than the complete audit reports. “They don’t exist,” Wirth laments. Pure mutual fund advisers would also have to submit audit reports. Anyone who did not want to broker investment business in difficult years such as 2008 or 2009 and therefore submitted a negative declaration to the Trade Licensing Office is out of luck. “Even those who did not mediate in the meantime, but for example only advertised with the mediation on their homepage, the company display window or on their letterhead, were obliged to submit an audit report by an auditor,” Wirth said. “A tax advisor is not sufficient by law to do this.” New rules are also coming for Riester pensions. The draft for the Retirement Provision Improvement Act provides for making offers for Riester pensions more comparable by means of uniform product information sheets for insurers, banks and fund companies from 2013. In addition, the total costs are to be shown according to the reduction-in-yield method, costs for a later change of the Riester provider are to be capped at a maximum of 150 euros and the costs for a termination are to be shown in concrete terms. The acquisition and distribution costs with the new provider are also capped. The basis of the calculation is the subsidised capital brought along. The acquisition and distribution costs due thereon are to be halved compared to current law. For example, the reinsurance of Riester contracts is no longer worthwhile because of the remuneration.

Commissions still allowed

Speaking of compensation, there are still inconsistencies that make life difficult for brokers. Initially, a general ban on commissions loomed for months. Although this was toned down in the draft IMD-2 (Insurance Mediation Directive) at the beginning of July, from 2014 all insurance agents should automatically have to disclose exactly who they are working for and what kind of fee or commission they receive for concluding a contract. Regardless of whether it is a brokerage fee or a fee, the agent should state the precise amount. Brokers should also have evaluated a sufficiently large number of available insurance products. This may be new for the EU, but for Germany it has already been a reality since May 2007: the distribution and administrative costs to be paid by the customer must already be shown in the product information sheets for life and health insurance policies. But the intermediary receives far from all of this; most of it is used by insurers to cover costs and as a profit margin. At the end of September, the Economic Affairs Committee of the European Parliament decided in the course of the revision of the Markets in Financial Instruments Directive (Mifid II) that the payment of commissions should continue to be permissible in the future. At the same time, there are strong efforts to make day-to-day business more difficult for brokers. For example, there could be new transparency requirements (disclosure of intermediary remuneration), a complete ban on remuneration for insurance policies with an investment character (e.g. fund policies) and a requirement that independent advice is only recognised if it is provided in return for a fee from the customer. To make matters worse

In addition, the final abolition of the commission levy ban is expected. Under these circumstances, many brokers are already considering a stronger focus on net tariffs in the future, which are already offered by some insurers. But the separation of free mediation and fee-based advice is not without legal risks. This is ensured by another bill to amend the VVG with regard to the right of withdrawal. According to this, the customer should no longer be bound to a contract “added to the insurance contract” if he effectively revokes the insurance contract. The scheme does not distinguish between distribution channels, so any separate cost arrangements would be wobbly. If the customer has not been properly informed about the right of withdrawal, the customer may exercise his right of withdrawal without limitation under certain conditions. “Thus, a separate cost agreement could be omitted even much later than within 14 days after conclusion of the contract”, warns lawyer Oliver Korn. “Anyone who sells insurance with such an agreement could therefore very quickly lose their claim to reimbursement of their distribution costs without compensation if the regulation becomes law,” says the expert from the law firm GPC Law Rechtsanwaltsgesellschaft. But the last parliamentary word has not yet been spoken.

The offers made by some direct insurers to brokers are also about remuneration. Hannoversche Lebensversicherung, for example, as a direct insurer, does not pay any remuneration to brokers. Nevertheless, it advertises bonus payments for term life insurance policies: In addition to the basic remuneration, there is a remuneration of ten per mille of the brokerage rate. Brokers should not get involved in this, because the product will continue to be offered free of charge, i.e. without brokerage fees. The intermediary may only charge a flat rate to cover half of his costs. Amount: 20 per mille of the net premium amount, i.e. around 50 euros. With it the broker mutates to the Tippgeber, he cannot live from it. Very generously, distributors “get customer protection.”

The topic of zillmerization is also a constant source of unrest. Most recently, in the summer, the Federal Court of Justice declared invalid provisions in the General Terms and Conditions for Life Insurance which stipulate that the acquisition costs are offset against the first premiums by means of the so-called Zillmer procedure, because this would put customers at a disadvantage (Case No.: IV ZR 201/10). Formally, the ruling only affects contracts with clauses used by Deutsche Ring Lebensversicherung between 2001 and 2007. But other insurers also work with such or similar GCI. In the meantime, the BGH has also condemned Generali’s clauses (ref.: IV ZR 210/10). Ergo, Iduna and Allianz are also experiencing similar problems in separate proceedings. From a purely factual point of view, this only results in a future prohibition of the usual Zillmer procedure in its pure form for covering acquisition costs in the first two to three contract years. “Soft zillmerising”, i.e. equal distribution of acquisition costs over the first five contract years, as in the case of the Riester pension, for example, remains permitted (in accordance with section 169 (3) sentence 1 VVG). Some lawyers also apply the BGH ruling to occupational pension schemes. “In case of doubt, the Federal Labor Court is responsible for the bAV,” notes attorney Johannes Fiala from Munich. If, however, after a change of job, a deduction is withheld for acquisition costs that have not yet been repaid, this puts the employer in particular in a position of liability: in case of doubt, he has to top up the benefit. “This means that there is still a risk of liability for old occupational pension contracts,” says Fiala.

Overall, sales sentiment has deteriorated by a whopping twelve percentage points over the past three quarters. The main reasons for this are the euro crisis and the associated reluctance of end customers, but also political regulations and the additional burden of bureaucracy. Several pieces of good news for independent sales have come from courts recently. In Karlsruhe, the BGH ruled in the summer that an insurer must send a cancellation notice to the agent within two weeks if it has clear indications that a policy is about to be cancelled by the customer. Exception: The insurer exclusively wants to take its own measures to avert cancellation (Case No.: VII ZR 130/11). The dispute arose when an agent was required to repay over 121,000 euros in commission advances after his multiple agency contract expired because numerous policies had been cancelled by customers after the agency contract had ended. The insurer had not informed the intermediary about the non-performing contracts, but the successor in portfolio, and this only weeks after the first signs of termination. Brokers face similar problems. According to the BGH, the mere sending of a cancellation risk notice to the successor of the agent who has left the company is not a sufficient measure to avert the risk of cancellation. It also has to happen quickly: The insurer may not “generally wait more than two weeks” before issuing the risk of cancellation notice. Stock changes prove to be treacherous in other ways as well. Typical complaint of a broker: As an employee of a former employer, one had taken out masses of fund policies for a Hamburg insurer. Depending on the fund, an average of 0.4 percent of the fund balance was paid for the service. After the broker switched to self-employment, the contracts were transferred to the new broker number with the insurer, but no more service fees were paid. Not an isolated case: Harald Thummet from the Franconian town of Heroldsberg was once again to come away empty-handed, although his Thummet Versicherungsmakler GmbH had a broker mandate from a customer and wanted to transfer the customer’s private health insurance contract to his customer base. Despite a valid brokerage agreement, Central Krankenversicherung refused to transfer the policy to the broker subject to a maintenance fee.

The dispute ended up in court, where Central did not defend itself, however. In the ruling of the Nuremberg District Court of 16 August 2012, it was then established that the insurer is obliged to settle portfolio maintenance fees with the broker after the end of a calendar year “for as long as the broker continues to service the contract”. The judgment is final (Ref.: 22 C 5558/12). Unfortunately, Central countered the broker shortly thereafter by terminating the brokerage agreement in due time – after ten years of cooperation. This fits in with the “strategy” that Deutsche Vermögensberatung (DVAG) already took over 90 percent of Central’s distribution capacity at the turn of the year. Brokers are apparently only desired to a reduced extent. But: If an insurer revokes the brokerage commitment in the course of a dispute about a portfolio transfer, this only applies to the future. The revocation has no effect on existing contracts and remunerations. There is also a continuing obligation to correspond if the customer maintains the brokerage mandate.

Sometimes insurers want to prevent the transfer of existing contracts to brokers altogether. HDI-Gerling, for example, had rejected applications for portfolio transfers if the broker’s power of attorney submitted for the first time was more than two years old. When the case came before the Cologne District Court, the insurer suddenly acknowledged the broker’s claim and transferred the contract to its portfolio. Thus, the proceedings were declared settled without judgment by acknowledgement order dated 1 August 2012 (Ref.: 144 C 83/12). “A power of attorney does not expire after two years, but only by revocation of the principal,” clarifies Wilfried Simon, Chairman of the Interessengemeinschaft Deutscher Versicherungsmakler (IGVM). The association had relieved the broker of the risk of legal costs. Simon goes further in his criticism, however: “It is disloyal for insurers to keep the fee for policy maintenance themselves or pay it to intermediaries – mostly the in-house sales force – who no longer do anything for it.”

The discussion in broker forums shows: These are not isolated cases. In the online forum of Deutsche-Versicherungsboerse.de similar examples are given. One “fair insurance” shop, for example, complains that the state hospital (LKH) complied with the broker’s request for support, but not with the transfer with regard to the inventory fee. Justification: The contract was brokered by LKH; accordingly, the insurer had a permanent obligation to look after the customer. Another broker confirmed that Allianz and Ergo take the same approach in personal lines business. LVM, Aachen-Münchener and Barmenia are also mentioned. Others report trouble on this point with Signal-Iduna, Union Kranken, Württembergische and Münchener Verein. portfolio international therefore asked Allianz for a statement, which was refused in view of the strong exclusivity organisation. There, in health and life, it’s still true: Agents get care money based on their agency contracts, even if policies are lost to the portfolio. A taking over broker, on the other hand, comes away empty-handed because he has no claim. Within Allianz, there are heated discussions with a view to a change, at least in the life sector. But brokers have nothing tangible to expect from such considerations at present.

This is regrettable for such brokers as Alexander Kirschweng from Trier, whose Seves GmbH undertakes in the brokerage contract to cooperate in administration, fulfilment of the insurance contract and support in the event of a claim. Due to the lack of remuneration from numerous insurers, his losses add up to “a clear five-figure sum per year”. Kirschweng and many of his colleagues hope that the default judgment against Central will have a signal effect. But sales expert Frank Baumann dampens hopes: “There is no general entitlement to a service fee for brokers after a change of agent”, says the specialist lawyer for insurance law in an interview (see opposite page). Although there are conflicting opinions among lawyers, there is a lack of case law from the highest courts. If you go to court, you can

so you can’t be sure of his success.

Detlef Pohl